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Opium Of The People
Germany is having a great World Cup. Tonight, the hosts play Italy in the semi-final. Win or lose, much of Germany is going to have on hell of a hangover tomorrow morning - just as Angela Merkel's government slips in reforms and tax raises likely to make everyone from populist leftists to progressive liberals fume.
Frau Merkel has been a prominent figure in the stands while Germany has been playing. Her evident delight in her team's performance has helped dispel some of the accusations of dourness that have dogged her since she became Christian Democrat leader two years ago. After a dip in popularity in Spring, she's riding high in the polls again - and perhaps now is a good time to make difficult decisions.
The Times notes that one of the major reforms affects Germany's health service. Normally mass market tabloid Bild would cover its front page with the changes: Thanks to the football, the news is buried deep inside the paper.
Among the changes is a promise to Merkel's coalition partners, the Social Democrats (SPD). Health insurance for all children will cost Germany €1.5 billion next year, paid for by a 0.5 percent increase in social security deductions. The reforms will also offer more choice to consumers when chosing their medicine. Insurers and patients groups are unhappy, while employers warn that making it yet more expensive to employ workers is not wise while German unemployment hovers above 10 percent.
Tomorrow's budget will also ratify a VAT increase from 15 to 19 percent, plus subsidy cuts, battled out between Merkel's Christian Democrats and the SPD, the often uneasy allies in Germany's Grand Coalition. The government hopes that football's feel-good factor will not only distract Germans from unpopular reforms tomorrow, but it will continue through the summer and prevent a couple of potentially embarrassing defeats at by-elections due in September.
However, some observers believe the chancellor is banking too much on the football factor. Opposition Free Democrats (liberal) leader Guido Westerwelle said “Personal contributions to pensions have gone up, we are witnessing the biggest single tax increase in German history and now it looks as if health contributions will also go up next year too. But as long as the German team goes on winning nobody is paying attention.”
What if the team loses to the tournament's bad guys tonight?
Win or lose, the hangover could go on longer than this week. The Scotsman warns that predictions of the feel-good factor and its effect on Germany's economy could be overblown. Indeed, its business correspondent adds, when tax increases are taken into account, the best that can be said about Germany's World Cup "bump" is that it has prevented the outlook from being even gloomier. The Economist echoes the sentiment, arguing that increased taxes will start to bite on Germany's mild domestic demand increase early next year.
It's not the summer of 2006 that the government should be worried about, it's 2007, they add - when a stalled recovery and return to high taxes could lead the grand coalition to crumble.
