The good news is Angie. The bad news is her government. Unfortunately, the bad is likely to subvert the good. Even if this lady chancellor is made of iron, a messy, unstable coalition will ensure that her feet are stuck in clay. All Europe will keep limping as a result.

But first, the good news. It's a very good thing that the Federal Republic of Germany will have a chancellor who is a woman and comes from east Germany. Both seemed unthinkable 20 years ago. Both are major steps towards a modern normality for Germany, no longer divided between east and west, nor between ruling men and serving women. Outgoing chancellor Gerhard Schröder always said that he wanted Germany to become a more normal country. His departure is his last and perhaps biggest contribution to that goal.

Moreover, Angela Merkel is herself a rather good thing. She is practical, direct and full of common sense. She cares about freedom. She seems to understand what the German economy needs a lot better than her towering Christian Democratic predecessor, Helmut Kohl, ever did. At the same time, she is no Margaret Thatcher. You cannot imagine her saying that society does not exist. A fluent Russian speaker, she will have none of Schröder's embarrassing personal weakness for Vladimir Putin's semi-dictatorial government. With a track record of Atlanticism, and having passable English, she is well placed to repair Germany's frayed relationship with the United States.

She grew up in a landscape and a milieu I knew well, the spartan, intense world of the east German Protestant clergy in the cobbled small towns and hard-brick villages of the Uckermark, north-east of Berlin. A Protestant work ethic, high seriousness, and a preference for Lutheran plain-speaking were the hallmarks of that world. Her east German biography was certainly not that of a dissident. Unlike most children of the Protestant clergy, she joined the communist youth organisation, which bore the classic Orwellian misnomer, Free German Youth. She was even one of that ghastly movement's local organisers, while doing postgraduate study at the east German academy of sciences. Yet somehow she emerged with many of the values more characteristic of former dissidents in central Europe. In a European Union which is now a mixture of former west and former east, it's good to have a major leader who is herself a personal union of the two.

The question is: what can she do? The German constitution gives the federal chancellor considerable powers to set the main lines of policy, and the practice, from the founding postwar chancellor Konrad Adenauer through to Gerhard Schröder, has been for chancellors to make full use of those powers. This has been called a Kanzlerdemokratie, a chancellor-democracy. But the constitution, and the federal political system as it has evolved, also places considerable checks on the chancellor - far more than on any British prime minister. Ironically, a political system designed, with its elaborate checks and balances, to prevent the emergence of another Adolf Hitler, is now helping to prevent the emergence of necessary reforms.

The upper house, or Bundesrat, composed of representatives of the federal states, can restrain and even block government initiatives far more than the House of Lords. Since there are elections in several federal states every year, there's effectively no such thing as a "mid-term" period when a government can make unpopular but necessary reforms without the fear of being immediately punished at the polls. With proportional representation, the country always has coalition governments, which means more compromises. Never more so than when you have a so-called grand coalition between the two main opposing parties, with the Social Democrats actually having more cabinet seats than the Christian Democrats. Just imagine a Labour-Conservative coalition government, with foreign secretary Hilary Benn and chancellor of the exchequer Gordon Brown serving alongside home secretary David Davis under prime minister David Cameron.

Fifteen years ago, as Germany was uniting and Angela Merkel was starting her political career, a perceptive observer wrote that the great test for the federal republic was whether its tradition of "change through consensus" could produce enough change. Looking at the outcome of this election, I fear the question is being answered: more consensus, less change. And many observers have a sneaking feeling that this is the answer much of the German electorate still feels most comfortable with, even though no one actually voted for it. Over the next few weeks we shall see what detailed understandings Christian and Social Democrats can reach, as they try to reconcile their starkly contrasting positions on taxes, healthcare and labour market reform. Don't hold your breath.

Those who are more optimistic than I am about Germany's capacity for change point to what is happening already among the young and in business. Now it's true that one meets a lot of impressive, highly educated young Germans, able to tell you, in fluent English or French, what their country needs to do. The trouble is that you are most likely to meet them in Oxford (which has lots of outstanding German students), Harvard, Paris or Tokyo rather than in Heidelberg, Munich or Berlin. Today's genuinely free German youth have seized the chances offered by an integrated Europe, and a globalised world, to vote with their feet. Many of the brightest seem likely to make their professional careers largely outside Germany. Unless something changes back home, that is.

As for German business, the country's larger companies have certainly made big changes over the past decade. They have internationalised aggressively. Several hold their board meetings in English. They are leaner, meaner, fitter. They have export performances that most British or US companies would die for. But they have done this, on the whole, by cutting jobs in Germany and creating new jobs in the Czech Republic, Poland, India or China. This has not done much to help Germany's more than 5 million unemployed. Watching one of the endless TV discussion shows (Germans may not like change, but they love talking about it) I saw a former minister in Helmut Kohl's government, Norbert Blüm, throw up his hands in incomprehending horror at the notion that the stock market rewarded German companies for getting rid of 10,000 employees.

Well, exactly. The market alone won't do it. It does need the German state to create the conditions in which German companies will create the jobs - at home and not abroad. This means changing labour laws, taxes, welfare contributions and the like. These are the things that an alliance with the free-marketeering Free Democrats would have encouraged, and that with the Social Democrats will slow down. This at a time when Germany faces a fierce double competition: regionally, from the low-wage, low-tax economies of central and eastern Europe, and globally, from Asia. Now more than ever, I suspect that what Germany does will be too little, too late.

In German, there's a nice phrase for giving something a mixed greeting: "with one laughing and one weeping eye". I greet the prospect of chancellor Angie with a laughing eye. But as for the prospect of her walking stalemate of a government: it makes me weep. www.freeworldweb.net