During her first few months in office, German Chancellor Angela Merkel has attained the kind of approval rating that politicians the world over dream about, largely due to the way she has handled herself on international matters in visits to Washington, Moscow and Brussels. According to a poll by Der Spiegel, the newsweekly, 85% of Germans like the way Merkel is doing her job.

But ask any politician -- George Bush, Tony Blair, Jacques Chirac -- about the likelihood of retaining such a lofty number and they'll tell you that what goes up can just as readily come down, especially when tough domestic issues have to be addressed.

In Merkel's case, that means trying to figure out ways to juice up Germany's economy, Europe's largest and the world's third biggest. It is a challenge that has been staring German leaders in the face for a long time, for a number of reasons: lackluster GDP growth over the last five years; a vast, overburdened welfare state; an anemic service sector; stubborn protectionist sentiment, and an aging population that will place greater strain on the nation's budget in years to come. In whatever policies she proposes, Merkel will have to tread softly so as not to alarm citizens and trade unions wary of change, yet firmly enough to achieve substantive results, say scholars at Wharton and business schools in Europe.

Nonetheless, surveys show that citizens and businesses alike are in the kind of upbeat mood that Germany has not enjoyed in years, an optimism that Merkel, who completed her first 100 days in office on March 1, and her coalition government may be able to capitalize on. German business confidence, as measured by the Ifo index, rose from 101.8 in January to 103.3 in February.