Merkel's conservatives gird for election fight

"We have the power to lead our country out of the crisis, the likes of which the Federal Republic has never seen before. We also have the power to make it stronger than it was before the crisis," Merkel told reporters. "We can drive the history of Germany, and in a direction that makes sense for people."

Merkel's Christian Democrats (CDU) and their Bavarian CSU allies hope that their programme will be such a vote-winner as to enable them to ditch their current "grand coalition" partners, the Social Democrats (SPD).

Unable to secure a majority on its own, the party wants to govern instead with the Free Democrats (FDP), who with their fondness for small government and tax and spending cuts are ideologically much closer to the CDU.

"We are convinced that our programme can be best implemented with the FDP. That means that we want to end the 'grand coalition' and form a coalition with the FDP," Merkel said Sunday.

Although 54-year-old Merkel herself, chancellor since 2005, remains popular, poll ratings indicate that the CDU/CSU and the FDP will have their work cut out winning a majority of seats in the September 27 vote.

Merkel was due to present the manifesto, which includes €15 billion ($21 billion) in tax cuts despite Germany's worst recession in decades torpedoing its public finances, at a party conference in Berlin on Monday.

"We have to prevent every cent that people get through wage increases going straight to the taxman," she said.

Merkel declined to say when the tax cuts would happen, which involve cutting the tax rate for low earners and raising the limit at which the highest tax rate kicks in, saying only that they will come in the next parliament.

She also ruled out increasing value added tax (VAT). Mindful of the public anger at the efforts of her predecessor, the SPD's Gerhard Schröder, the manifesto was short on root-and-branch reform proposals for the labour market, the social security system or healthcare.

With less than 100 days to go until the election, the biggest issue in the campaign will be the sorry state of the German economy.

Despite two stimulus packages worth a combined €70 billion ($98 billion), the economy is on course to slump six percent this year, and unemployment is expected to rise above four million in 2010.

Despite a €480-billion rescue package for the financial sector and record low eurozone interest rates, banks remain wary about lending money to firms already struggling with the stormy economic conditions. Half a million people angered and worried by the recession rallied across Germany on May Day, and there have even been warnings in some quarters of social unrest.

The slump has also blown a "monstrous" hole in the country's public finances, putting it on course to be in breach of European Union rules until 2013 or 2014, Finance Minister Peer Steinbrueck said last week.

The SPD meanwhile is in disarray, notching up its lowest-ever score in European elections on June 7. Its chancellor candidate, Foreign Minister Frank-Walter Steinmeier, is well behind Merkel in surveys of voters.

The latest poll on Sunday from ARD public television showed just 14 percent of voters thought that the SPD was the best party to steer Germany through the recession. The CDU/CSU scored 42 percent.