Merkel Warns Against German Tax Rises as Euro Crisis Not Over

German Chancellor Angela Merkel said she’s opposed to any tax rise for Europe’s biggest economy as the 17-nation euro bloc remains in crisis.

“If the first thing we do is raise taxes for those who are successful, then it could be they won’t want to create any more jobs,” Merkel said at an election rally of her Christian Democrats in the western city of Osnabrueck yesterday. “Therefore, tax increases are wrong.”

Merkel is stepping up attacks on opposition Social Democratic challenger Peer Steinbrueck who’s calling for tax increases. Eight days before the Sept. 22 elections, polls show Merkel’s lead over the SPD holding and Germany’s first woman chancellor within grasp of a repeat of her current coalition with the Free Democratic Party.

“The euro crisis isn’t over but I see the first small green shoots giving us hope,” Merkel said, repeating her “nein” to a debt redemption fund to assist indebted euro nations.

Steinbrueck, speaking in an ARD television town-hall style interview on Sept. 11, defended his party’s plan to expand taxes on the wealthy to fund Germany’s “dilapidated” infrastructure and local governments. The SPD plans to raise the top income tax rate to 49 percent from 45 percent.

Support for Merkel’s Christian Union bloc dropped one percentage point from a week earlier to 40 percent in an FG Wahlen poll yesterday for ZDF television. Together with its pro-business FDP coalition partner, which held at 6 percent, there would be enough for Merkel to continue her government for four more years if the result is replicated on Election Day.

Greens Gain

The SPD was unchanged at 26 percent and their Green party allies gained a point to 11 percent. The anti-capitalist Left Party was unchanged at 8 percent. Steinbrueck and SPD leaders have vowed not to form a coalition with the Left, the successor to former East Germany’s communists, which calls for nationalizing large banks, imposing an annual wealth tax and scrapping NATO.

The anti-euro Alternative for Germany party, or AfD, rose one point to 4 percent support -- below the 5 percent threshold need to wins seats in the Bundestag under German election law.

The survey of 1,298 voters was taken Sept. 10-12. No margin of error was given.

Even if Merkel fails to win a repeat of her current coalition with the FDP and resorts to a repeat of the grand coalition with the SPD she had from 2005 to 2009, the result would be political continuity, Citigroup analysts led by Alessandro Tentori wrote in a client note.

Periphery bond spreads could see volatility in a left coalition of SPD, the Greens and the Left Party, which is unlikely, Citigroup said.

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