Germans have voted for change. A centre-right government with a clear parliamentary majority will replace the ungainly grand coalition of conservatives and Social Democrats that ran Europe's biggest economy for the last four years.

This should mean an end to "steady as she goes" lowest common denominator policies, and at least some reform of the country's tax and welfare system. The liberal Free Democrats, who recorded their best ever result with around 14.7 percent, will try to pull the new government towards tax cuts, health care reform, a reduction in welfare spending and a loosening of job protection in small business.

Conservative Chancellor Angela Merkel, a cautious centrist, made clear in her first post-election comments that she she would not allow a radical lurch to the right. She promised to be the "chancellor of all Germans" -- old and young, entrepreneurs and workers -- and said the conseravtives would be sufficiently dominant in the new coalition to prevail "in questions that affect social balance".

The new government faces tough economic challenges in what is bound to be a more polarised political atmosphere, with the Social Democrats in opposition. The economy is expected to contract by at least 5 percent this year, and export-led growth is likely to return only slowly. Unemployment is set to explode in the coming months as short-time work schemes run out. The budget deficit is set to top 6 percent of gross domestic product next year, more than twice the EU limit. So 2010 will be an extremely difficult year. But there are some problems that are even more urgent.

The first big choice involves Germany's ailing banks. Outgoing Finance Minister Peer Steinbrueck admitted last week that the public-owned regional Landesbanks "continue to pose an enormous systemic risk to our market". The outgoing parliament passed a virtually useless "bad bank" law meant to encourage stricken financial institutions to put their toxic assets into state-guaranteed special purpose vehicles. The banks have so far spurned the system because it leaves the risk of losses with them rather than with the taxpayer.

Merkel and her new partners need to amend the law so that the state takes more of the risk, otherwise Germany faces a future of "zombie" banks that are too burdened with liabilities to lend to the real economy. That won't be popular, with the left bound to claim that taxpayers are being forced to bail out wealthy bankers.

Fixing the banks is more urgent than cutting taxes or curbing public spending to revive the economy. That also means merging the Landesbanks, shrinking their activities and privatising as much as possible. The Germans must also be ready to allow healthy foreign banks to buy up sickly German ones. That is the logic of the European single market, to which a centre-right government is likely to be more committed.

That brings us to the next urgent priority. The new Berlin government should reconsider the dodgy deal it clinched on the eve of the election to rescue the ailing Opel auto manufacturer. Germany promised billions of euros in state aid for a consortium of car parts maker Magna and Russia's Sberbank to take over General Motors' European arm in order to preserve four production sites and as many jobs as possible in Germany.

The European Commission has made clear that "bribing" companies to skew restructuring plans according to national interests breaches EU rules. Merkel should seize the opportunity to seek a deal with other countries with Opel and Vauxhall production sites to co-fund a restructing plan along strictly commercial lines. In the longer term, Opel will need a bigger industrial partner to achieve critical mass in the inevitable consolidation of European auto sector.

Fixing the banks and Opel will be the first two tests of whether Germany gets the change it needs. Tax cuts and welfare reform will take longer and be trickier, especially given the burgeoning budget deficit and debt mountain.

Welcome to the live blog of the German election, a showdown between Foreign Minister Frank-Walter Steinmeier (left) and Chancellor Angela Merkel (right). More than 50 Reuters correspondents, photographers and television crews in Berlin and across Germany will be tracking the story throughout the weekend.

And in this box you will be able to follow the latest twists and turns throughout the weekend. We’re using #germanelection as the hashtag if you want to follow us on Twitter.

Here is a glimpse of the Reuters office in Berlin that will be delivering the story to Germany and the world.

The last time Germany went to the polls, Wolfgang Clement was deputy head of the Social Democrats (SPD), and one of the most powerful figures in government: the “super minister” in charge of both economic and labour market policy, who had previously governed the SPD heartland of North-Rhine Westphalia, home to 18 million people.

 Four years on, Clement is urging the public to vote for one of the centre-left SPD’s most bitter rivals, the business-friendly Free Democrats (FDP).

 In a newspaper advertisment on Friday, Clement said he was backing FDP leader Guido Westerwelle in Sunday’s federal election.

 An admirer of Britain’s Margaret Thatcher, Westerwelle has branded the SPD socialists, and wants to end their 11 years in office to form a centre-right coalition with Chancellor Angela Merkel’s conservatives.

Though Clement had long had a fractious relationship with the left of the SPD, the endorsement was unprecedented, said Josef Schmid, a political scientist at the University of Tuebingen.

 ”The man is no fool but to act like this is just idiotic,” he said of Clement, a former journalist who spent nearly 40 years in the party. “I can remember nothing like it.”

