They are calling it a revolution that will transform Germany's business landscape beyond recognition and smash the cartel that controls the country's biggest firms. This is one revolution, however, that has been greeted with euphoria by Germany's financial and business establishment.

When the Minister for Finance, Mr Hans Eichel, announced a wide-ranging tax reform on the Tuesday before Christmas, most commentators focused on his promise to cut corporation and income tax.

It was two days before anyone noticed the most significant pledge in the six-page tax plan - a short sentence abolishing tax on profits made when one company sells its stake in another.

Analysts were so surprised that they telephoned the finance ministry to make sure they were reading it correctly. When confirmation came through, the Frankfurt stock exchange went wild. Shares in Deutsche Bank, Dresdner Bank and insurance firms Allianz and Munchener Rueck soared by almost 15 per cent within minutes of the news and the fireworks on the DAX continued into the new year.

It is hard to overstate the importance of the move, which will allow banks and other firms to sell their substantial holdings in some of the country's top companies.

Economists believe abolishing the high rate of tax on profits from such sell-offs will lead to a sweeping restructuring of German business and the end of the network of mutual dependency that has characterised the country's industry for decades.

Germany's largest banks and industrial concerns own such large chunks of one another at present that the same people sit on the boards of many leading businesses. The relationship between investors and companies is almost incestuous.

Deutsche Bank, for example, owns 12 per cent of Daimler-Chrysler, 13 per cent of Metallgesellschaft, 7 per cent of Allianz and 10 per cent of Munchener Rueck. For its part, Allianz commands a quarter of the shares in Munchener Rueck, 5 per cent of Deutsche Bank and 10 per cent in each of the pharmaceutical companies BASF and Schering. Munchener Rueck, in turn, owns 25 per cent of Allianz and 40 per cent of Allianz Life Insurance.

Each of these companies has stakes in many other firms, ranging from cement manufacturers to printing companies. Most are eager to sell many of these holdings in order to concentrate on their core businesses but, until now, profits on such sales were taxed at 58 per cent. Business leaders, who were pressing for the tax rate to be reduced to 20 per cent, can hardly believe their good fortune.

"It's as if Christmas and Easter have come at once," said one.

If the measure comes into force, as planned, in 2001, it is likely to trigger a wave of mergers and acquisitions that the government hopes will attract billions of pounds in foreign investment to Germany.

Owners of medium-sized businesses - known as the mittelstand - reacted angrily to the news, not least because they will continue to be liable for tax if they sell their firms.

Many self-employed workers, such as electricians and plumbers, finance their retirement by selling their business. Under Mr Eichel's new tax plan, they will pay an even higher level of tax on the profits of such sales in future.

Left-wing members of the governing Social Democratic Party (SPD) are also uneasy at the move, which they see as an unnecessary gift to Germany's rich. The government argues that, by freeing up holdings that were lying unused, it will generate more tax income than before. After all, it points out, no revenue flowed into the state's coffers from these holdings as long as they remained unsold.

There is no doubt, however, that the new measure represents a dramatic ideological shift for a government which, only a year ago, was threatening to make the sale of assets more difficult. When big firms got wind of the intentions of the former finance minister, Mr Oskar Lafontaine, many - including Ms Johanna Quandt, the millionaire who owns 45 per cent of BMW - broke up their holdings into new small companies.

Such manoeuvres will no longer be necessary if Mr Eichel's plans are realised, and many analysts predict the banks will divest themselves of almost all their industrial holdings.

As Germany becomes a happy hunting-ground for venture capitalists, Germany's first centre-left coalition in 16 years is set to go down in history as the government that made Europe's biggest economy more business-friendly than ever before.