Michael Sohn / AP MORNING AFTER FEELING Peer Steinbrueck, governor of North Rhine-Westphalia, left, and local SDP chairman Harald Schartau meet the press.

	SPECIAL REPORT

Posted Sunday, May 29, 2005; 09.37 BST

Merkel — less flamboyant and more reserved than Schröder — may not match him in the black arts of political campaigning. But she has excellent contacts with the grassroots of her party. She also has a will to win. "She has great discipline, single-mindedness and focus on power," says Gerd Langguth, a political scientist at the University of Bonn who has written a biography of the CDU leader (see Viewpoint). "As a natural scientist, she approaches issues differently, more rationally and more in a disciplined way. She does not avoid decisions and debate." If she became Chancellor, her focus and excellent networking skills would help her maintain the internal party support she'll need to push through painful economic reforms.

Whoever wins in September, those reforms are coming. The issue facing Germany is whether people can be convinced that change will not come at the expense of their cherished tradition of social welfare. It's the same worry that propelled the no vote in France's referendum on the proposed European Union constitution. In France, Socialists like Henri Emmanuelli and Laurent Fabius see the constitution as an invitation to more liberal economic policies that would jeopardize workers' rights and protections. In Germany, Schröder's reform plan is the villain. Emmanuelli interpreted the SPD defeat in North Rhine–Westphalia as a "deep rejection of the social liberalism proposed by Schröder." According to Hüseyin Aydin, an executive member of Election Alternative Labor and Social Justice (WASG), a four-month-old, left-wing party founded by disgruntled SPD supporters, "Germany has to return to values like solidarity and social justice. To achieve that end, all anti-neoliberal forces have to cooperate." Indeed, last week Oskar Lafontaine, the former SPD party leader who served a brief, tempestuous stint as Schröder's Finance Minister, proposed a new party made up of WASG and the left-wing Party of Democratic Socialism. Germany's election laws will make it hard for Lafontaine to get the new group on the ballot in September.

It's an open question how much the old slogans of the left still resonate. In the run-up to the North Rhine–Westphalia vote, Social Democrat party leader Franz Müntefering found a target in "Anglo-Saxon" capitalist avatars such as Goldman Sachs, Blackstone and even Germany's own Deutsche Bank, accusing them of buying up companies, "stripping them clean and moving on." But for all Müntefering's rumblings, the SPD lost decisively, and Schröder himself doesn't use that kind of language. "Germany has to be open," he told Time. "As an export champion, we need other markets, and as a consequence we can't close our markets. Foreign capital is more than welcome in Germany. This discussion is really a question of the ethical and moral responsibility of business for the development of society. Of course, the business responsibility has priority. But does industry have social responsibility? Or can we only make the government responsible for providing the right answer to the challenges of globalization and the aging of society? It's about the social aspects of the social market economy and not attacking the market economy as a principle."

Schröder seems determined to stick to that line; at a contentious meeting of the SPD leadership last week in Berlin, he said he would stand again as Chancellor only if the party continued with its reforms. But the party is still divided. At the Berlin meeting, Economy Minister Wolfgang Clement was attacked by reform opponents for refusing to extend the length of time the elderly can receive unemployment benefits. Müntefering didn't repeat the inflammatory rhetoric of the past few weeks, but it was clear that the excesses of the market would feature in the SPD campaign.

So here's Germany's irony as it prepares for an election campaign in which both main candidates accept the need for economic and social change. Merkel is trusted by her party, but not — or at least, not yet — by the country; Schröder is still broadly trusted by the country, but not entirely by his own party. If Schröder is to keep the SPD in power, he must convince the party that his vision for the future is the only one possible. He then must convince the country that he's the only one capable of taking it forward. Either one will be tough to pull off, but then they don't call Schröder a gambler for nothing.

With reporting by William Boston and Regine Wosnitza/Berlin, James Graff/Paris and Ursula Sautter/Bonn

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