 The 69-year-old Clement left the SPD last November after a row blew up over his criticism of the party in the state of Hesse.

 Yet despite overtures from the FDP, he said he would remain a “Social Democrat without party membership.”

 In the advert in Bonn’s General-Anzeiger, Clement said a vote for the FDP was a vote for economic prosperity and against the “irresponsible populism” of die Linke or Left Party, a far-left grouping led by ex-SPD chairman Oskar Lafontaine that has eaten into the Social Democrats’ traditional base.

 Uwe Andersen, a political scientist at the University of Bochum, said the move by Clement, who presided over the biggest postwar cuts to German jobless benefits, was symptomatic of lingering divisions between the left and centrist wings of the SPD.

 ”This is a real coup for the FDP though, and Westerwelle will try to make the most of it. It could spirit centrist voters away from the SPD. Then again, it could encourage some people who might have stayed at home to go out and vote for the SPD,” he said.

 Andersen said Clement’s decision was particularly shocking in a country where political allegiances have traditionally been set in stone.

 ”The ties here are more of a marriage for life than in the United States. But young people are getting fed up with it,” he said. “That’s why party membership of the main parties has been falling so dramatically.”

IMAGE:Outgoing German Economic Minister Wolfgang Clement of the Social Democrats (SPD) gestures during the inauguration of his successor Michael Glos of Bavaria’s Christian Social Union (CSU) in Berlin November 23, 2005. Clement handed over his duties to Glos following the inauguration of Angela Merkel as Germany’s first female chancellor on November 22. REUTERS/Wolfgang Rattay

President Obama and the leaders of France and Britain have deliberately raised the stakes in the confrontation over Iran's nuclear programme by dramatising the disclosure that it is building a second uranium enrichment plant. Their shoulder-to-shoulder statements of resolve, less than a week before Iran opens talks with six major powers in Geneva, raised more questions than they answer.

It turns out that the United States has known for a long time (how long?) that Iran had been building the still incomplete plant near Qom. Did it share that intelligence with the U.N. nuclear watchdog, and if not, why not? Why did it wait until now, in the middle of a G20 summit in Pittsburgh, to make the announcement -- after Iran had notified the International Atomic Energy Authority of the plant's existence on Monday, after Iranian President Mahmoud Ahmadinejad had delivered a defiant speech to the U.N. General Assembly on Wednesday and after the Security Council had adopted a unanimous resolution calling for an end to the spread of nuclear weapons on Thursday?

Is this all part of Obama's choreography to  build international pressure on Iran by getting Russia, in return for the dropping of plans to put a U.S. missile shield in Poland the Czech Republic, to threaten more sanctions against Tehran? A U.S. official says Obama shared the intelligence with Russian President Dimitry Medvedev at the United Nations this week and China had only just been informed. Did Obama try and fail to get Medvedev and Chinese President Hu Jintao -- both in Pittsburgh -- to join the three Western leaders on the podium? Or was his hand forced on timing by the fact that the New York Times had got wind of the Iranian nuclear plant and was set to publish the news on Friday?

The division of labour between Obama, Sarkozy and Brown was striking. The U.S. president sounded stern but his tone was measured. He stressed his commitment to dialogue and negotiation with Iran and to Tehran's right to peaceful nuclear energy. He did not mention sanctions, let alone the possibility of military action. It fell to the Europeans to inject a tone of menace.

Sarkozy accused Iran of defying the international community and taking the world on a dangerous path, and said that unless Tehran changed course by December, there would be tougher sanctions. Brown charged the Islamic Republic with deception and said the international community had no choice but "to draw a line in the sand", and that he did not rule out anything although sanctions were the preferred route. 

Will the latest disclosure on what Iran insists is a peaceful nuclear programme persuade Russia to renounce the sale of advanced S-300 anti-aircraft missiles to Tehran? Will it persuade China, which reaffirmed its scepticism about more sanctions this week and has begun supplying gasoline to Iran, to change its mind? The West sees Iran's dependency on imported fuel as a key vulnerability.

Friday's dramatic announcement was a clear effort to appeal to the world court of public opinion and maximise pressure on Tehran before the Oct. 1 talks, but there is no sign that the Islamic Republic's leaders are even considering yielding on their nuclear ambitions. On the contrary, they seem convinced that the nuclear standoff will enable them to patch over deep internal divisions over the disputed June presidential election by playing the patriotic card.

Nobel prize-winning writer Guenter Grass is dressed in a
mustard-brown cord suit and reading his work to a reverent
audience in a hushed Berlin night club.

