Agreement on the broad outlines of a "grand coalition" of the left and right to rule Germany for the next four years has emerged surprisingly quickly. Angela Merkel will be chancellor as leader of the larger party - the Christian Democratic Union with their Bavarian sister-party, the Christian Social Union. In exchange, the centre-left Social Democratic party will nominate the vice-chancellor and a majority of the departmental portfolios in the new cabinet. It is a relief that they have reached a deal so relatively painlessly. The concern must be that the price, not least for Ms Merkel, will prove to have been high.

On the face of it, the SPD seems to have won the more substantial portfolios, with finance and foreign affairs topping their list of eight major ministries, which will include health and labour, two vital areas of reform, plus transport, the environment, development and justice. The CDU/CSU will get the economy ministry, including responsibility for technology, plus defence, internal affairs, education, pensions and agriculture.

Apart from Ms Merkel's position, the only other incumbent to declare his portfolio is Edmund Stoiber, the CSU leader, who says he will take the economy and technology ministry. He clearly intends it to be a driving force in reforming the German economy and achieving one of the few specific goals already agreed in the coalition - to boost spending on research and development to at least 3 per cent of gross domestic product by 2010. Yet Mr Stoiber, currently the premier of Bavaria, has no great track record as a liberaliser: he comes from a strong corporatist tradition. Those who still hope for more deregulation and liberal economic policies may be disappointed.

On labour and social security, Ms Merkel seems to have been forced to back down on plans to reform the system of national wage bargaining, although the two sides agree that plant-level bargains are "important". But both sides are committed to tough budget cuts, to reduce the deficit to 3 per cent of GDP by 2007. That unpopular job - more drastic than either of the parties had proposed in their election campaigns - will be left to an SPD finance minister, whose identity is still uncertain.

Just how determined the new government will be to galvanise the sluggish German economy will depend on the success of Ms Merkel in welding these uneasy partners into a team. The vital players will be Mr Stoiber and the future finance minister. In parliament, where both parties will have a huge majority, both are bound to unite behind government policy.

Simplification of income tax is definitely on the agenda, as is reform of family taxation. Many other details have to be agreed in the coming weeks. It will be a long, hard slog but the danger of complete political paralysis is past.