UPDATE:Germany's Merkel:Econ To Probably Hit Rock Bottom Soon

(Adds comment, details of election platform.)

BERLIN -(Dow Jones)- The economy will probably hit rock bottom soon, German Chancellor Angela Merkel said Monday.

"We might reach the bottom of the crisis soon, but the international crisis won't be over with this," she said at a meeting of the Christian Democratic Union and its Bavarian sister party, the Christian Social Union, to adopt their platform for the Sept. 27 general elections.

"It is only over once we are again where we were before it started," she said. "We need growth."

It is as important to help the economy to get out of the crisis as it was to cushion the economy against its downturn, because real gross domestic product will likely contract 6% this year, she added.

Her comments came as she defended the parties' plan to cut taxes, rather than increase them.

Merkel repeatedly has ruled out any tax rises during the government's next four-year term, saying that Germany wouldn't be able to deal with any extra burden of higher taxes when it recovers from its worst economic recession in 60 years.

In their election platform, the conservative parties promise tax cuts worth EUR15 billion, although they gave no time frame for it. They plan to cut the lowest income tax rate to 12% from 14% at present and plan to apply the top income tax rate of 42% for married couples with a joint annual income of EUR120,000 compared with around EUR104,000 at present and singles with an annual income of EUR60,000 compared with around EUR52,000 at present.

However, Germany's widening budget deficit has lead to expectations that the next government might have to plug the budget gap with higher taxes. The present government has said the 2010 budget requires new debt of possibly over EUR100 billion to balance the books.

Some state governors and lawmakers of Merkel's CDU party in recent days have suggested hiking the reduced rate of Germany's value-added tax in a bid to raise revenues. The regular VAT rate stands at 19%, but some items such as food and books have a reduced rate of just 7%.

In her speech, Merkel also said the crisis on international financial markets was a result of "excesses on markets" and Germany's economic model of a social market economy would have prevented this crisis.

In their election platform, the parties also aim for "fair rules on international financial markets and the global economy" and want to bring together banking supervision in Germany, which is currently shared between the country's Bundesbank central bank and the financial sector watchdog BaFin.

-By Andrea Thomas, Dow Jones Newswires; +49-30-288-84126; andrea.thomas@dowjones.com

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(END) Dow Jones Newswires

June 29, 2009 08:42 ET (12:42 GMT)

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