Merkel, with eye on EU issues, risks strife at home

BERLIN, June 17 (Reuters) German Chancellor Angela Merkel is facing growing discord in her ruling coalition and could return from playing the stateswoman at a European Union summit this week to strife at home.

Senior figures from Merkel's conservatives and the Social Democrats (SPD) meet on Monday for regular talks but policy differences risk exacerbating a split between the rival parties, who were forced into a ruling partnership at the end of 2005.

SPD leader Kurt Beck criticised Merkel last week, saying a deal she brokered on greenhouse gas cuts by world powers lacked substance. A showdown between the ruling parties over a national minimum wage has further poisoned the atmosphere between them.

''The SPD should cease firing,'' Lower Saxony Premier Christian Wulff, a senior conservative, told the Welt am Sonntag newspaper, calling for cooperation in the coalition on policy.

The in-fighting could take the gloss off foreign policy successes for Merkel, who earlier this month secured an Africa aid deal with world powers and is trying to forge an accord on a new EU treaty before a June 21-22 summit of the bloc's leaders.

Merkel has built up a reputation as a competent, no-nonsense leader with a gift for international diplomacy that she has showcased this year during Germany's presidency of the EU and chairmanship of the Group of Eight club of world powers.

Her successes have left the SPD floundering and searching for ways to close a gap in opinion polls with the conservatives.

One poll earlier this month put support for the conservatives at 36 per cent, ahead of 27 per cent for the Social Democrats.

The minimum wage has offered the SPD a way to win back the support of blue-collar workers who have fled its ranks in droves, and the centre-left party has been pushing the issue.

''I advise the Union (conservatives) to urgently drop their pigheaded ideology and look at the reality around the country,'' Foreign Minister Frank-Walter Steinmeier, an SPD member, said of the minimum wage in an interview with newspaper Bild am Sonntag.

The SPD wants a minimum hourly wage to shield German workers from wage dumping -- undercutting by cheap foreign labour.

Merkel and members of her Christian Democratic Union (CDU) say wage setting must reflect differences in various sectors of the economy. They say a new minimum wage could cost jobs.

''It cannot be the case that the state says what the right cost of labour is,'' Hesse Premier Roland Koch, another senior conservative, told the Frankfurter Allgemeine Sonntagszeitung.

''The market must do that.'' The conservatives have already forced their centre-left partners to swallow a cut in corporate taxes and concern is mounting in the SPD ahead of four key state elections next year -- in Bavaria, Hamburg, Hesse and Lower Saxony.

Voters may not be too concerned about the strife in the ''grand coalition'' of right and left -- the first such government since the 1960s. A Polis/Usuma poll for Focus magazine showed on Sunday that 55 percent of voters did not want the coalition to remain intact after 2009 parliamentary elections.

REUTERS PJ KP2240