Schröder claims he can win as Merkel falls back in polls

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A survey for Germany's ARD television channel showed that support for the Chancellor's SPD had increased by three points to 34 per cent in under a week, leaving Ms Merkel's Christian Democrats still ahead but with their lead cut from 10 to 6 per cent.

"The trend is in our favour," Mr Schröder insisted in a newspaper interview. "I am sure that we will emerge the strong-est party on election day.

"I don't believe that a so-called mood for change exists any more.

The Chancellor attributed his comeback to both his 90-minute television debate with Ms Merkel last Sunday, after which a majority of viewers judged him the winner, and also to the Christian Democrats' leader's controversial proposal for a 25 per cent flat-rate income tax which has become one of the key issues of the campaign. Strongly criticising the tax plan envisaged by Paul Kirchhof, a Heidelberg professor nominated as Ms Merkel's shadow finance minister, Mr Schröder said: "Nurses, Opel car workers and police will be the ones who will be paying for the millionaires who will only pay 25 per cent in taxes."

Mr Schröder's hopes were also boosted by another poll which showed that he could expect to win 54 per cent of the vote compared to 35 per cent for Ms Merkel, if the election involved voting only for the main candidates and not their parties.

The poll findings signalled the first significant decline in support for Ms Merkel's party since Mr Schröder declared in May that he would bring the election forward a year to 18 September. But most political pundits said if the trend continued, the most likely outcome of the election would be a "grand coalition" government comprising Social Democrats and conservatives.

Both parties have so far rejected the prospect of such an alliance.

Dismayed Christian Democrats conceded yesterday that their proposals for economic reforms more radical than those implemented by Mr Schröder's government might not be a vote winner.

"The contest is open," said Christian Böhr, the CDU's deputy chairman. "It is possible that there is no clear majority in society for our programme.

"You could describe the mood as 'Who knows what medicine the CDU will give us?'," he added.

The prospect of a close result has been complicated by a decision by the authorities in Dresden to postpone voting for several weeks because of the death of a candidate for the neo-Nazi National Democratic Party. (More than 200,000 voters in the city in eastern Germany will vote on 2 October - at least two weeks after the rest of the country - to enable the NPD to field a new candidate).

Legal experts warned that in the event of a knife-edge victory for one of the two main parties, the Dresden votes could swing the final result either way. "It could turn out to be the local election which determines the outcome in the whole country," said Josef Isensee, a Professor of electoral law at Bonn University.