Capello: 'We've lost our fear factor' (Does he know it's Germany next?)

Defoe keeps England's hopes alive - but manager attributes 1-0 win to beers shared the night before

Fabio Capello was handed a formidable last 16 encounter with Germany last night, though he believes England's renaissance has begun following his decision to break the shackles and allow them the chance to drink South African beer the night before yesterday's win over Slovenia.

The old rivalry with the Germans is one that Wayne Rooney said last week he wanted to renew as quickly as possible – "so we can beat them" – but a repeat of the 1990 semi-final has come sooner than Capello would have hoped. The failure to win Group C also sets England on a difficult route to the final, which Capello insisted on Tuesday night was within their grasp. If they beat Germany in Bloemfontein on Sunday, they will encounter a probable quarter-final against Argentina in Cape Town and could then face Portugal or Spain in a semi-final in Durban.

England were seconds away from progress as Group C winners, which would have left them facing Ghana near their base in Rustenburg. But as England's players began their on-field celebrations after securing their 1-0 win over Slovenia, the United States secured a 90th-minute goal over Algeria which sent them through as group leaders, by virtue of having scored more goals than England.

Capello believes the qualities which saw his side ease through qualifying have been restored, though. "I changed something; used my imagination. It was free – South African beer," he said of his softening on the no- alcohol policy which is standard at club sides on the eve of a game. "I'm sure that we'll play with more confidence because we refound the spirit. We can go forward without fear," Capello added. "The quality of the players is really good. We improved a lot, physically, because we ran a lot today, pressed a lot, and won back the ball really well. We played well."

Frank Lampard said none of the players had taken up the offer of a drink. "A lot has been made about the boredom in the hotel. You can't come away for a month and live like a monk. The manager is aware of that and it's not like that," he said. But England certainly looked a freer force in a win sealed by Jermain Defoe's strike and a superb contribution by James Milner, who supplied the goal.

Wayne Rooney is a doubt for Sunday after taking a kick to his right ankle, which led Capello to withdraw him after 72 minutes. It was the same ankle he sprained against Bayern Munich in March's Champions League quarter-final first leg. Pressed on how serious the injury was, Capello added: "I don't know. I have to wait for the doctor, but I think it will be OK for Sunday." Rooney avoided Capello's hand as he left the field after another frustrating afternoon which extended his international run without scoring to eight games for England.

The encounter with the Germans is already spiced up by Franz Beckenbauer's claim in a newspaper article 10 days ago that England were heading "backwards" under Capello and had reverted to a game of kick and rush. Sources close to Capello responded by suggesting Germany were "scared" of England and Capello criticised Beckenbauer last week.

Germany will present a formidable challenge, with Mesut Ozil's winning goal last night underlining the threat he represents for England's defence, having graduated so impressively from the Under-21 team that beat their England counterparts 4-0 in the final of the European Championship last summer. But England won their last game against Germany 2-1 – the friendly in Berlin in November 2008 – and will be encouraged by Germany's 1-0 defeat to Serbia in their second game. Miroslav Klose, dismissed then, will be available again for Sunday. Capello's decisions include whether to retain Matthew Upson or bring back Jamie Carragher after a one-game ban.

Capello has repaired his relationship with John Terry, striding on to the pitch at the final whistle and making a point of embracing his former captain here. "He's a leader," Capello said of Terry. "I have no problems with the players. I respect them and they respect me. It was really important – the performance of John Terry."

Capello said the fear with which his side had played in the previous group games had evaporated. "I saw the team with the spirit that we'd lost in the games we played before this game"

Lampard brushed away suggestions that England have made life harder for themselves in the last 16. "I couldn't care less that we've finished second," he said. "It's hard to pick and choose your games. Maybe it's a bonus to have an extra day's rest."