GERMANY AND JAPAN will be going to the polls over the next two weekends, in their most important elections for a generation.

The two most extraordinary economic and political successes of the post-war era both stumbled suddenly in the 1990s and then sank into listless stupors that have lasted for many years. Not only did they suffer from a sudden breakdown of their “miraculous” economic models, but their political systems also seized up. The consensus-based constitutions imposed on both countries to prevent a return to their wartime madness worked all too successfully, thwarting the formation of strong governments and thereby blocking any possibility of significant economic reform. But now hopes are high in both countries that this deadlock is about to be broken.

In Japan on Sunday the voters will probably re-elect their existing Prime Minister, Junichiro Koizumi, but he will now head a reinvented ruling party from which he has expelled the cautious traditionalists who have thwarted his previous efforts at radical reforms. In Germany a week later, Angela Merkel, a political outsider who wrested the conservative leadership from the consensual establishment, is almost certain to become the new Chancellor. She is being hailed as a Teutonic Margaret Thatcher, and global business and financial markets are getting increasingly excited about the prospect of a Thatcherite revolution in both Germany and Japan.

Do such comparisons make sense? Obviously no two countries or historical periods are ever identical, but the British experience of the 1980s suggests that optimism about reform in Germany is probably misguided, whereas quiet confidence about Japan probably does make sense.

The reasons for scepticism about Germany are twofold. The first is that Germany’s electoral system is still very biased against a strong Thatcher-style government. Moreover, the chances of a clear result from this election are now much diminished because of an unlikely case of collateral damage from Hurricane Katrina. To contrast the “European model” of social solidarity, stability and security for all with American-style rugged individualism, weak government and social Darwinism may be a false dichotomy, but this kind of Manichean conflict is exactly what the German Left perceive. The feral outbreak of greed and violence in New Orleans is likely to boost the anti-American, anti-capitalist vote. At the very least it will inject new emotionalism and foreboding into the Left’s campaign to deny Frau Merkel a clear mandate.

But even if the conservatives do win convincingly, they will have to overcome a much more serious problem: Frau Merkel’s reform programme, for all its fine rhetoric about competition and incentives, is economically misconceived. In fact, if Frau Merkel really implements her election promises, the German economy will probably slide into an even deeper morass.

This is because the austerity measures in her initial reform plans — higher consumer taxes, smaller government deficits, cutbacks in pensions and job security — would initially exacerbate unemployment and weaken economic growth. Yet the expansionary policies that Germany needs have all been ignored. The surest and most effective forms of stimulus — a reduction in interest rates and a currency devaluation — have been specifically rejected by Frau Merkel, while expansionary supply-side measures, for example reductions in taxes and deregulations of services and consumer borrowing, are also being downplayed. If Frau Merkel sticks to these masochistic priorities, not only will she push Germany into deeper recession: she could well set back pro-market reform across Europe for another decade.

To German devotees of Thatcherism this may seem an outrageous accusation; the Iron Lady, after all, pushed Britain into deep recession in 1979 and still emerged triumphant. What such masochistic neo-Thatcherites forget is that Britain in 1979 needed austerity because it had to stop economic overheating and inflation; Germany today has exactly the opposite problem.

What Germany needs today is not the hair-shirt Thatcherism of the early 1980s but something more akin to the dynamic, entrepreneurial boldness of the Lawson boom: income tax cuts, financial deregulation and interest rates that fall so steeply that consumer and mortgage borrowing become irresistibly attractive.

Only in an economy with the sort of ultra-expansionary financial conditions seen in Britain and Americas in the mid to late-1980s can there be any serious hope of achieving positive economic results from deflationary labour-market, social security and fiscal reforms. And without having some visible evidence of economic successes to show the voters, there can be little chance of maintaining support for a long-term programme of structural change. This is something that Mrs Thatcher instinctively understood.

In Japan, by contrast, conditions are now much closer to those in the mid-1980s heyday of Mrs Thatcher’s popularity. Monetary conditions have for several years been exceptionally generous, with interest rates at zero and the Bank of Japan printing money like wallpaper. In the past 18 months the benign results of this ultra-expansionary monetary policy have started to appear: consumption has accelerated; house prices are slowly recovering and consumers are starting to borrow. With interest rates at zero and consumers becoming more confident, Thatcherite structural reforms have a good chance of economic success and political popularity in Japan.

In sum, Angela Merkel may seem to have a great deal in common with Margaret Thatcher, given her science degree, her bluntness and her hand-bag. But such superficial similarities may deceive. Thatcher did not, in general, demand pointless sacrifices and pick fights that she was bound to lose.

Koizumi comes much closer than Merkel to sharing Mrs Thatcher’s combination of political toughness and pragmatism, economic conviction and good business sense. That is why Japan is a better bet than Germany to re-emerge as a great economic power.

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