Germany will have its first centre-right government since 1998 after voters gave Chancellor Angela Merkel's Christian Democrats and her Free Democratic Party allies a majority in Parliament. The victory of this new alliance will end the "grand coalition" in which Ms Merkel's CDU was forced into a somewhat awkward partnership with the Social Democrats over the last four years.

The result is a good victory for Ms Merkel whose personal ratings were always much higher than those of the SPD candidate for Chancellor, Foreign Minister Frank-Walter Steinmeier. Ms Merkel is considered by many Germans as a "safe pair of hands", an efficient crisis manager and somebody who believes in consensus politics. Voters have now given her a renewed mandate, together with a different political partner, to return Europe's largest economy to prosperity. Although the Christian Democrats' share of the vote was reduced marginally from 35.2 per cent in 2005 to 33.8 per cent last Sunday, the liberal FDP, led by Guido Westerwelle, saw its percentage of votes increase dramatically from 9.8 per cent to 14.6 per cent. In response to the economic crisis, therefore, there was a swing to the centre-right bloc, probably due to perceived economic competence.

The Social Democrats, on the other hand, suffered their worst post-war electoral defeat and saw their share of the vote plummet from 34.2 per cent four years ago to 23 per cent. Mr Steinmeier called this "a bitter defeat" and the SPD will now have to carry out a major soul-searching exercise to see why it did so badly.

Like many centre-left parties throughout Europe, the German Social Democrats seem to be finding it difficult to adapt to changing social and economic circumstances. Both the Left Party (made up of former Communists and left-wing SPD dissidents) and the Greens increased their share of the vote, mainly at the expense of the SPD. True, the two parties were in opposition while the Social Democrats were in government, which is why such "grand coalitions" are not always preferable; they tend to encourage support of fringe parties (such as the Left Party) at the expense of the mainstream ones.

Ms Merkel always said the economic reforms Germany needs can only be brought about by a government consisting of her party and the liberal Free Democratic Party, which is pro-business and in favour of major tax cuts and a reduced role for the state in the economy. She now has her opportunity to really show Germans - and the rest of Europe - what she believes in. She is no longer constrained by her participation in a "grand coalition" and will feel more comfortable with her liberal allies.

Of course, the exact nature and programme of the new centre-right government will only be determined over the next month in the coalition talks between the Christian Democrats and the FDP. Both parties are business-friendly and are in favour of tax cuts, to various degrees, and favour a reprieve for Germany's nuclear power industry. German foreign policy is expected to remain unchanged.

So there will be a different direction in Berlin but not a radical policy shift. The centre-right parliamentary majority is slim, power in Germany is very much diffused down to the state level and Ms Merkel has proved to be a consensus politician. Still, economic reform is needed and this new government has a golden opportunity to do just that. If it succeeds this will be good news not only for Europe's largest economy but for Europe as a whole.