The two big parties are killing each other in their headlong rush to the middle ground, writes Derek Scally, in Berlin

On the face of it, German voters have a clear choice in September's election. Chancellor Gerhard Schröder is the pragmatic media-savvy leader with the common touch while his challenger, Bavarian prime minister Mr Edmund Stoiber, is the serious accountant-type, a little dour but with a steely political mind.

But behind the two candidates, the Social Democrats (SPD) and the Conservatives are fighting tooth and nail for the middle ground. The lines between the two parties are blurring and nowhere is that more obvious than in their proposals to kick-start the German economy and reform the employment market.

Unless a major scandal emerges, it is likely the economy will eclipse all other issues on the campaign trail. The Social Democrats (SPD) will do its best to defend its economic record but things couldn't look worse for a government facing re-election.

The opposition will do its best to rubbish the SPD's record, using the ample statistical weapons at its disposal. There are 4.2 million people out of work, the highest level in four years, and the economy will grow by less than 1 per cent this year.

Despite confident predictions by the finance ministry and growing confidence among business leaders, the long-awaited economic recovery will only start to show itself in the last quarter of the year. That's disastrous news for Chancellor Schröder, who was hoping voters would see the first signs of an economic upswing, such as falling unemployment, before they went to the polls.

Earlier this week, Mr Schröder said the 9 per cent and rising unemployment rate was "not a home-made problem" but the result of the global economic slump. Now, with time running out to election day, he has a homemade solution prepared.

Next month, a government-appointed commission on unemployment will publish its report to cut German dole queues. It released some preliminary ideas last week to get Germans back to work: reduced unemployment office bureaucracy, increased temporary work opportunities and more tax incentives for the self-employed.

Already Mr Schröder has promised to implement in full the report's findings, which the commission says could cut unemployment by two million in the next three years. The conservative Frankfurter Allgemeine newspaper dismissed the commission as an election exercise "designed to prettify the unemployment statistics".

Mr Stoiber also wrote off the commission but for a very different reason. The commission's ideas "mirror suggestions that we have made for a long time but were always vetoed by the SPD", he said.

In the rush to the middle ground, Germany's two largest parties are trampling on each other's toes and stealing each other's clothes - and it wouldn't be the first time. Since the start of the year, German companies can sell their cross-holdings without paying any capital gains tax. Finance minister Mr Hans Eichel said it would shake up German business by ending the cosy interdependency between companies such as Allianz and Deutsche Bank, known as Germany Inc.

The move was attacked by the SPD's left-wing as a further lurch towards the centre. Leading the criticism was Mr Oskar Lafontaine, Mr Eichel's predecessor as finance minister and a former leader of the SPD's left wing.

"The term political centre is something I could never begin to understand," he wrote in his recent book The Rage is Growing. "New Labour, the new centre and the powerless defence of workers' rights are eloquent expressions of the identity loss of the left wing."

In an unexpected twist to the crossholdings tax saga, Mr Stoiber has promised to reinstate the capital gains tax from the disposal of company crossholdings if he is elected. Hardly typical behaviour for an arch-conservative, business-friendly politician.

Mr Stoiber has been forced to tone down his arch-conservatism to widen his appeal to voters. Dr Gero Neugebauer, political scientist at Berlin's Otto Suhr Institute, says the party is now so centrist, particularly in its economic and employment policies, that "it is fighting the election campaign the SPD fought in 1998".

"Looking at the two parties' plans for the employment market, it is really immaterial who wrote what," he said. "Both call for employment market reform, the only difference is that the SPD has the backing of the unions."

Whatever the hue of Germany's next government, it will face the same outstanding economic tasks: to restart the motor of Europe's largest economy and reform the employment market. Same painful operation, slightly different tools. As Dr Neugebauer puts it: "German business men and voters now share the opinion that if the dentist drills from the left or the right, it is all the same."