Expert View: It's not just Germany that needs Merkel to win

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Germany needs change. It has been stagnating for years. Growth hovers close to zero while unemployment reaches Weimar levels. For five million Germans, the SPD isn't working. In this election, commentators have looked at Britain in 1979 and talked of the opposition leader Angela Merkel as Germany's Margaret Thatcher. When Mrs Thatcher came to power, Germans enjoyed incomes a third higher than their British counterparts; now they are slightly below.

Mrs Merkel is definitely the preferred business candidate. The stock market bounced on the announcement of an election, which most thought she would win. Now, things are looking more uncertain. The latest opinion poll rating gives her (and coalition partners the FDP) just 49 per cent.

The odd gaffe on her part hasn't helped, but the main reason for the increasingly doubtful election outcome is something much more worrying. Because Germany's problem is that things are bad, but not that bad. In consequence, many Germans still seem capable of burying their heads in the economic sands. Thus we have the terrifying emergence at this moment of a radical left party under "Red Oskar" Lafontaine, the former finance minister. He advocates a tax increase of a mere €64bn (£44bn) on the already ailing German consumer, yet is attracting 12 per cent in the latest polls. Add this to the SDP's 28 per cent and the Greens' eight, and you start to see that Mrs Merkel is by no means home and dry.

That is a shame.

Mrs Merkel is hardly going to dismantle the German welfare state. She is proposing only to tweak some of the more ludicrous labour laws that create unemployment. She is also advocating sensible fiscal measures: a cut in national insurance from 6.5 to 4.5 per cent, with cuts in federal corporation taxes from 25 to 22 per cent, and in the top rate of income tax to 39 per cent (below the UK's).

Whether voters are ready for change or not, business is desperate for it. The recent bribery scandal at Volkswagen has added to the clamour for change that began with the capital gains tax amendments freeing up the banks' industrial holdings. The changes at DaimlerChrysler, with the ejection of Jürgen Schrempp, are a good example of this. Deutsche Bank is rumoured to have pulled the plug, after years of poor returns on its 10.4 per cent stake. Banks, boards and trade unions have been a little too cosy in the past. Now, as the former chief executive of Henkel, Hans-Dietrich Winkhaus, observed: "Germany Inc is deconsolidating".

This creates a vital opportunity for Germany to reassess its post-war economic model and to find the elusive path to growth. If the election of Mrs Merkel allows the country to do this while preserving most of the social model that makes German capitalism so different to the American variety, it would also create an important opportunity for Europe.

My greatest nightmare is that I will live to see Europe reduced to being the developed world's poorest region as the US goes from strength to strength and the new Asian economies leave us standing. Our industry and finance would be gradually eroded until we became a continent of hotel-keepers.

This is a future none of us can wish for. If we want to avoid that fate, we need a Europe reformed, and led by the likes of Tony Blair and Mrs Merkel. The alternative does not bear thinking about.