Germany’s ruling Social Democrats have suffered their most serious election defeat since the founding of West Germany in 1949. But there will probably not be any top-level resignations or a cabinet reshuffle in Berlin. The reason is simple. The Social Democrats knew they were going to lose heavily because of the unpopularity of their reform policies.

However, Chancellor Gerhard Schröder cannot reverse his policies. If he does, he will lose the next election in 2006 anyway. He has no choice but to continue to slash government spending and improve the country’s international competitiveness. His only hope is that when the reforms begin to have an impact next year, economic growth will pick up once again and thus reduce unemployment.

The greatest mistake the Christian Democrats can make in the hour of their triumph at the European elections and in the eastern state of Thuringia is to embark upon a policy of blocking government reform proposals in the Upper House. Germany cannot afford to lose any time. It needs change now.

Without doubt it is in the national interest for the ruling parties and the opposition to work together to get the most urgent reforms through parliament as soon as possible. The first projects they should tackle together are a sweeping reduction in income tax, cuts in government subsidies and a reduction of bureaucratic obstacles for business.

After all, the negotiations between the two sides on Germany’s new immigration legislation have shown that cooperation is possible if government and opposition put their minds to it.

The dilemma for the opposition Christian Democrats is obvious. If the economy picks up, Schröder’s chances will improve. If they refuse to cooperate and demand the implementation of their own reform proposals, proposals which are more sweeping than the government’s, the electorate may well opt for the devil they know, rather than the devil they do not. Chancellor Schröder could then come out on top in 2006.