Social Democrats aim to dispel party gloom as German election nears
* Centre-left SPD kicks off campaign for September vote
* Candidate Steinbrueck trails far behind popular Merkel
* Leaders resist idea that coalition with Merkel inevitable
AUGSBURG, Germany, April 14 (Reuters) - Germany's opposition Social Democrats (SPD) opened their election campaign on Sunday pledging victory in September despite polls that suggest their best hope of regaining power will be in a "grand coalition" under Angela Merkel.
Opinion polls have put Peer Steinbrueck's centre-left SPD well behind Merkel's conservatives, and her personal popularity has soared to more than 60 percent while fewer than a third of Germans say they would prefer him as chancellor.
But Steinbrueck, who served as finance minister in the last Merkel-led "grand coalition" that led Europe's biggest economy from 2005 to 2009, remained defiant about the party's chances on Sept. 22.
"I want to be chancellor of the Federal Republic of Germany," Steinbrueck, 66, said at the party congress in Augsburg, reeling off a list of the SPD's state election wins over Merkel's centre right in the past three years.
"This government has nothing left on the shelves, just nice boxes in the shop window," he said, and outlined a platform that stressed fair pay and pensions, affordable housing and more emphasis on job creation than Merkel-style budget austerity.
Klaus Wowereit, the popular SPD mayor of Berlin, said the party was in fighting spirit.
"The party is not demotivated, the mood is positive, even among those who are not natural Steinbrueck fans," he said.
Steinbrueck himself has ruled out the possibility of serving with Merkel to avoid a repeat of 2009, when SPD disillusion with the grand coalition was blamed for its worst post-war election result of 23 percent.
One poll this week put the party back at that low level.
"The message from this party congress is a clear 'yes' for Red-Green and nothing else," said SPD chairman Sigmar Gabriel, referring to the SPD and its Green allies in parliament.
But with Merkel's current coalition partner, the liberal Free Democrats, far from certain of passing the 5 percent threshold to win seats in the Bundestag, and the SPD and Greens ruling out an alliance with the hardline Left party, a new grand coalition is a possibility that pragmatists cannot discount.
"I still think Red-Green is more likely, but you have to think about the alternatives," said one senior party member, who asked not to be named and was already thinking about what the SPD should demand in eventual coalition talks with Merkel.
The Greens, whose surging support will make them the third biggest party in the Bundestag lower house, are openly worried that the SPD is becoming resigned to a coalition with Merkel.
"They should remember that they emerged from the last one with 23 percent support," said Greens leader Juergen Trittin.
Bernd Groeger, a party member from North-Rhine Westphalia, summed up the attitude of many in the rank-and-file.
"I personally wouldn't welcome a grand coalition because it always hurts the party," he said. "We lost credibility last time."
Steinbrueck's habit of speaking his mind in contrast with Merkel's bland style once made him popular but there are now doubts as to whether he can lead Europe's biggest economy.
He alienated the SPD's left wing when he was discovered to have earned 1.25 million euros ($1.6 million) as an after-dinner speaker since leaving government in 2009.
The party faithful seem unconvinced: 48 percent of SPD members polled for a Sunday paper said they would have a better chance with another candidate, versus 44 percent who backed him.
"Being an agent provocateur once made him Germany's most popular politician," one SPD premier told Reuters. "But if he wants to be chancellor, he must change."
In a push to silence his critics, the moderate Steinbrueck has adopted some leftist positions such as raising income tax for high earners. Party leaders urged him to ratchet up attacks on Merkel despite a mutual respect dating from when they worked together in government and tackled the global financial crisis.
Steinbrueck's strategists fear the euro crisis plays to Merkel's strengths and prefer to focus on domestic issues. But here too polls show her strategy of coopting centre-left and 'green' issues, such as the minimum wage and closing down nuclear power, has robbed her rivals of a strong platform.
The SPD plans a grassroots campaign to mobilise voters who stayed away in 2009. Steinbrueck is avoiding big speeches and instead meeting voters in their living rooms.
"We have to attack the chancellor on her strong points as well, which means being bolder on Europe," said Peter Friedrich, an SPD leader from Baden-Wuerttemberg state. (Additional reporting by Holger Hansen and Hans-Edzard Busemann; Editing by Gareth Jones and Sonya Hepinstall)
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