It feels more like a book launch than a political campaign
event just days before the German election. Yet as far as
celebrity endorsements for German political parties go, this
is as big as it gets.

The Social Democrats (SPD) have boasted Grass, author of “The Tin Drum”, among their most famous  and vocal supporters for 40 years. Party leaders have come and gone, but 81-year-old Grass is reassuringly familiar — and strangely ageless as he reads in an expressive, animated voice.

The mood is convivial. Hardly what is required to provide the much-needed shot in the arm for the SPD, who lag Chancellor Angel Merkel’s Christian Democrats in the polls.

Political endorsements by Germany’s stars of stage and screen have always been earnest and low-key, in sharp contrast to the glamour Hollywood celebrities or chart-topping musicians hope to inject in U.S. elections.

But this time around, in an election campaign lacking dynamism and momentum from all sides, even the endorsements sound particularly flat, as the testaments on campaign websites for the two leading candidates show.

“When I see him and hear him speak, I see a man who is very clear,” explains Katharina Saalfrank, a television presenter famous for reforming naughty children in the show “Super Nanny”, on a website supporting Frank-Walter Steinmeier, the SPD Chancellor candidate.

Frank is “very laid-back”, says a member of the Berlin band, TheBossHoss, who according to the campaign website stormed the charts in 2005.

Not to be left out, the Christian Democrats (CDU) have their own endorsement site for Merkel, which
features businesspeople, actors and curiously, several German boxers and kickboxers expressing their support.

German world boxing champion Regina Halmlich says she likes Merkel because she “keeps a cool head”.

Former German national footballer Olaf Thon says he wants her to remain in her job because “as a woman she is the strongest man in the country.”

Some 20 percent of the German electorate are still undecided on which way to cast their vote. Germany’s “promis”, or celebrities, seem unlikely to provide any help.

- Erik Kirschbaum is a Reuters correspondent in Berlin. -

Has this been dullest German election campaign in decades or the most exciting?  Has the battle for power in Berlin between Chancellor Angela Merkel and Foreign Minister Frank-Walter Steinmeier that concludes with Sunday's election been a memorable showdown or a forgettably boring contest?

Many journalists, pundits and voters have complained it's all been a merciless bore compared to the high-octane battles of the past with little action and precious few highlights.

But I would argue that in many ways it has been one of the most interesting campaigns in decades. Why? Because the outcome is so uncertain and there are more different government possibilities that could result from it than at any time in Germany's post-war history.

Instead of the usual centre-right or centre-left choice that German voters had for the last 60 years, there are options galore this time -- at least in theory.

There could be a centre-right government, another grand coalition or several three-way coalitions that could include the Free Democrats, the Greens and from a purely  mathematical point of view even the Left party that have never been tried before at the federal level.

On top of that, the opinion polls have once again tracked a dramatic narrowing in the lead that Merkel's preferred centre-right coalition (Conservative  Christian Democrats  and Free Democrats) have over the three other parties -- Social Democrats, Greens and Left party .

In late August Merkel's centre-right had a 6-7 point lead and now, three days before the election, the final published polls on Wednesday showed their lead all but evaporated to just 1-2 points. Pollsters estimate that about 20 percent of the electorate has not yet made up their minds who they'll vote for -- how can  a completely uncertain outcome on Sunday not be considered exciting?

And yet Sunday's election could also be historic for another reason -- it might be the first time two parties take power despite failing to win a majority of regular seats in parliament.

Thanks to a quirk in the German election law, the conservatives could possibly win up as many as 20 extra "overhang" seats that could help them turn a deficit as wide as three percentage points into a parliamentary majority.

Whether such a government would be seen as legitimate in the eyes of the opposition and public remains to be seen.

Admittedly, there's been few memorable verbal clashes between the main candidates this time around. This is the sixth election I've covered in Germany and I can't remember seeing rivals for the chancellery ever behave with so much civility towards each other as his time around. But

I guess that should have been expected -- they've shared power as Chancellor and Vice Chancellor in the grand coalition for the last four years. To suddenly start bashing each other probably would not have gone down well with voters and in the midst of the country's worst post-war crisis I doubt there is much appetite  among the German Buerger  for mudslinging.

Both parties also warned us all along that the race would be concentrated into the final weeks  due to the growing number of late-deciders and undecideds -- especially after the conservatives saw big leads disappear at the very end of the campaign in 2002 and 2005.

Der Spiegel nevertheless had an unusual theory -- Merkel is deliberately trying to bore the voters to hold voter turnout down because she thinks it will help her. Few would disagree that she is not the most gifted campaigner Germany has ever had.

