THE German Chancellor's unassailable position as the master of his government was underlined yesterday when, tightening his grip on power, he took over the chairmanship of the Social Democratic Party and appointed a low-profile politician as Finance Minister in succession to Mr Oskar Lafontaine.
Speaking after the SPD leadership nominated him as party chairman, Mr Schroder insisted that he remained committed to governing with the environmentalist Greens and that the government was not about to change direction.
"There is no crisis. One man has made a decision. That does not amount to a crisis," he insisted.
The new Finance Minister is Mr Hans Eichel, who steps down as prime minister of the southern state of Hesse next month following his coalition government's defeat in a state election on February 7th.
A reserved figure who is highly respected as a financial expert, Mr Eichel is likely to take a less confrontational approach than did his predecessor. The President of the European Central Bank, Mr Wim Duisenberg, declined to comment on Mr Lafontaine's resignation but he welcomed Mr Eichel's appointment.
"I know him very well and I congratulate Germany," he said.
The markets, however, continued to send their own message on the dramatic developments. The Frankfurt DAX index rose yesterday by more than 5 per cent to 5,008 points on the heels of Mr Lafontaine's departure, but the euro fell 1 per cent to $1.09 following a surge of 2 per cent on Thursday.
As lurid rumours spread through Bonn, the reasons behind Mr Lafontaine's resignation remained a mystery. The former finance minister remained at his home in Saarbrucken and a government spokesman confirmed that there had been no contact between the Chancellor and Mr Lafontaine since the resignation was announced.
In a clear attempt to reassure left-wingers in his own party and his coalition partners in the Greens, Mr Schroder told reporters that the government would not change course and he ruled out amending Mr Lafontaine's controversial tax plans. Business leaders demanded changes to the proposed tax law, which will close tax loopholes worth billions of Dmarks to some companies.
But Mr Schroder said that further tax changes beneficial to industry may be possible in the future.
Mr Schroder's assumption of the SPD chairmanship strengthens his political position immeasurably and removes the danger of an alternative power centre in the party. He won 23 out of 32 votes in a secret ballot of the SPD leadership and his election as chairman at a party conference next month is now a foregone conclusion.
The Greens attempted to put a brave face on the departure of Mr Lafontaine, although his resignation is likely to weaken the environmentalist party's position within the government.
