Ground Floor: Twenty years ago the news that German consumer confidence was high wasn't really news at all.

Back then the German economy was the benchmark against which all European economies were measured (and usually found wanting). When, in October 1990, German reunification took place, many traders were uncertain as to the country's economic prospects. We were concerned that the exchanging of ostmarks for deutschmarks at parity would do irreparable damage to the unified economy because it was patently clear that there wasn't an equal economic relationship between West and East Germany and that this should have been reflected in the reunification exchange rate.

But this was one time that political sentiment very clearly outweighed economic judgment and the resultant one-for-one exchange has been a heavy burden on Germany ever since.

The situation immediately after reunification was that east German firms had to compete with their western counterparts at identical cost levels, even though east German productivity was much lower. If we have learned anything over the Celtic Tiger years it is that increased productivity brings increased benefits to the economy.

But the productivity gap was a significant problem in trying to manage both eastern and western German economies under a deutschmark regime and the fallout continues to be a burden on the German economic cycle. Although it is generally accepted that their political and administrative reforms have been reasonably successful, the eastern region of Germany receives government subsidies of almost €80 billion every year, is still struggling to build up its economic base.

One of the problems is that young people from the east are continuing to migrate towards the west, resulting in an age imbalance in that region, while businesses in the east are generally much smaller and much shorter on capital than in the west and have competitive difficulties. Growth in the region is still insufficient to eliminate the major unemployment problem.

While many of these potential issues were highlighted in advance of reunification, the politicians felt that increased demand from the east German market, newly opened up to the west, would drive the economy forward. But things didn't work out like that. Many businesses that the politicians thought would locate in east Germany were attracted instead to Poland and the Czech Republic, which marketed themselves in a more forward-looking way.

Eastern Germany still retained a bureaucratic administrative system with high levels of public sector employment. Somehow, it was less able to embrace the future than other former communist states, while people in the west began to resent the continued shovelling of state aid in one direction.

All of this meant that, during the last 16 years, Germans' confidence in their country and their economy has been low. Growth has been poor and unemployment has been rising. But west Germans have not wanted to change what many now regard as outdated work practices and generous state benefits. Old Europe was becoming an anachronism and Germany was at its heart.

Then, in January this year, consumer confidence climbed from 4.0 to 4.6. The leap in confidence was attributed to support for the new government of Angela Merkel and the hosting of the World Cup later this year. After such a difficult time in getting a government together in the first place, Merkel's popularity has continued to rise and she has pledged to give €25 billion in tax breaks to smaller businesses to help them move forward. At the same time she will increase sales taxes next year, which has encouraged consumers to buy now.

There is scope for increased consumer spending, since concerns about the economy in the past have meant that Germans have been prodigious savers over the last number of years. The government will be pleased to see them finally raid their bank accounts and start buying again. Additionally they're expecting plenty of tourist income from the football extravaganza in June (Adidas-Salomon increased its earnings forecasts thanks to soccer-related orders).

There is greater optimism amongst workers in relation to their pay too, with optimism on future incomes as measured by the Gfk index, which rose from -11.3 last month to 4.5 now.

This month's much-regarded Ifo index, which measures business confidence, jumped too, even though many economists had expected it to fall slightly. Business confidence in Germany is now at its highest level in 14 years.

The IMF predicts that German growth will go to 1.5 per cent in 2006 compared with 0.9 per cent last year and the Bundesbank has commented on a positive backdrop of "a robust global economy and favourable export expectation".

All is not completely rosy in the garden, of course. Unemployment is still a major factor for the economy and stands at 11.2 per cent. It seems almost unreal to think that about 20 years ago the German and Irish economic situations were almost exactly reversed.

It's unfair to blame all of the German economic difficulties on reunification, but it has been a large part of it and it has taken a long time for the two disparate economies to begin to think as one. Yet this may finally be beginning to happen.

Merkel has been busy promoting the World Cup as a unique opportunity for Germany to present itself to the world as a "modern land of ideas" and the Federation of German Industries will be fronting a business location and image campaign throughout the event.

Merkel herself admits to not being a footballing expert but she claims to understand the offside rule and has been trying to keep up with the Bundesliga.

And as with all politicians she draws similarities between footballers and politicians, suggesting that the cabinet needs to behave like the football team - team players from different clubs needing to get on with each other both on and off the pitch. Naturally she's hoping the football team will lift the trophy.

That would push consumer confidence even higher.