Certainly, there's been none of the great "war and peace" battles of past elections that stirred voters against the backdrop of a Cold War, a Berlin Wall, and then a looming war in Iraq. In 2002 then-SPD chancellor Gerhard Schroeder shrewdly managed to turn his doomed campaign around by running against German involvement in the looming U.S.-led invasion of Iraq.

Frightened Germans turned to him in huge numbers and he pulled off an improbable comeback after being given up for dead just a month before. And who could forget the SPD's next comeback in 2005 when Schroeder turned a humble professor from the University of Heidelberg into an unlikely villian after Merkel picked him as her shadow Finance Minister for his academic-sounding ideas on simplifying the tax code.  But turnout will nevertheless still be close to 80 percent.

This year's election has also had its lighter moments.

One CDU candidate with little hope of winning her constituency in Berlin tried out the slogan "sex sells" by putting out a poster of herself and Angela Merkel highlighting their cleavage, a SPD minister had her official limousine stolen while she was on a holiday in Spain and it watched in horror as it erupted into a major issue, and a comedian who instantly became more popular than some of the smaller parties.

So who will win Sunday's election? We couldn't even venture a guess here. But we will keep you well informed of all the twists and turns on Sunday.

It will likely be a cliffhanger right up until moment the first exit polls are announced at 6 p.m. on Sunday and perhaps beyond. We'll be posting live updates right here on the Global News blog all day and all night Sunday.

Getting pelted by eggs or tomatoes is an occupational hazard for most hardened politicians on the election trail.

But German Chancellor Angela Merkel, seeking re-election on Sunday, has been confronted with a new kind of protest during her final campaign rallies: flashmobs.

The mobs, groups of people summoned over the Internet to show up at a specific time and place to do something unusual, have materialised at several election events in the last week to wave flags and banners and heckle the unsuspecting Merkel.

Mostly, they have been chanting “Yeahhhh!” after every sentence she utters and the slogan is meant as an ironic expression of support.

It may not sound like the most damaging critique, but Merkel has cottoned on to the flashmobs and now even addresses them at the rallies as “My young friends from the Internet”.

So is this a new form of political protest or just a bit of fun?

Blogger Rene Walter, who writes for nerdcore, says there is a serious idea behind the light-hearted gatherings.

“We are not just going to swallow the election messages, we are spitting back the rubbish Merkel speaks in the ironic form of a “Yeahhh!”, he says in the Sueddeutsche Zeitung daily.

Many involved in the flashmobs support the Pirate Party, who are popular among young voters and oppose what they say is censorship of the Internet that has been brought in under Merkel’s government.

One thing is for sure. Flashmobs are injecting some much-needed spontaneity into the final days of a campaign which many voters think has been the most turgid in decades.

But are flashmobs here to stay? Could they become the political protest movement of the Internet age?

Strangers to electoral office and with little experience in government, 23 parties outside the political mainstream are aiming to gain ground in Germany’s federal election this month, and their success or failure may give a taste of what’s to come in a country whose two main parties are losing appeal. Some analysts say that without reform, the number and importance of smaller parties will rise and make the country’s coalition system of government unmanageable – a harrowing reminder of the chaos of the Weimar years that made Hitler’s rise possible. At the moment the small parties are polling at around 5 percent, compared to the last election when they won 4 percent. But none alone is even close to clearing the 5 percent hurdle to access parliament.

Most of the micro-parties are based on single issues, some focusing on things like pensioners rights or animal protection. A smattering of religious parties are calling for stronger Christian values, and far-left groups urge different visions of proletarian revolution and state economic control. The computer-geek founded Pirate Party, which is also the fastest growing party in Germany, wants to legalise free downloads.

While the strongest of the obscure – the far-right German People’s Union (DVU) and the German National Party (NPD) already have a handful of representatives in state-level government, the others do not. None of them of course stand a chance against bigger rivals like the centre-right CDU/CSU, the free-marketeering FDP, the centre left SPD, or even the environmental Greens or far-left Left Party. But some are attracting younger voters, including those born after the fall of the Berlin Wall who increasingly reject the mainstream parties.

For a look at 23 German political parties (including the main ones), check out the Vote-O-Mat (aka “Wahl-O-Mat” in German). Answer a series of questions (in English) and a tool will produce a recommended voting list based on your responses.

Founded by computer geeks in Sweden in 2006 and now active in 33 countries, the Pirate Party is hoping to win over young, disaffected voters in Germany’s federal election on Sept. 27 with demands to reform copyright and patent laws along with their policies that oppose internet censorship and surveillance. But do the single-issue activists, with no stance on foreign policy or the economy, even have the faintest hope of overcoming the five percent hurdle needed to enter parliament?

