Celebration as 'Red Oskar' goes

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BOTTLES OF champagne were opened in Downing Street last night to celebrate the departure of "Red Oskar".

It was not the only celebration. The confrontational German Finance Minister was not popular in other European capitals. Officials at the European Central Bank had hated the crass way he tried to pressure them into cutting interest rates. And the financial markets were simply jubilant, sending the euro soaring from its embarrassing record lows within minutes of the news of his surprise resignation.

His biggest fans were, perhaps, Britain's Eurosceptics. Mr Lafontaine was their favourite bogeyman, his push for tax harmonisation within Europe giving them the chance to argue that Brussels wanted to pile more taxes on to the UK. In truth, Red Oskar was more isolated within Europe than he seemed, and he is unlikely to garner enough support to become the next President of the European Commission.

Despite the apparently warm relations between him and Dominique Strauss- Kahn, the French Finance Minister, the Frenchman has little genuine sympathy for Mr Lafontaine's old-style Keynesian economic views.

Certainly, these views were not shared by the European Central Bank, with which he picked a damaging public row. The bankers argued that Germany needed fundamental reform to its jobs market; he responded by trying to bully the ECB into an interest rate cut. The euro could not have had a worse start.

The stimulus of a reduction in borrowing costs in Euroland is now more likely to go ahead. It will allow the EU,aspiring to be an economic power to rival the US to shoulder a share of the responsibility for keeping the world economy out of recession.

More fundamentally, the Blairite vision of economic reform as the engine of prosperity is now likely to make more headway. While Gerhard Schroder, the German Chancellor, is no Tony Blair, he does not take the Lafontaine view that a boost to demand is all Europe needs.

Charles Grant, director of the Centre for European Reform, said last night: "This is wonderful news. It will shift the intellectual climate in Europe back towards the agenda of economic reform."

There was no official comment from the Treasury or Downing Street, nor the ECB or the Bundesbank. They kept their celebrations private.