Things are finally going right with the German economy and the race is on - for the cash and the kudos. Economic growth has reached a seven-year high and is expected to reach 2.3 per cent this year, while confidence among German business managers has reached a 16-year high.

The icing on the cake is the jobless rate, which dropped below the accursed four million (10 per cent) mark last week for the first time in five years.

Labour minister Franz Münterfering went public with the figures a day early, on May Day, to sell the news as a late victory for his Social Democrats (SPD) and the reforms of former chancellor Gerhard Schröder. The party is rapidly losing its profile in the grand coalition and, nearly two years after finishing the general election neck-and-neck, is trailing six points behind Angela Merkel's Christian Democrats (CDU) in opinion polls.

To revive its traditional profile, party leaders have thrown their weight behind two trade union campaigns: substantial wage increases during this year's pay talks and a minimum wage for all.

The first pay deal came last week in southern Germany when engineering and metalworkers' union IG Metall and employers agreed a 4.1 per cent pay increase for its members, with a one-off €400 bonus and an additional 1.7 per cent next year.

Both sides were pleased with the deal. Union leaders had warned that, considering companies' full order books and rising profits, a mean slice of the pie would be unacceptable and would lead to prolonged strikes.

Economists and employers had warned that initial wage demands of 6 per cent or more could eat away the competitive ground Germany had won following years of pay restraint.

This southern deal traditionally sets the tone for pay deals elsewhere in the state and now economists predict nationwide wage deals will lead to an average wage increase of 3.5 per cent, ahead of inflation of 2 per cent.

"Fears that wages would rise excessively didn't come true," said Stefan Bielmeier, economist at Deutsche Bank. "The deal means more purchasing power for employees. Both together are good for the economy."

The deal has also turned attention to a related political hot potato: unions' demand for a minimum wage of €7.50 an hour.

Unlike nearly all of its EU neighbours, Germany has rejected an across-the-board minimum wage in favour of sector-by-sector pay deals. But public support for a minimum wage is rising following press reports of sub-contracted Slovak slaughterhouse employees on €3.50 an hour and eastern German hairdressers earning €3.80. "Whoever works full time has to be able to live from their earnings; that's not asking too much," said SPD leader Kurt Beck last week.

He hopes to improve his non-existent public profile after a year as SPD leader by painting himself as someone close to union leaders, many still smarting from the Schröder experience. He favours a gradual introduction of a minimum wage, conscious of political realities of the grand coalition in Berlin.

"How far we will get with our coalition partner, I can't say," he said. Not far, judging by the language issuing from CDU headquarters, where officials call minimum wage a "job killer".

The real political battle is ahead but, for now, the minimum wage debate has given the SPD a popular bone to run with.

Popularity, meanwhile, could become a problem for SPD finance minister Peer Steinbrück.

Projections out this week will show that he is about to be hit by a tax tidal wave: rising company profits and employment will wash €11 billion more than expected into his coffers this year, and €20 billion next year.

In total, the economic recovery will generate an anticipated €90 billion in extra tax revenue, meaning Steinbrück can expect to be very popular at the cabinet table. But he has other plans for the money: balancing the federal budget by 2011 for the first time in 42 years.

If final proof were needed of Germany's boom, it is in the countless politicians who, in the last weeks, have taken credit for it. After years as a failing orphan, the newly-successful Germany is overwhelmed with would-be fathers.