year term, polls suggest. But Merkel and SPD leaders, including the party's new chairman Matthias Platzeck, are exhibiting a sober determination to cooperate for common goals -- a sign, perhaps, that the longtime rivals believe failure will harm them both. High unemployment, currently at 11.6 percent, has hurt German confidence and torn holes in the budget for years. The economy, once Europe's motor, is now one of the most sluggish in the 25-nation European Union, with growth expected to come in below one percent this year and only slightly better in 2006. The economic challenges facing Merkel's government could grow if the European Central Bank, as is widely expected, raises interest rates next month for the first time in five years. Merkel also has to hope her plans for a 3-percentage point rise in value added tax to 19 percent in 2007 will not hit consumer spending, for years the German economy's Achilles heel. But amid the gloom, there are reasons for hope. --more 2226 Local Time 1926 GMT
