Merkel centre-right hopes at risk as Germans vote

By Alexandra Hudson

BERLIN (Reuters) – Germans voted on Sunday in a federal election that looks likely to return Chancellor Angela Merkel to power but may deny her the center-right government she says is needed to revive Europe's largest economy.

Four years after taking office to lead an awkward "grand coalition" with the Social Democrats (SPD), Merkel enjoys high popularity ratings, and opinion polls give her conservatives a healthy 8-11 point advantage over their center-left rivals.

But after running a cautious campaign that was criticized for lacking passion and substance, support for Merkel's Christian Democrats (CDU) has slipped and she can no longer count on her coalition of choice with the business-friendly Free Democrats (FDP).

Should she fail to win enough support to team up with the FDP, she will probably be forced into the same uneasy right-left partnership she has presided over since 2005, dooming her plans to cut taxes and extend the lifespan of German nuclear plants.

Polling stations for Germany's 62 million eligible voters opened at 8 a.m. (2 a.m. EDT) and first exit polls are due at 6 p.m. (12 p.m. EDT).

On a sunny autumn day, early voter turnout was lower than at the last election, according to the electoral commissioner. By 2 p.m., 36.1 percent of voters had cast their ballots, down from 41.9 percent at the same time in 2005.

It may take hours to become clear whether Merkel's CDU has benefited from a quirk in German election rules that pollsters say could give them 20 extra "overhang" seats in parliament -- gains that could tip the scales toward a center-right majority.

An estimated one in five voters were still undecided on the eve of the vote, increasing the chances of a surprise.

"It was difficult to decide who to vote for, but I know who I don't want in government, so that helped me," said Katrin Rivier, a 49 year-old nurse voting in Berlin.

"I think it will be a very tight race today but I'm hoping we don't get a center-right coalition."

DEEPEST RECESSION

Merkel's SPD challenger Frank-Walter Steinmeier, who has been her foreign minister for the past four years, also cast his vote in Berlin. His party risks scoring under the post-war low of 28.8 percent it received in 1953, but he voiced confidence.

"I've felt a great amount of support and a lot of interest in our cause. And that's why I'm very, very confident about today," he told reporters.

The vote was taking place amid heightened security. Authorities have placed heavily armed police at airports and train stations after several al Qaeda videos last week threatened Germany with a "rude awakening" if voters back a government that keeps troops in Afghanistan.

Some 4,200 German soldiers are stationed there as part of a NATO-led force and all the main parties support the deployment, except the far-left "Linke," or Left party.

The election also comes at a crucial time for the German economy, which is just emerging from its deepest recession of the post-war era.

The next government will have to get a soaring budget deficit under control and cope with rising unemployment as the impact of 81 billion euros ($119 billion) in government stimulus spending fades.

Germany's fragile banks have reined in lending, sparking fears of a credit crunch. Longer-term, Berlin must find solutions to an aging population that threatens to send public pension and healthcare costs soaring over the coming decades.

NO RADICAL CHANGE

In spite of these challenges, the German vote is not seen as marking a turning point, and the next government is unlikely to push for radical new policies, regardless of its make-up.

Unlike voters in the United States and Japan, Germans do not seem keen for change. Many are content with the steady "small steps" leadership of Merkel, Germany's first woman chancellor and the only one to have grown up in the former communist east.

In her first term, she patched up relations with Washington after the strains of the Iraq war and won respect for brokering deals on climate change during Germany's dual presidencies of the European Union and Group of Eight in 2007.

At home, Merkel shelved economic reform plans she had advocated in the 2005 campaign and focused on traditional themes of the left, like family policy and the environment.

Last year, her government was slow in recognizing the significance of the financial crisis, but it then pushed through two stimulus packages, including a car-scrapping scheme that shored up automakers and was later copied by the United States.

Some analysts fear a new grand coalition would be less stable and harmonious than the first, possibly not surviving a four-year term.

"A revival of the grand coalition would be no more than a marriage of convenience, bound to fracture quickly," said Carsten Brzeski, senior economist at ING.