whereas the government cares more than anyone about the merchants' and customers' privacy.
What do you mean by that? I am not sure I understood. Unless you meant that governments care about not allowing merchants' and customers' being private, so they can always keep an eye on their trades and their identities.
Monero's recent delisting on a major exchange ( I think it was Binance, but I could be wrong) is proof of why in my humble opinion should NEVER be made entirely anonymous. This would end bitcoins chance at ever becoming a world wide currency system.
Do you think Satoshi chose to make Bitcoin pseudonymous and not anonymous for this reason? I mean it could be an argument, that if Bitcoin had Monero's features, then the governments would want to shut it down instead of surveilling it.