Merkel embraces centre ground as state votes loom

HANOVER, Germany Dec 3 (Reuters) - German Chancellor Angela Merkel accused her Social Democrat (SPD) coalition partners on Monday of risking public trust by balking at economic reforms, in a speech clearly aimed at winning over centrist SPD backers.

On foreign policy, where she has clashed with the SPD repeatedly in recent weeks on how to handle ties with China and Russia, she voiced her opposition to Turkey joining the EU, calling instead for a "privileged partnership".

In a speech in the western city of Hanover, Merkel appeared keen to show there were limits to further cooperation with the SPD, a rival party with which she was forced to form a "grand coalition" following a narrow election victory in 2005.

Merkel said the German economy was doing better under her stewardship and urged her party to seize the centre ground to stay in power.

"The centre ground is here. We and we alone are here in the centre," she told roughly a thousand annual party congress delegates from an orange and blue stage with the words "Die Mitte" -- the middle or centre -- emblazoned on it.

Merkel is basking in the best mid-term popularity ratings of any German chancellor since 1945.

But she has come under criticism for abandoning a reformist zeal and analysts believe her Christian Democrats (CDU) must do more to distinguish themselves from the SPD ahead of four state elections next year.

A robust economy and strong performances on the world stage during Germany's presidency of the European Union and Group of Eight this year have boosted Merkel's standing. Recent polls show her CDU holding an 8-14 point lead over the SPD.

In response, the SPD has made an aggressive push to win back its traditional voters, pushing for more left-leaning policies including the introduction of a broad minimum wage and the unwinding of controversial labour market reforms put in place by former SPD Chancellor Gerhard Schroeder.

PUDDING PRINCESS

Merkel, who was hailed as a German version of reformist former British Prime Minister Margaret Thatcher before she took office, has been criticised of late for going along with the SPD's leftist push, for example by accepting an extension of jobless benefits to older Germans.

On Monday, Germany's TAZ newspaper splashed a picture of Merkel on its front page under the headline "The Pudding Princess". "Neoliberal and social, national and indifferent -- Angela Merkel masters the art of wavering in all directions", the paper wrote.

Merkel clearly sought to put distance between herself and the SPD, which is suffering its own ructions over the coalition with the CDU and risks losing support to a new leftist party.

"I say to our coalition colleagues: whoever wants to wind back necessary reforms will gain nothing, but will lose everything. That includes people's trust -- the conservatives will not do that," Merkel said.

Merkel appealed to core CDU values by saying she wanted to cut unemployment and debt further.

Her proposal of a "privileged partnership", stopping short of EU membership has already been roundly rejected by Ankara; but it seems likely to win sympathy among those Germans uneasy about the prospects of integrating of a large, muslim country.

State elections in Hesse and Lower Saxony in January, Hamburg in February and Bavaria in the autumn are being seen as a key test for Merkel ahead of the next federal vote in 2009. (Reporting by Madeline Chambers; editing by Ralph Boulton)