By Rosemary Bennett, Deputy Political Editor

ANGELA MERKEL’S failure to win an outright majority was greeted with disappointment by British ministers last night as the prospects for radical reform of Europe’s largest but most stagnant econony faded.

Privately, Tony Blair had hoped that the Christian Democrat leader would sweep into power and help to revive his agenda for free-market reforms across the European Union.

A clear victory for Frau Merkel would have helped the ailing British EU presidency, which has so far been mired in argument over the budget and failed constitution and looks likely to achieve little by December. Frau Merkel had indicated a willingness to overhaul the Common Agricultural Policy.

Britain would also benefit from a rejuvenated German economy. Germany is Britain’s biggest single trading partner and could help to soften the blow of a downturn in Britain.

But the result suggested that not only would Frau Merkel be tethered to a coalition with the left-of-centre Social Democrats, but that negotiations over the deal could drag on and leave a political vacuum in the EU’s largest member state.

Although Mr Blair has never given public backing to the right-of-centre Frau Merkel, he has come close. On a visit to Berlin in June, he risked a minor diplomatic incident when he went straight from the airport to talks with the Christian Democrat leader before seeing Gerhard Schröder. His late, and lukewarm, backing for Herr Schröder during the election campaign also illustrated the damaged Anglo-German relationship. During the 2002 election, Mr Blair gave a lengthy newspaper interview and appeared on television to trumpet his support for “Gerd”.

This time, he made only a perfunctory statement of support and even then could not resist mentioning: “We are not always of the same opinion”. Diplomats hoped that a different German Government could be less of an obstacle in talks to end the row over the British rebate and a budget deal.

Officials hinted, however, that there was something to cheer about as the result could mean smoother negotiations over the admission of Turkey as a future EU member.

Herr Schröder supports Turkish membership, as does Britain, but Frau Merkel has argued that it should be offered only a “privileged partnership”. Talks on a mandate to start formal negotiations with Turkey on October 3 are nearing completion, but an outright victory for Frau Merkel threatened to scupper the deal.

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