WHEN the news of Oskar Lafontaine's resignation flashed across the television screens in the Lufthansa Senator Lounge at Hamburg Airport last week, the assembled businessmen broke into applause and cheers. The euro leapt two points against the dollar and when the Frankfurt stock exchange opened the following day, the DAX index soared.
The sudden political death of Germany's controversial finance minister was the most uplifting news the country's business elite could have wished for. Within minutes of the resignation, employers' leaders were heralding the dawn of a new era of low taxes, moderate wage settlements and perfect harmony between government and business.
Senior ministers signalled that Mr Lafontaine's departure spelt an end to his dream of redistributing wealth within Germany by shifting the tax burden from working families onto big companies. But by yesterday, as the Economics Minister, Mr Werner Mueller, warned business that the government would not give into threats, some bosses were wondering if last week's rejoicing was premature.
One of the most serious charges against Mr Lafontaine was that his ham-fisted efforts to influence the European Central Bank (ECB) was weakening the euro and making an interest rate cut less likely. The ECB's president, Mr Wim Duisenberg, could scarcely conceal his delight at the departure of his adversary and congratulated Germany on the appointment of Mr Hans Eichel as the new finance minister.
Prof Ruediger Dornbusch, a German economist at the Massachusetts Institute of Technology in Boston, predicts that the ECB will now feel free to cut rates but he is sceptical about the impact such a move will have on Germany's sluggish economy.
"If economic growth stalls and inflation is around zero, a cut in interest rates is appropriate. This will come in the next three months but it won't change the world," he said.
Mr Eichel is unlikely to commit his predecessor's mistake of publicly antagonising the ECB but, with the finance ministers of France and Italy clamouring for a more relaxed monetary policy, the central bankers cannot expect an end to political pressure. A loyal, disciplined member of the Social Democrats, Mr Eichel is admired by friends and opponents alike for his remarkable grasp of economic detail.
As a minister without a Bundestag seat, Mr Eichel is more dependent than most of his cabinet colleagues on the chancellor's patronage. But Mr Schroder will not wish to lose a second finance minister too soon - a fact that may strengthen the hand of the soft-spoken former Latin teacher from Hesse.
Mr Eichel, who is stepping down as prime minister of his home state following an election defeat last month, even set out conditions for accepting his new post. He insisted on retaining powers ceded from the economics ministry to the finance ministry when Mr Lafontaine came into office.
Unlike Mr Lafontaine, the new finance minister has no illusions about the power of politicians to impose their will on the economy and he will take a more conciliatory approach towards business.
What business wants, above all, is tax cuts - and the cancellation of Mr Lafontaine's plan to abolish lucrative tax loopholes.
Mr Schroder's coalition partners in the Greens are in favour of a more business-friendly approach and their parliamentary leader, Mr Rezzo Schlauch, believes that the two governing parties may now work more successfully together.
"If Schroder is serious about his economic policy of the New Centre, he will need the Greens more than ever. What we need now is that business gets positive supply side signals from us now," he said.
The chancellor is undoubtedly serious about improving relations with business, not least because of his commitment to the Alliance for Jobs, which aims to take a million Germans off the dole in the next three years. He would cheerfully agree to any tax cuts the companies want, if only he could. But Mr Schroder's room for fiscal manoeuvre is small, because slow growth is putting pressure on the state's finances.
Although the German public prefers Mr Schroder's centrist approach to the more combative style of Mr Lafontaine, there is no appetite for the public spending cuts that would be needed to finance substantial tax cuts. After decades of lavishly funded health care, education, transport and culture, few Germans are willing to settle for anything less.
There is little sign that Mr Schroder is willing to take the political risks necessary to introduce the far-reaching, structural reforms that business wants. He has already made clear that Mr Lafontaine's controversial tax reform will be implemented - although he promises further changes to the tax system next year.
Mr Lafontaine's key adviser, Mr Heiner Flassbeck, remains in the finance ministry, at least for the moment. But the government will almost certainly abandon a proposal to appoint Mr Flassbeck as Bundesbank president when Mr Hans Tietmeyer steps down later this year.
The current favourite for the job is the president of the central bank in the state of Hesse, Mr Ernst Welteke. A powerful advocate on behalf of Frankfurt as a financial centre, Mr Welteke is well respected among bankers and in the business community.
Now that the post-Lafontaine euphoria in Germany's board rooms is beginning to wane, many business people are concluding that a colourless figure such as Mr Eichel is unlikely to preside over an economic revolution. But they can feel pleased that their government is listening to them again and that Germany's unlikely, short-lived role as the financial wild man of Europe is at an end.
