GERMANY was poised for a change of political direction last night following the surprise resignation of its controversial finance minister, Mr Oskar Lafontaine. Mr Lafontaine gave no explanation for his decision to resign, but it follows reports of a bruising clash with the Chancellor, Mr Gerhard Schroder, over the direction of economic policy.
Prompted by the news, the euro rose to over $1.10 - an increase of almost 2 per cent. And ironically for Mr Lafontaine, the European Central Bank (ECB) may now cut interest rates - a move it was reluctant to concede in the face of Mr Lafontaine's insistence that it be done.
In Ireland, the resignation was greeted with quiet relief that the man who made no secret of his wish that Ireland should be forced to abandon its low rate of corporation tax had departed the scene.
Mr Lafontaine, who also stepped down as chairman of the Social Democratic Party (SPD), left Bonn for his home in Saarbrucken before his resignation was announced in a terse official statement. Mr Schroder, who is expected to assume the party chairmanship, said he was surprised by his finance minister's decision and paid tribute to him. "I am bound to Oskar Lafontaine by a long phase of successful co-operation, for which I owe him both respect and thanks. The stability of the government's work is beyond question," he said.
Mr Lafontaine's sudden resignation came a day after Mr Schroder berated ministers for their poor performance during a cabinet meeting and warned the finance minister his policies were damaging the German economy.
German business leaders last night made no secret of their delight at Mr Lafontaine's departure and expressed the hope that the Chancellor will now order a thorough rethink of the government's planned tax reform. Mr Lafontaine planned to finance tax cuts for working families by placing an extra burden on big business - a proposal that business leaders claimed would make German companies uncompetitive.
The ECB declined to comment on the news but there can be little doubt that the bank's president, Mr Wim Duisenberg, will be relieved to be rid of his most strident critic. Mr Lafontaine argued that the ECB should cut rates in order to boost Europe's economy and create jobs. But Mr Duisenberg feared that, if the ECB was seen to bow to political pressure, the credibility of the new currency would be damaged beyond repair.
Opposition politicians welcomed the resignation as long overdue and claimed it confirmed that Germany's governing coalition of Social Democrats and Greens had failed.
"Lafontaine's one-dimensional demand policy failed because it blew public finances, created no jobs and damaged Germany as a place to do business," said Mr Wolfgang Gerhardt, leader of the opposition Liberal Free Democrats (FDP).
There was speculation in Bonn last night that Mr Schroder may now be tempted to make a decisive shift to the right by abandoning the Greens in favour of the pro-business FDP. The presence of Mr Lafontaine in government meant that no party other than the Greens was prepared to share power with the SPD.
But the fact that an alternative coalition partner may now be available may be sufficient to strengthen the Chancellor's hand in negotiations with the Greens.
The SPD leadership will meet today to choose a new finance minister. The party is expected to pick Mr Hans Eichel, a moderate, former prime minister of the state of Hesse who has successfully shared power with the Greens at state level.
