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Germany

Merkel Seeks to Unite CDU on Financial Crisis

German Chancellor Angela Merkel's Christian Democrats (CDU) begin a party conference amid deep divisions over how Germany should come to grips with the worst financial upheaval in decades.

Merkel speaking at a party conference, with other delegats and a CDU logo seen on a screen next to her

The chancellor hopes to get the CDU behind her

Merkel has called for a measured response to the crisis, saying the economic stimulus package enacted by her government, a coalition with the Social Democrats (SPD), should be given time to kick in before further action is taken.

This is not enough for many in the CDU and its Bavarian sister party, the Christian Social Union (CSU), who want tax cuts to be introduced before the nation goes to the polls in a general election that's likely to take place on Sept. 27, 2009.

Merkel is opposed to lowering taxes before the polls, pointing out that Berlin's prime goal is to reduce borrowing and balance the budget. Originally, the government had hoped to balance the budget by 2011, but that date was abandoned after Germany fell into recession and the government was forced to increase net borrowing for 2009 by eight billion euros to 18 billion euros ($10.3 billion to $23.1 billion).

Lacking vision?

Nicolas Sarkozy and Angela Merkel pointing in different directions

French President Sarkozy and Merkel don't see eye to eye on economic stimuli

Some critics have accused the chancellor of lacking vision and responding too late to the crisis. Her refusal to pump more funds into the European Union's 200-billion-euro economic recovery package prompted one opposition deputy to refer to her as "Madame No" in a debate on the budget in parliament this week.

Analysts say the CDU leader will seek to keep her options open at the party conference in Stuttgart in order to allow her plenty of leeway when leaders of her "grand coalition" meet on Jan. 5 to discuss whether further steps are needed to combat the recession.

Tax cut debate

The tax cut issue is expected to dominate proceedings that Merkel had initially hoped to use to promote her government's economic achievements. But that was before the severity of the global financial crisis torpedoed to center stage.

"Given the current situation it is more important to promote growth than to balance the budget," said Peter Mueller, CDU prime minister in the state of Saarland.

Michael Glos gesturing during a debate

Glos thinks the government should take less money from people right now

Christian Baldauf, CDU party leader in the state of Rhineland-Palatinate, believes tax cuts are the best way to revive the economy.

"It's vital that the people have more money in their pockets," he said.

Economics Minister Michael Glos, a member of the CSU, is also in favor of lowering taxes, particularly for those in the middle and lower-income brackets.

"It will help the economy," he said. "Special measures are needed in special circumstances like these."

Early campaigning

Steinmeier with flowers after his election as candidate for chancellorship

Steinmeier is hoping to unseat Merkel next year

Merkel has found an ally for fiscal prudence in Peer Steinbrueck, the sharp-tongued SPD finance minister. For some in the CDU, this is evidence that the chancellor is not paying enough attention to her own party's profile in the coalition with the Social Democrats.

Opinion polls show the CDU with a comfortable 10-percent lead over the SPD and Merkel herself well ahead of Foreign Minister Frank-Walter Steinmeier, the SPD candidate who will battle her for the chancellorship next year.

But this lead could melt if the recession drags on and unemployment rises sharply, analysts warn.

Unwanted marriage

Merkel experienced a similar situation in the last election in 2005, when her party was well ahead of incumbent Gerhard Schroeder's SPD in opinion polls, only to see the gap narrow to one percent on election day.

Merkel and FDP leader Guido Westerwelle

Merkel wants a coalition with FDP leader Guido Westerwelle

That left the CDU without enough parliamentary seats to form an alliance with its preferred partner, the Free Democrats. Instead, the CDU was forced into a marriage of convenience with the SPD. In one of their first acts as grand coalition partners, the two parties raised sales tax by three percent to 19 percent and cut a range of tax subsidies.

This helped Germany regain its position as Europe's economic locomotive, until it slipped into recession in the third quarter of this year.

Nevertheless, the chancellor believes the nation is better equipped that most "to overcome the challenges posed by the global economic crisis." This is because the CDU, "the biggest party of the center in Germany, is holding its course," she said in her invitation to delegates in Stuttgart.

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