Merkel defends coalition record amid sinking polls

BERLIN, Aug 21 (Reuters) German Chancellor Angela Merkel brushed aside sinking popularity polls today, saying her government had cleaned up its finances and boosted prospects for economic growth.

''We are coming out of our debt spiral,'' she told a news conference after returning to Berlin from a hiking holiday in the Alps with her husband. ''Germany is no longer seen as the sick man of Europe.'' During her vacation, Merkel suffered a barrage of criticism over her left-right coalition's reform drive and her reluctance to speak out quickly on whether Germany should send troops to the Middle East.

Although her nine-month tenure has coincided with a long-awaited upturn in the German economy, the coalition's ratings have slid in recent months after wrangling between the ruling parties over corporate tax and healthcare reforms.

Because of her narrow election victory last year, Merkel's conservatives were forced into a governing partnership with their long-time rivals, the Social Democrats (SPD).

A Forsa poll last week showed 31 per cent of Germans support Merkel's conservatives, well below their September election result and down sharply from earlier in the year. Only 37 percent of Germans said they favoured her as chancellor.

Merkel called on the parties, neither of whom would come close to winning an election outright if it were to be held now, to stick together and said she stood by the coalition programme they agreed prior to taking power in November.

However, she dismissed SPD calls to raise taxes to pay for healthcare in view of an imminent value-added tax hike.

''In the situation we are in at present, tax increases would send the wrong signal,'' Merkel said in an unusual 1-1/2 hour news conference that touched on domestic and foreign policy.

Among others, Merkel listed new child benefits and efforts to integrate Germany's foreigners as major milestones.

But her domestic accomplishments are perceived by many as less impressive than her successes in foreign policy, where she has mended ties with the United States after her predecessor Gerhard Schroeder's clash with the White House over Iraq.

''Germany is back at the centre of the international community which allows us to exert our influence,'' Merkel said.

In defending her coalition's achievements, the 52-year-old Merkel was careful to thank her SPD predecessor Schroeder for having kicked off much-needed economic reforms she said had helped the economy turn the corner.

Unemployment has declined steadily over the past year and gross domestic product is expected to grow by about 2 per cent this year, its highest rate since 2000.

Thorny issues like labour market and healthcare reform remain to be tackled in earnest in the coming months, while a recent failed plot to bomb German trains are likely to heighten security concerns and fuel the debate over integration.

REUTERS MS RN2122