Update: Kindly linked by Andy.

I believed that Germany needed Angela Merkel—a moderate conservative who could be a tough-minded economic reformer. I was in love with the idea that she could be the leader to tear apart the broken apparatus of Germany’s overwhelming social programs and build up new structures of commerce and stability.

Trouble is, Merkel isn’t the person that I thought she was and the reforms being proposed by her coalition government could be far more ruinous than Schroder’s incompetent neglect. God help Germany.

The specifics of the proposal aren’t just ugly: they contradict the economic policies that have maintained healthy economies in the US and helped usher in growth in emerging economies throughout the world.

Germany’s plan to cure its self-confessed economic failure by doing exactly the opposite to what modern economics would suggest is certainly a bold and novel idea. Jim O’Neill, the chief international economist of Goldman Sachs, remarked on television last week that German politicians are acting as if they had never seen an economics textbook, much less understood one.

Accordingly, the new German Government has decided to impose one of the biggest tax increases in postwar history and to target the extra taxes on the weakest and most sensitive parts of the economy: consumption, which will suffer a three percentage point increase in VAT, and housing, which will lose tax incentives for first-time buyers. In addition, to fend off accusations that the new consumption taxes will bear unfairly on poorer consumers, the Government will hit the rich as well, increasing the top rate of income tax from 42 per cent to 45 per cent.

What Merkel’s coalition has done, simply, is to wave the white flag. They are admitting that they don’t have the backbone to re-work the social programs that are dragging the economy down, admitting that they have no idea how to broaden the tax base by making an economic climate more conducive to business expansion (and job growth), and admitting that in the absence of other ideas they will simply ask the working class to foot even more of the bill for the unemployed and retired.

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