Another day, another package of bad news for the German economy. This week there was a fresh dip in the Ifo business confidence index and statistics showed that investment dived in the second quarter. The mighty economy shrank by 0.5 per cent in the second quarter.

This is new territory for Angela Merkel, the chancellor, who has enjoyed a healthy economy and annual growth of 2.6 per cent since coming to power in late 2005. As she embarks on the last year of her term, she faces the challenge of tackling an economy that is fast losing steam – and there are few signs she will rise to the test.

It is not too late for the chancellor to do the right thing. A year is more than enough time to rally her grand coalition behind a genuine reform of the country's wasteful healthcare system. That would free funds for a big cut in employer and employee healthcare contributions that currently gobble up more than 14 per cent of gross wages. This reform wouldinject cash into people's pockets, boost anaemic consumption and make labour cheaper just at a time when job creation is peaking – all at a low cost to the public coffers.