German chancellor Angela Merkel has conceded that a second grand coalition with the opposition Social Democrats (SPD) is a credible option after a federal election she predicts will be "very, very tight".
Meanwhile, the SPD has vowed that, if elected, it will push for harmonised European corporate tax rates to tackle "tax dumping" in the "tax havens" of Ireland and the Netherlands.
Opinion polls suggest Dr Merkel is likely to stay on as German leader after the September 22nd election, though coalition options for her Christian Democratic Union (CDU) remain uncertain.
"We have a good chance of reaching our goal and continuing our coalition but it's true that it will be very, very tight," Dr Merkel told the Frankfurter Allgemeine daily.
Though not aiming for a grand coalition, she admitted “it would lack credibility to rule out” a repeat of her first term alliance from 2005 to 2009.
An ARD public television poll on Friday revealed one in four Germans favour a grand coalition, by far the most popular post-election option.
With five weeks to go, Germany's stultifying summer weather is reflected in a sluggish campaign and static voter opinion, according to polls, with none of the major parties winning or losing any support.
Dr Merkel’s outgoing coalition with the liberal Free Democrats (FDP) holds a wafer-thin majority of 47 per cent, 10 points ahead of the SPD-Green alternative.
While the ARD poll found 17 per cent of voters support each of these traditional coalitions, almost as many – 16 per cent – are open to the previously untested CDU-Green option.
Dr Merkel said that a rise in floating voters posed a greater challenge for her than the potential loss of conservative support to the new Alternative for Germany (AfD), which opposes euro zone bailouts.
“Smaller parties have always come along yet the [German] party landscape has, in European comparison, remained very stable since 1990,” said Dr Merkel.
Quizzed on the euro crisis, rarely mentioned so far in the campaign, Dr Merkel argued that delays in providing assistance were not caused by Berlin but by a belated realisation in crisis countries that Germany expected “self-help alongside solidarity”.
“Since the start of the crisis I found it completely wrong to make money available without a readiness for fundamental reform,” she said.
SPD challenger Peer Steinbrück has accused Dr Merkel of endangering EU crisis countries – and thus the repayment of bailout loans from Germany and others – with austerity-heavy reform programmes.
"It will cost us to hold this Europe together, so it is all the more important that we don't lose our money," he told a crowd of 200,000 gathered at the Brandenburg Gate on Saturday.
At a street party for the SPD's 150th birthday, Mr Steinbrück underlined social justice policies in the party's manifesto: a statutory minimum wage of €8.50 and swift measures to fight old-age poverty and spiralling urban rents.
However, plans to finance greater social and education spending through higher taxes for top earners appear to have fallen flat with voters.
The party now proposes financing the extra spending by harmonising corporation tax in Europe – a move the SPD says would generate an extra €160 billion annually for Germany.
"The German tradesman or small business owner are paying higher tax rates than companies like Google do, who seek out tax oases like Ireland or the Netherlands although they earn money here," SPD leader Sigmar Gabriel told Der Spiegel.
Separately, the magazine reported yesterday that lower interest rates on German sovereign debt had reduced German borrowing costs by €40.9 billion since 2010, as investors sought a safe harbour in the euro crisis.