Germany urgently needs reforms. Unemployment and social expenditure have been rising continuously, raising the government deficit consistently above 3.5 per cent of gross domestic product. Still, the government has trailed behind other European Union countries in reforming social security and labour laws. The allocation of tasks to regional and local authorities is ill-designed; it is now a major impediment to the government's capacity to regain control of expenditure. The country's structural weaknesses must be corrected.

The results of the September 18 parliamentary elections may prevent Germany from carrying out these badly needed reforms, just when economic recovery ought to be set into motion. There is a serious risk that a grand coalition of the biggest parties could reduce Germany to a chaotic standstill. To prevent the situation from running out of control, parties must transform the outcome into an opportunity to reform. To this end, the SPD and CDU/CSU need to agree on how to co-ordinate their actions to make progress. Such co-ordination is, however, implausible under a grand coalition in which political heavyweights would primarily keep an eye on their prospective votes in the next election. If parties let such re-election motives dominate, the government will not have proper incentives to undertake unpalatable reforms. What Germany needs is a technical caretaker government, like those experienced by Italy in the early 1990s; a government run by a chancellor who has no interest in re-election. Parties must tame their leaders' ambitions.

This conclusion is based on European experience in the past 20 years. There are several examples of forced cohabitation. They show that grand coalitions increase public deficits and do not manage politically difficult reforms. By contrast, technical governments have carried out radical reforms at times of extraordinary politics. Their actions have given new freedom to subsequent governments, which suddenly recovered the possibility to carry out sound economic policies.

The longest recent grand coalition experiment was in Austria in 1988-94. The public deficit then climbed from 3.2 to 4.9 per cent just as other countries now belonging to the economic and monetary union managed fiscal consolidation. This coalition also conducted only a few, highly contradictory, social reforms: the government introduced three reforms reducing the generosity of social security, while another three went in the opposite direction. This was stalemate: at the same time, other European governments were reforming more intensely and two-thirds of their reforms were aimed at containing social spending.

"Solidarity" or "caretaker" governments display the opposite characteristics. Italy provides an outstanding example. It had been facing similar stalemates under shaky coalitions before it managed radical reforms of its pensions under the two solidarity governments led by Giuliano Amato in 1992 and Lamberto Dini in 1995. Parties agreed to take part in such caretaker governments because they acknowledged the country was in need of "extraordinary politics". Thanks to their action, the deficit-to-GDP ratio shrank from 11.7 per cent in 1991 to 2.7 per cent in 1997.

The essential difference between grand coalitions and caretaker governments lies in the degree of co-ordination among the parties. Under a grand coalition, the ruling parties compete for votes instead of striving for reforms. A "common pool" problem arises: with little internal cohesion, government members fight to increase the budget of their specific areas and do not stick to the overall constraint.

If Germany wants to end its standstill and avoid chaos that will leave no choice to subsequent governments, it has only one option: to turn a grand coalition into a solidarity government. Such a technical government would be able to rely on a large majority in both chambers to undertake reforms, deal with the fiscal federalism issue and redesign the allocation of tasks at different levels of government. To allow this, the main party figures cannot be involved, otherwise re-election motives will blur the horizon. The economic conditions of Germany, together with the need to comply with the EU stability pact, are sufficiently strong justifications for urgent, extraordinary politics. The benefit is that this and subsequent governments would - at last - be in a position to carry out sound economic policies.

Tito Boeri is professor of economics at Bocconi University. Micael Castanheira is professor of economics at the Université Libre de Bruxelles