Merkel Shifts Focus to Economy Warning SPD Tax Plans Cost Jobs

Chancellor Angela Merkel turned the campaign focus to her stewardship of Europe’s biggest economy, warning that plans by the opposition Social Democrats to raise taxes would upend Germany’s robust labor market.

Merkel used a rally in the eastern town of Wernigerode yesterday to dismiss the notion that the government must create jobs, instead touting her Christian Democratic Union party’s alliance with business. She redoubled her attacks on SPD chancellor candidate Peer Steinbrueck’s planned tax increases for the wealthier as “poison” for the economy.

“We shouldn’t burden those who are successful with a conversation about envy, but rather encourage them so that it’s better for us all,” Merkel told a crowd of several hundred supporters in the town at the foot of the Harz mountains, many of whom waved orange placards emblazoned with “Angie.”

Merkel is campaigning on her record of driving unemployment down near a two-decade low and sheltering Germany from the worst of the euro-region debt crisis as she seeks a third term in the Sept. 22 election. Her case was bolstered today by figures showing the German economy picked up speed in the second quarter, driven by consumption and a rebound in investment.

Backing for the CDU and its Bavarian sister party, the Christian Social Union, held at 41 percent in an FG Wahlen poll for ZDF television released today, while her Free Democratic coalition partner gained a point to 6 percent. That’s enough to secure a rerun for Merkel’s current government if repeated on Election Day, and the first time in almost four years this poll has shown a majority for the present coalition, ZDF said.

No Movement

Steinbreuck’s SPD and its Greens party ally were both unchanged, at 25 percent and 13 percent respectively. The anti-capitalist Left Party held at 8 percent. FG Wahlen polled 1,287 voters on Aug. 20-22. The results have a margin of error of as much as 3 percentage points.

One month before the election, Germany’s jobless rate of 6.8 percent is almost half the 17-nation euro-area average, while economic growth of 0.7 percent in the second quarter helped lead the region out of its longest-ever recession.

Against that backdrop, Steinbrueck has so far failed to put a dent in the chancellor’s popularity with a platform of wealth distribution and social justice. Little more a quarter -- 28 percent -- of respondents to the FG Wahlen poll said they thought Germany would be more “socially just” under an SPD-Greens government. Just 18 percent said they expected the SPD to improve its score in the polls.

Greek Aid

The SPD tried to open a new front against Merkel this week over the cost of the debt crisis, accusing her of attempting to conceal the need for a third Greek aid program until after the election. Steinbrueck seized on comments made by Finance Minister Wolfgang Schaeuble on Aug. 20 that Greece will need additional funds, saying it was proof the government’s crisis policies weren’t working.

Schaeuble, in an interview with Handelsblatt newspaper published today, said that any Greek aid would be far lower than in the past and repeated that help would not involve a second haircut on Greek debt.

If Merkel wins a third term, “she will continue to take a gradualist approach to European integration, ruling out those ‘silver bullet’ solutions often urged on her by the rest of the world,” Dario Perkins, an economist at Lombard Street Research Ltd. in London, said today in a note. “Whether this approach proves sufficient to prevent the euro crisis returning depends on what happens to the European and world economies over the next few years.”

Tax Plans

Steinbrueck’s SPD plans to raise the top income tax rate to 49 percent from 42 percent. The SPD candidate yesterday told the Rheinische Post newspaper that he may consider tax changes to stop so-called “cold progression,” or bracket creep. Merkel, whose first term grand coalition government with the SPD raised the value-added tax to 19 percent from 16 percent in 2006, vows not to raise taxes.

“It’s the wrong thing to do during a time now where there are more jobs and our economy is largely in balance,” Merkel said in the town’s market square, ringed by half-timbered houses.

Both candidates continue campaigning next week with events scheduled across the country before the only televised election debate on Sept. 1.

To contact the reporter on this story: Patrick Donahue in Wernigerode, Germany at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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