Merkel with Irish PM Kenny
Merkel with Irish PM Kenny Reuters

German Chancellor Angela Merkel is in an enviable position as compared to her European colleagues. Thanks to the comparatively strong state of the German economy, she can punctuate the run-up to national elections next year by increasing social spending, whereas governments taking the austerity cure have had to cut down social benefits.

The three parties comprising Merkel's coalition, the Christian Democrats (CDU), the Free Democrats (FDP) and the Bavarian Christian Social Union (CSU), the more conservative sister party of the CDU, produced an agreement after lengthy talks..

The FDP can claim credit for revoking the quarterly €10 fee for patients visiting physicians. The CDU and CSU in return got an extra allowance for home child care. Additional goodies for the welfare basket included aid to impoverish retirees and additional spending on transportation. The government justified the cancellation of the unpopular health fee by pointing to heavy surpluses in the health insurance plans.

Despite the handouts, the government persisted with a promise that Germany would deliver a structurally balanced budget in the year 2014. The agreement was criticized by the opposition, but also by sectors of the German financial community.

The former believe that it smacked of opportunism and a lack of solidarity with other European countries to whom Chancellor Merkel preaches the benefits of budget tightening. Other critics claim that Germany is putting itself in a financial hole and is not taking precautions for a rainy day.

The promise of a balanced budget in 2014 means massive cuts and the government has not yet indicated where these would come from. Therefore, this smacks of après the elections the deluge. Judging by the Chancellor's top current popularity, these elections should return her to power.

The current betting is that Germany will revert to a "grand coalition between the Christian Democrats and the Social Democrats. The Free Democrats have sustained a major drop in popularity to the point that a serious possibility exists that they may not cross the electoral threshold.  Any alternative coalition requires the participation of the former German Communists. This is still a nein nein in Germany.