Nov. 7 (Bloomberg) -- German Chancellor Angela Merkel is attacking bankers and busting her budget as she heads into an election year dogged by fallout from the credit crunch.

When she attends a European Union summit in Brussels today, Merkel can say she is being tougher on financial executives than her U.S. and European counterparts. She has banned bonuses and pushed pay caps, calling lenders ``greedy'' villains as Germany heads toward recession.

Merkel, 54, who narrowly won office in 2005 as a pro- business candidate, has all but abandoned a goal to balance the budget. On Nov. 5 she announced a 50 billion-euro ($65 billion) stimulus package to spur economic growth. Further outlays may prove irresistible before the September 2009 election.

``There is quite clearly a definite shift to the left,'' said Berthold Welling, a tax and finance expert at the BDI federation of German industry. ``The bank-rescue package forces applicants to subject themselves to what the government wants.'' There is ``a great danger'' that Merkel will cave in to spending demands that ``would've been unthinkable two months ago.''

The government's 500 billion-euro rescue plan, announced Oct. 13 and passed by parliament four days later, comes with strings. It not only requires that the state be granted a stake in banks that apply for funds, as in the U.K, it also makes financial institutions cap manager pay at 500,000 euros, relinquish bonuses, abandon businesses the state decides are risky, and pay dividends only into the state-run fund.

Pay Capped

Commerzbank AG Chief Executive Officer Martin Blessing said Nov. 3 that his pay will be capped at 500,000 euros and he will receive no bonuses after the bank, Germany's second-biggest, announced it will receive 8.2 billion euros in capital from the government.

Blessing, who took over as CEO in May, earned 2.05 million euros in salary and bonuses last year as a management board member, and his predecessor, Klaus-Peter Mueller, was paid 3.22 million euros, according to Commerzbank's 2007 annual report.

The German conditions are tougher than in the U.S., where banks accepted for a $250 billion investment program must pay additional taxes on top executive compensation over $500,000 a year. In the U.K., Prime Minister Gordon Brown ordered the Financial Services Authority to draft a code on compensation. The FSA said it would aim to end ``bad practices'' but had no desire to set pay.

``This is about the protection of citizens, not the protection of banking interests,'' Merkel told lawmakers in Berlin on Oct. 15. ``We're offering something and they have to offer something in return.''

`Ashamed'

Dissenters have heard from Merkel's government. When Deutsche Bank AG Chief Executive Officer Josef Ackermann was quoted in Spiegel Online on Oct. 18 saying he would be ``ashamed'' to take government money, Thomas Steg, a Merkel spokesman, criticized it as ``unacceptable.'' Ackermann told Bild am Sonntag newspaper the next day that banks needing help ``should not refuse for reasons of misconceived prestige.''

Polls show Merkel's approach is winning voter backing. Seventy-two percent of respondents to an Infratest dimap poll published today said they think Merkel, leader of the Christian Democrats, has done ``good work'' in dealing with the financial crisis. That compares with 65 percent for her Social Democrat Finance Minister Peer Steinbrueck -- though he has also slammed the ``arsonists'' who lit the credit conflagration.

Manfred Guellner, head of polling company Forsa, says Merkel's attitude makes simple political sense. ``Bank-bashing is going down well,'' he said.

Party Rises

Support for the Christian Democrats is 36 percent, up 3 percentage points from the beginning of October, before the bailout was announced, according to a Forsa poll of 2,501 voters published Nov. 5. The Social Democrats, her coalition partners and election rivals, lost 1 point over the same period to score 26 percent. The margin of error was 2.5 percentage points.

``The incentive to adopt left-leaning positions is very high in the current environment,'' said Juergen Michels, a Citigroup Inc. economist, adding that they ``fall on fertile ground'' with the public and some in Merkel's party. She will ``be tempted to hand out treats in a way that appeals to the masses.''

The government slashed its outlook for 2009 economic growth last month to 0.2 percent from 1.2 percent. Steinbrueck, in a speech on Oct. 29, said the government was planning a package of measures to bolster the economy worth about 15 billion euros.

Stimulus Package

By the time the Cabinet met this week, it had swelled to a two-year program, including new tax credits and subsidies for energy efficiency, worth 50 billion euros. At the same time, Merkel said a pledge to balance the federal budget by 2011, while still a ``goal,'' will probably be put off until the next legislative period, which ends in 2013.

Merkel hasn't hesitated to criticize bosses before. In a speech to her party convention in December last year, she won applause from delegates when criticizing ``fantasy compensation'' for executives. Her comments came two days after media reports that Porsche SE Chief Executive Officer Wendelin Wiedeking was paid about $100 million in 2006.

``It would be hard in the current environment to win anybody over with a radical pro-market doctrine,'' said Uwe Andersen, a politics professor at Ruhr University Bochum. That approach ``is losing ground at the international level and will do so nationally.''

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net.

Last Updated: November 7, 2008 06:06 EST