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An old man in need leaves the soup kitchen "Kana" with food supplies from a food bank in a poor district of the city of Dortmund, western Germany, April 7, 2017. REUTERS/Wolfgang Rattay

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By Joseph Nasr

DORTMUND, Germany (Reuters) - For all its economic success, Germany has a growing problem with inequality and poverty, and yet Chancellor Angela Merkel seems to be deflecting the blame so far as the battlelines are drawn for elections in September.

Renowned for its highly-skilled workforce, Germany has in fact a greater proportion of working poor - people who have a job but are struggling with poverty - than Britain, France and even some less wealthy EU states such as Hungary or Cyprus.

Nowhere is the widening gap between rich and poor more evident than in the Ruhr region, an urban sprawl of five million people that was once the centre of Germany's heavy industry.

A highway that ploughs through the western region is nicknamed the "social equator", separating suburbs hit by the decline of coal mining and steelmaking from those that have benefited from the new industries that now power German growth.

To the north, soup kitchens and food banks tend to the unemployed, homeless and refugees as well as the working poor. To the south, highly qualified workers drive luxury cars to glass buildings housing high-tech and pharmaceutical companies.

Sensing an opportunity to beat the conservative chancellor on Sept. 24, the centre-left Social Democrats (SPD) are trying to mobilise disgruntled Germans. "Many people fear that their pension won't be enough, the rent can't be paid, or that their children will be permanently on limited job contracts," SPD deputy chairman Ralf Stegner told Reuters.

But recapturing these voters, many of them once SPD loyalists, is proving tough going.

North Rhine-Westphalia, home to the divided Ruhr region and where poverty has risen more than in any of Germany's 16 other states, should be fertile ground for the message. Likewise, pensioner Edith Rena, 75, would seem an obvious target voter.

"I worked for 40 years and raised two children alone," Rena said, resting on her trolley packed with fruit and vegetables bought at a discount at a food bank in Dortmund, the Ruhr's largest city. "I come here because it's cheap so I can save money to buy presents for my grandchildren."

Rena has received welfare support since retiring 10 years ago from a department store sales job as her 620 euro ($675) monthly state pension doesn't cover her living expenses and rent.

Along with the working poor, the number of pensioners seeking welfare has almost doubled over the past decade, and the SPD are seizing on this to counter the conservatives' insistence that Germans have never had it so good.

And yet Merkel's message that economic growth is steady, unemployment is at a record low and falling, and state finances are sound appears to be resonating more with voters like Rena.

She vents her frustration not at the chancellor, who has led Germany for more than 11 years, but at the SPD which enacted labour market and welfare reforms in the mid-2000s, badly hurting its own traditional working class supporters.

"Of course I'm going to vote for Merkel," she told Reuters. "We've done well under her. Why would I vote for a party that abandoned the poor?"

ROBIN HOOD

The German Institute for Economic Research has found that while the economy grew 22 percent in real terms in 1991-2014, the poorest 10 percent of households saw their real disposable income shrink by 8 percent. By contrast, income for the richest 10 percent rose about 27 percent.

Despite its image as a nation of well-paid workers making world class goods like Mercedes cars or Siemens kitchen equipment, Germany does not show up well in international comparisons.

The proportion of employed Germans threatened by poverty, which means their disposable income is less than 60 percent of the median national wage, was slightly above the European Union average in 2015, according to the EU statistics agency Eurostat.

The figure was 9.7 percent of the workforce compared with only 8.2 percent for Britain, which since the 1980s has embraced free-market reforms more vigorously than Germany. The rate was 7.5 percent in France, 9.3 in Hungary and 9.1 in Cyprus.

After naming Martin Schulz as its leader in January, the SPD surged in opinion polls to catch up with Merkel's conservatives, propelled by promises to make German society more equal. Media nicknamed him "Robin Hood", after the legendary English outlaw who robbed the rich and gave to the poor.

However, while the election is set to be tightly contested, the conservatives have reopened a lead in recent polls with about 35 percent support, around five points ahead of the SPD, now the junior partner in Merkel's coalition.

Schulz, a former European Parliament president, is promising to undo some of the "Agenda 2010" reforms enacted by his own party under then chancellor Gerhard Schroeder over a decade ago.

These helped to end a long period of stagnation and high unemployment by making the economy more competitive, turning Germany from the "sick man of Europe" into a powerhouse.

But Agenda 2010 also increased the number of low-paid and part-time workers who now face a higher risk of falling into poverty during their active years or after retirement.

The SPD paid a heavy political price, losing a significant section of its working class support base and three successive elections to the conservatives starting in 2005. So it is Merkel who reaped the political benefit of the reforms, leaving the SPD to regain the trust now of alienated Germans.

"Through the theme of social justice, the SPD is trying to remobilise its lost support base, to bring non-voters back to the ballot box," said Prof. Robert Vehrkamp of the Bertelsmann Foundation, a non-profit think tank. This could be decisive for the party's chances of victory, he added.

Schulz wants to quadruple to a maximum of 48 months the period that people who become redundant can claim unemployment benefits if they attend vocational training, and to curb employers' right to offer workers limited contracts.

His party has also pledged to increase inheritance and wealth taxes and use the funds to help families with nursery and after-school care costs, as well as raising pensions.

Not everyone is receptive. "Schulz talks a lot. But I would like to see him find me a job suitable for my age and health," said Manfred Mueller, a 56-year-old former construction worker who has been unemployed for 15 years after injuring his back.

"Agenda 2010 was a catastrophe," said Mueller, a former SPD voter who has backed the hard-left Linke party since 2005. He believes Schulz will face resistance from employers warning of job cuts if he tries to make the labour market more rigid.

"The only job I could do is sit in an office," said Mueller, dunking a bread roll in his soup bowl at the Kana Soup Kitchen in Dortmund. "But I am not sure even this would work. I'm a trained builder."

POPULIST THREAT

Merkel's Christian Democrats (CDU) and their Bavarian allies say Schulz's plans would harm competitiveness and reverse falling unemployment which, at 5.8 percent, is at its lowest since German reunification in 1990. "Since 2005 we have managed to halve unemployment. And we want to bring more people into the labour market," CDU Secretary General Peter Tauber told Reuters. "What Schulz is proposing threatens this success."

The conservatives are promising tax cuts of 15 billion euros a year that would mainly benefit middle-income households.

Despite the discontent, Germans are not rejecting their long-established parties, unlike in France. Nevertheless, the conservatives and SPD must contend with the far-right Alternative for Germany (AfD). In regional elections last year, both lost support to the AfD which attracted protest voters, many of them blue-collar workers and the unemployed.

Beset by infighting, the AfD's support has fallen by a third since the start of the year to 10 percent but it is still expected to enter parliament for the first time, possibly as the third-largest party ahead of the Linke, Greens and revived liberal Free Democrats.

That would raise the number of groups in parliament to six from four at the moment, complicating the task of coalition building for whoever wins in September.

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(Additional reporting by Holger Hansen and Daniel Felleiter; Editing by Paul Carrel and David Stamp)

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