This looks unlikely given the 0.9 percent of the vote they won at the European parliamentary elections in June.  Nonethless, the Piratenpartei with more than 8,000 members is the fastest growing party in Germany, a development partly sparked by the German parliament’s ratification of controversial legislation on blocking certain websites in a bid to fight child pornography.

Gero Neugebauer, political scientist at Berlin’s Free University, said the traditional parties’ failure to properly understand the internet may have put wind in the Pirates’ sails. “The large parties have treated the issue as if the only people using the internet are old men with lewd ideas who want to look at pornographic images or practice paedophilia,” Neugebauer said in a recent TV interview.  ”If the Pirate Party manages to make clear in society the conflict which they presently represent … then they definitely have the potential to get above the five percent hurdle,” he added.

Among the ranks of the Pirate Party is a former Social Democrat member of parliament — Joerg Tauss. He resigned under pressure in September amid an investigation into possession of child pornography by state prosectors. He denies any wrongdoing.  “The internet has been increasingly tightened in recent years and made into a civil rights-free zone,” Tauss said in parliament when the legislation was passed. 

Alongside traditional campaigning methods, the Pirate Party has taken to the streets setting up model living rooms inside transparent containers in public squares to protest against what they see as an increasingly Orwellian police state.  Support could come from younger voters, who have grown up with the internet, and who feel that established political parties are out of touch with their concerns.

“I want to be able to exchange music on the internet with my friends for free,” Florain Bischof, Pirate Party candidate for Berlin says on student networking site studiVZ. One of the party’s main policies is an easing of copyright laws.

Germany’s mainstream polling institutes do not include the Pirates as a separate party in their survey and it is not clear how popular the party would be among the population at large. So the question remains: how successful has the party been in shedding its image as a bunch of male software engineers getting stroppy about their surfing rights? And in Germany’s greying population, with voters 60 and over making up 30 percent of the rapidly ageing electorate, is a campaign targeted at gamers and those who download music doomed to fall flat?

PHOTOS: A member of the Pirate Party (above) walks in front of the Reichstag as part of its campaign for the September general election in Berlin. The Piratenpartei Deutschland was founded in Germany on September 10, 2006, following a model of Swedish analog Piratpartiet. REUTERS/Thomas Peter Below, Joerg Tauss. REUTERS/Fabrizio Bensch

Pressure? What Pressure?

That was German Chancellor Angela Merkel’s message during a 90-minute grilling in Berlin by journalists at her last major news conference before the Sept. 27 election. Even though opinion polls show a narrowing in her re-election campaign and amid a growing nervousness in her conservative party, Merkel was a picture of tranquillity.

Although some of her conservative party allies are pushing for her to raise the volume and intensity of what has been an exceedingly cautious campaign, Merkel made it abundantly clear that she is not at all worried. Perhaps it was all a good bit of acting. But she answered even the most surly of questions from the pack of 100 journalists with a nationwide TV audience watching with smiles and jokes along with the usual assortment of evasive answers.

Like she has so often in the last four years, Merkel managed to find a shimmer of optimism in just about every query hurled her way. She turned each question about opinion polls showing the lead of her preferred centre-right alliance narrowing upside down by pointing out the centre-right still has a lead.

“The opinion polls are quite encouraging for us,” Merkel said even though the centre-right’s lead over a trio of left-leaning parties has shrunk to just two points in two polls and disappeared into a dead heat in a third. Two weeks ago, the centre-right had a six- to eight-point lead in those same polls over the Social Democrats, Greens and Left party. Four years ago, Merkel’s centre-right alliance also had a big lead before the election that evaporated on election day. The conservatives are particularly nervous after having seen their support plunge in the final days of the last two campaigns in 2002 and 2005.

Merkel also skated over questions about her shaky performance in a TV debate on Sunday against her rival Frank-Walter Steinmeier, her decision to go on a long summer vacation last month rather than campaign and her trip to Pittsburgh late next week just before the vote to attend a G20 summit.

“I treated myself to a two-week holiday because I felt it was appropriate and important – so that I could be happy and available right up to the end of the election campaign,” she said at one point. “I actually was quite satisfied with my performance in the TV debate,” Merkel said, disagreeing with the view of even many in her party that Steinmeier got the upper hand because she took such a cautious approach.

“It’s pretty much always the case that there is certain unrest and tension in a party as the election nears,” she said, adding a somewhat ominous warning to those in her party who are causing a commotion: “I’m going keeping a close eye on what everyone’s been saying.“

PHOTO: Angela Merkel smiles during a news conference in Berlin. REUTERS/Tobias Schwarz