INSTANT VIEW: Merkel on course for center-right coalition

BERLIN (Reuters) - Chancellor Angela Merkel's conservatives appear to have won enough votes in a German election to form a center-right government with their preferred partners, the Free Democrats (FDP), exit polls showed on Sunday.

Following are analysts' comments:

GIANLUIGI MANDRUZZATO, FIXED INCOME STRATEGIST, BSI

"This is definitely good news for the likelihood of some reforms in the German economy. It should be greeted by markets."

"The budget is already strained and will be strained next year too...This time around there should be a balance that has to be struck between the reforms and the costs of them.

"I think given the constraints that are coming from the current situation in the budget, the reduction (in taxes) will only be implemented in progressive steps. There will not be a 'big bang.'"

"They will start designing the structure of the new fiscal system and then implement it -- I think most (fiscal reforms) will come from 2011 and later since next year they will prefer probably to take a cautious attitude to the budget."

DIETMAR HERZ, POLITICAL SCIENTIST, UNIVERISTY OF ERFURT:

"Governing Germany is going to get more difficult now. There's going to be a stronger opposition than there was before. The SPD is going to have to reorganize itself and it's going to be a long, hard road for them, and will happen via the federal states more than in Berlin. Next year's election in North Rhine-Westphalia will be very important for them. We'll see it and the (far-left) Left Party moving closer together in the next parliament.

"There are some notable differences between Merkel's conservatives and the FDP on economic policy, so there could be some struggles for them here.

"The FDP will demand the foreign ministry and Guido Westerwelle will want that job. And they'll want the economy ministry too, and they could take the justice ministry. They'll get at least three of the classic ministries.

"There's no clear finance minister in waiting among the Christian Democrats (CDU) so it could go to (Karl-Theodor zu) Guttenberg (current economy minister and a member of the Christian Social Union, Bavarian sister party to the CDU).

"There may be a temporary solution on who takes over the leadership of the Social Democrats. I don't see any of the current ministers taking on the job. I see Andrea Nahles in particular as a likely candidate. Also possibly (Berlin mayor) Klaus Wowereit."

UWE ANDERSEN, UNIVERSITY OF BOCHUM:

The result means that we will see more confrontation on the federal level because the SPD will move to the left. I suspect that the left-leaning voices within the SPD will gain strength now, but whether they will gain the upper hand will remain to be seen. I think Steinmeier will not stand for a red/red/green coalition (of SPD, the Left party, and the Greens) but it might be different with people such as (Berlin mayor) Klaus Wowereit and others from the SPD's left wing. On the other hand, I expect the SPD to once again embrace more of the trade unions' positions, and that could help them win back some of those voters who defected the SPD for the Left party.

HANS HEINRICH DRIFTMANN, GERMAN CHAMBERS OF INDUSTRY & COMMERCE (DIHK)

"We will judge the new government according to its reform policies, not according to its political colors... Of key importance is how quickly the new government deals with corporate and inheritance tax. This would be an important growth stimulus and growth always results in higher tax revenues.

"The pre-requisite for all reforms is tough budget discipline... and state spending on areas such as social welfare, subsidies and development could now be called into question."

JAN TECHAU, GERMAN COUNCIL OF FOREIGN RELATIONS

"This is a very good result for Angela Merkel, even if it is quite a weak result for her party. She has been confirmed in her post, which is a big achievement in the depths of such a severe recession.

"For the Social Democrats this result is a disaster. The party has to do some profound soul searching, about policies, direction and how it responds to the Left party.

"In terms of policies for the new government I think everything will be overshadowed by the fact that the budget is in crisis, they will have to do everything possible to tackle it. When you look at the amount of debt Germany has, there is very little the government can do. Some people think the new coalition will have to raise value-added-tax at some point.

"For the FDP this is a fantastic result. They are one of the winners, and look to have taken support from the conservatives.

"The party system is in flux in Germany. Both the CDU and the SPD face key questions, and so far they haven't really found any answers."

ANDREW BOSOMWORTH, SENIOR PORTFOLIO MANAGER, PIMCO

"It's a big increase in the FDP's share and that is good for Germany in the sense of economic policy. Hopefully they will have influence on the ministries of finances and economics and not be relegated to foreign affairs."

"I'm pretty sure they will keep running the deficit balance as it is... I don't think they will go for big tax cuts to add an additional discretionary component to it (the deficit)."

"If anything, the deficit could increase, but I think it would increase via rising unemployment as opposed to discretionary expenditure."

"I think tax cuts could come with a strong FDP influence on the finance ministry but in conjunction with other expenditure cuts so that it's more fiscally neutral.

"I don't think they're going to just walk in there and start slashing taxes but that could happen in conjunction with expenditure cuts in other areas and that will take a bit of time."

GUSTAV HORN, HEAD OF UNION-BACKED THINK TANK IMK:

"This government will become more conservative. There is a danger that they will slam on the brakes too early and take away the economic stimulus. There will be a symbolic tax cut here and there. But the overall trend is clear -- they will raise taxes in the end, probably the value added tax. But that would be fundamentally wrong. The reality will catch up with this government pretty quickly."

KLAUS WIENER, GENERALI INVESTMENTS

"I'm relieved there will be stable majorities for the big tasks ahead, particularly the consolidation of public finances. I hope that the budget consolidation that will be necessary will be addressed through a focus on higher growth rather than higher taxes -- raising taxes would clearly be the wrong answer.

"For financial markets this will be a positive. There will be more regulation, we've seen this come out of the G20 meeting as well, but only as much regulation as will be necessary."

ANDREAS REES, ECONOMIST, UNICREDIT

"The new government will face some of the most difficult challenges we've seen over the last 50 years. It is also comparable to the task faced by former Chancellor Helmut Kohl after German reunification.

"We are likely to see unemployment rise around the start of next year and it will be enormously difficult for the government to strike a balance between reducing state debt and consolidating the budget at the same time as stimulating growth.

"I don't expect to see any tax cuts or tax increases. The new government will need funds to consolidate the budget and I think these will have to come from savings, possibly also from welfare spending."