Merkel and euroskeptic allies beaten in Berlin

BERLIN Germany's Social Democrats beat Angela Merkel's conservatives in a regional vote in Berlin on Sunday, handing the chancellor her sixth election defeat this year ahead of a key euro zone vote in parliament in two weeks' time.

Merkel's center-right coalition suffered a further setback when their junior coalition partners at the national level, the Free Democrats (FDP), failed to clear the five percent threshold needed to win seats -- for the fifth time this year.

The beleaguered FDP, which had attempted to attract voters in Berlin with its increasingly euro-skeptic tactics, plunged to 1.8 percent from 7.6 percent in 2006, preliminary results showed.

Their eroding support nationwide could destabilise Merkel's center-right coalition, analysts said.

Merkel, under fire for her hesitant leadership in the euro zone crisis, is halfway through a four-year term. But election setbacks for her CDU have hurt her standing before the vote on euro zone measures in parliament on September 29.

"We would be wise to show humility about this result," said a visibly stunned FDP deputy party leader, Christian Lindner. "It's a low-point but also a wake up call. We knew it was going to be a difficult year and that's been dramatically confirmed."

The SPD won 28.2 percent of the vote in Berlin, down from 30.8 percent in 2006 in Germany's largest city with 3.4 million inhabitants, according to an exit poll on ARD television.

SPD Mayor Klaus Wowereit appeared to be headed for a third five-year term, with the Greens as his most likely coalition partner.

"The best part of the result tonight is that the voters showed the FDP they won't get anywhere with populist attacks against Europe," said SPD leader Sigmar Gabriel, celebrating his center-left party's sixth win in seven regional votes this year.

"It shows the voters are smarter than the FDP campaign strategists and that you can't win an election by campaigning against Europe. The FDP tried that and failed."

EUROSCEPTIC MESSAGE FAILS

The CDU won 23.3 percent, up slightly from 21.3 percent in 2006 but well below the 40 percent the party used to win in Berlin in the 1980s and 1990s. The Greens won 17.6 percent, up from 13.1 percent in 2006, and the Left party fell to 11.7 percent from 13.4 percent.

The SPD and Greens have pledged support for boosting the euro zone bailout fund for countries like Greece in a crucial vote in parliament vote on September 29, when Merkel may face a revolt from more eurosceptic members of her coalition.

Greens leader Cem Oezdemir said the FDP had "tried to turn this election into an anti-European plebiscite" after its party leader, Economy Minister Philipp Roesler, said it should not be taboo to debate an "orderly" Greek debt default.

"Losing the election with 2 percent is a dramatic setback for the FDP and I hope they draw the right lessons," Oezdemir said. "Anti-European populism has no support in Europe and in Germany, thank goodness, and that's good news for our country."

The Pirate Party, running on a campaign for reform of copyright and better privacy in the Internet age, came out of nowhere to win a stunning 9.0 percent.

The SPD, in opposition at the national level since 2009, hopes their re-election in Berlin will help build up momentum to oust Merkel in the next federal election in 2013 -- or possibly sooner, if her government were to collapse.

"We're not the successors to the FDP," said Gabriel, when asked if the SPD would be ready to replace the FDP if the government were to fail before 2013.

The SPD has ousted or helped defeat the CDU in Hamburg and Baden-Wuerttemberg this year and remained in power elsewhere.

The CDU has lost six of seven regional votes this year, holding onto power only in the eastern state of Saxony-Anhalt. The fresh loss in Berlin will add to Merkel's woes before a Bundestag vote on September 29 to give the European Financial Stability Fund (EFSF) more powers.

Merkel did not make any comments on the Berlin election. But senior CDU lieutenants tried to put a positive spin on the result, noting that it was slightly improved from 2006.

Peter Altmaier, conservative parliamentary floor leader, said the CDU's gains had helped prevent a renewal of the SPD-Left coalition that has ruled in Berlin under Wowereit for the last 10 years.

"This is solid backing ... for Angela Merkel's policies," Altmaier said, adding that Merkel has spoken out unambiguously in favor of euro zone rescue measures.

"Merkel has made it very clear in recent weeks that the CDU stands by its pro European profile and vocation," Altmaier said. "We link stability with European consciousness and that has been honoured by the voters. Some euro skeptic posters were put up in Berlin at the last moment but they had no impact."

(Reporting by Erik Kirschbaum, Stephen Brown, Alexandra Hudson and Natalia Drozdiak)