Mr Oskar Lafontaine's resignation as German finance minister is hugely significant for that country's domestic politics and for international economic policy. In his short term of office he had become the bete noire of business opinion at home and abroad because of his commitment to higher corporate taxation, Keynesian demand stimulation, lower interest rates and currency target zones for the euro. He fell victim to a deep-seated power struggle with the German Chancellor, Mr Gerhard Schroder, who became convinced that such policies are politically unsustainable as he faces into a series of local, state and European elections.
Mr Lafontaine has also resigned as chairman of the Social Democratic Party (SPD). This was the power centre from which he fought in the election campaign that culminated in victory for the SPD over the Christian Democrats last September and its subsequent coalition with the Greens. Mr Schroder was selected by the party to fight the campaign as chancellor-candidate, on the realistic assumption that he would appeal more to the voters.
He is from a very different political tradition within the SPD than Mr Lafontaine - more rightwing, more willing to accommodate business sentiment and interests, more Blairite or Clintonesque in comparative terms. He and Mr Lafontaine made a coalition of convenience for the crucial election which saw them displace the Christian Democrats led by Dr Helmut Kohl. After their victory they forged another coalition, with the Green Party; in this Mr Lafontaine found ideological allies, Mr Schroder the parliamentary majority he required.
Yesterday's resignation represents both a culmination of the power struggle - fought out necessarily in government rather than during the campaign - and a potential realignment of the two coalitions which carried Mr Schroder to power. It remains to be seen whether Mr Lafontaine's resignations will put an end to left-right conflict within the SPD; given the popularity of his policies within party and trade union ranks, this is unlikely to be the case. In the same way the Greens are most unlikely to be happy with the changed balance of forces within the government coalition, in which Mr Schroder seems to be angling for support from the opposition Free Democrats.
The two SPD leaders clashed on basic strategies concerning business and popular taxation, wage levels and environmental policies. Their dispute culminated in a succession of policy reversals on the phasing out of nuclear power and citizenship laws. For Mr Schroder the last straw was Mr Lafontaine's apparently insouciant disregard for the ferocious business opposition to taxation policy in his recent budget, which marginally shifted the burden from labour to capital and was taken to be an indication of more to come.
Mr Lafontaine mounted a determined campaign to harmonise corporate taxation within the European Union, cutting right across Ireland's approach to this question. His departure does not mean the policy has gone away, since it coincides with a central German national interest enjoying Mr Schroder's support. Mr Lafontaine loudly backed a cut in interest rates by the European Central Bank, an approach which was taken to compromise its political independence as the euro was introduced. Ironically, his departure makes it easier for the bank to make such a move - a testament both to his insight into the current state of the European economy and the bullheadedness that led to his downfall.