The beginning of the end for Schröder?

German Chancellor Gerhard Schröder suffered a heavy defeat in last Sunday's election in the important and most populous state of North Rhine-Westphalia, which could mark the beginning of the end of his government.

Mr Schröder's Social Democratic Party (SPD) and its Green Party allies were badly beaten by the Opposition centre-right Christian Democratic Union (CDU) and the Free Democratic Party (FDP) in a state that has traditionally been an SPD stronghold. In fact the SPD has been in power in North Rhine-Westphalia for almost four decades. It is not surprising, therefore, that as a result of this bitter defeat, Mr Schröder declared that he will be asking President Horst Köhler to call an early election, probably this autumn.

The results showed that the SPD got 37.1 per cent of the vote, a drop of 5.5 percentage points since 2000, while the CDU got 44.8 per cent. The CDU and the FDP together managed to get 51 per cent of the total vote - which will give them 101 of the 187 seats in the state parliament - compared to 43.3 per cent for the SPD and the Greens.

This latest electoral defeat for Mr Schröder comes in the wake of other regional election victories for the Opposition - which already controls the Bundesrat, the German second parliamentary chamber, which represents the federal states. The CDU-FDP majority in this upper house has now been strengthened, which makes the German government's task even more difficult.

Mr Schröder's decision to ask for an early election is certainly the right thing to do. He remarked shortly after the result became known: "With the bitter election result for my party in North-Rhine Westphalia, the political support for our reforms to continue has been called into question." By signalling his intention to go to the polls early Chancellor Schröder has spared his country - and Europe - months of indecision which would have been bad news for the economy.

Germans hate instability, indecisiveness and uncertainty. In fact the country's electoral laws state very clearly that elections should be held every four years and can only been held earlier under exceptional circumstances, such as when a Chancellor loses a parliamentary vote of confidence. So in this case, Mr Schröder will have to arrange for his own defeat in Parliament, by asking some members of his governing coalition to vote against him. When this happens, the President will have little choice but to dissolve Parliament and call an early election.

However, some German constitutional experts are actually arguing that the dissolution of Parliament will be illegal as Mr Schröder currently enjoys a stable parliamentary majority and his decision to seek a no confidence vote is a manipulation of the law. Nevertheless, this tactic has been successfully used before, such as when Chancellor Helmut Kohl staged a no confidence vote against his new government in 1982 - which came into power not as a result of an election but through a parliamentary vote - in order to call a new election and reinforce his administration's legitimacy with the popular vote.

Undoubtedly, Mr Schröder's SPD has been badly split over his economic and labour market reforms with the party's left wing bitterly opposed to such policies. This greatly contributed to last week's state electoral defeat. An early election will probably keep the party united until the country goes to the polls, although the fact that Oskar Lafontaine, a former left-wing charismatic chairman of the SPD (and a former finance minister) has said that he will give up his party membership and join other left-wing groups, such as the former Communists and SPD dissidents, in campaigning against Mr Schröder is very bad news for the Chancellor and his party.

The Alternative Labour and Social Justice Party, consisting of former SPD dissidents, got 2.2 per cent of the vote in last week's election while the former Communists, the PDS, got close to five per cent of the national vote in the country's general election three years ago. Both these parties will take votes from the Social Democrats in the next election and Mr Lafontaine's involvement will raise their national profile considerably. Should they decide to run on a joint ticket they will almost certainly get over the national threshold of five per cent, which will guarantee them parliamentary representation in the Bundestag.

I am not particularly surprised that Mr Schröder has suffered so many regional parliamentary defeats since the last general election in 2002. That election was won by a few thousand votes and the main reasons for Mr Schröder's victory was his opposition to the war in Iraq, his efficient handling of the flood crisis in the eastern part of the country and his personal popularity compared to the CDU/CSU candidate, Edmund Stoiber. The opinion polls had always indicated that Mr Stoiber was considered to be better than Mr Schröder at managing the economy.

Having said that, Mr Schröder certainly deserves credit for having pushed forward painful economic and labour market reforms despite a lot of opposition from within his own party. In 2003 he launched his Agenda 2010 economic reform programme hoping that by 2006, pain would have led to gain and this would guarantee his re-election.

Unfortunately for Mr Schröder, this did not happen, and the unemployment figures reached an all-record high of five million. Some will argue that the reforms did not work because they were not bold enough, others because they were too pro-business while others will say that it was still too early for positive results. I would cautiously tend to agree with the third analysis because Germany's economic problems are very structural and a long time is needed - and more pain - before positive results are obtained.

It will be interesting to see what type of campaign Mr Schröder's SPD will run. There will certainly be calls for the party to turn towards the left partly to offset the appeal of the left-wing parties challenging the Social Democrats and partly because some members of the SPD have genuinely given up hope in the government's pro-business policies of the past three years.

And what about the Opposition? Opinion polls show the CDU and their Bavarian sister party, the CSU, leading with about 45 per cent of the vote compared with a mere 29 per cent for the SPD.

So it is likely that the CDU/CSU chancellor candidate, who will most probably be Angela Merkel, the CDU chairman, will win the election - unless something dramatic happens - becoming Germany's first woman Chancellor.

Will the Christian Democrats, together with their Liberal FDP allies, be able to turn the economy around? It will not be easy. The CDU/CSU, is after all, like the SPD, a people's party (Volkspartei), and has a strong social wing - which, like the SPD, it cannot afford to alienate.