Germany Goes for Growth

The center-right gets a governing majority.

In the midst of its deepest postwar recession, Germany elected a conservative-free market government Sunday. Maybe the reports of capitalism's demise have been premature.

As we went to press, Chancellor Angela Merkel's Christian Democratic Union and its Bavarian sister party seemed poised to garner 33.7% of the votes, the second-worst result in their history. But this would still put them some 10 percentage points ahead of the Social Democrats, who had their worst election night in 60 years.

The big winner was the pro-business Free Democratic Party, with a record 14.6% of the vote. This will be enough to end what has been an unnatural alliance between the country's two main political rivals and secure a majority for the center-right coalition. It also gives Mrs. Merkel the opportunity to do the tax-cutting and deregulating that she campaigned on four years ago, assuming she still has the courage of those convictions.

The Free Democrats campaigned on a €35 billion tax cut combined with a radical simplification of one of the most complex tax codes in the world. The current rates, which rise gradually from 14% to 45%, would be replaced with three brackets of 15%, 25% and 35%. The proposal has come to be known as the "beer-coaster reform"—as in, you could fit the whole tax return on a beer coaster. The reform would make Germany's tax code among the most competitive and transparent in the industrialized world.

But that depends on Mrs. Merkel promoting it. The CDU's own reform proposal is much more modest and less economically helpful. It has suggested cutting the bottom bracket to 12% from 14% and raising the income threshold at which the top rate kicks in to €60,000 from €52,552. This would do little to tackle the system's complexity or to change the fundamental incentives to work, save and invest.

The FDP also wants to loosen the "Kündigungsschutz"—the country's strict dismissal rules, which make it so costly to lay off employees that it hinders hiring them in the first place. Mrs. Merkel has said she would have none of that. "The 'C' in CDU stands for Christian politics, which always included a respect for workers' rights," the Chancellor recently said. FDP proposals to cut the size of government and reform the government health-care system would also be difficult to reconcile with the CDU's current program.

Apart from the Free Democratic surge, this was a dull, cautious German election that some called the "valium campaign." The two main candidates, Mrs. Merkel and Social Democratic Foreign Minister Frank-Walter Steinmeier, avoided nearly all confrontation. This gave an opening to smaller parties to drive the debate and gain support. The Greens and the Left Party gained at the expense of the Social Democrats.

Sunday's results suggest that irresolute moderation isn't a winning formula in today's Germany. Germans did not simply re-elect Mrs. Merkel. They also gave her new marching orders for economic revival. For the sake of Germany and European prosperity, we hope she heeds them.