* Open divisions erupt in coalition over tax cuts
* Merkel faces domestic headache before EU summit
* CDU and FDP agree tax cuts, CSU says 'Nein'
By Erik Kirschbaum
BERLIN, Oct 21 German Chancellor Angela Merkel
faced fresh domestic turmoil on Friday when one of the three
parties in her centre-right coalition openly balked at surprise
plans to cut taxes ahead of the next election in 2013.
Compounding her woes ahead of crucial meetings on the euro
zone crisis, Merkel found her coalition badly
split over tax cuts presented by her finance and economy
The opposition ridiculed the unusually public display of
infighting in Merkel's centre-right government, with one Social
Democrat (SPD) leader dubbing it the "chaos coalition".
Horst Seehofer, the powerful chairman of the Christian
Social Union (CSU) that is the Bavarian sister party to Merkel's
Christian Democrats (CDU), said he had not agreed to tax cuts
the two ministers unveiled on Thursday.
"It doesn't work like that -- presenting facts in the public
and expecting us to rubber stamp them," Seehofer said. "That's
just not on."
Seehofer, who reportedly learned about the tax cuts in media
reports, abruptly cancelled a meeting with Merkel and Economy
Minister Philipp Roesler of the Free Democrats (FDP), junior
coalition partners in her three-way coalition.
Finance Minister Wolfgang Schaeuble unexpectedly appeared at
a Roesler news conference on Thursday that was only scheduled to
discuss the country's economic growth forecasts.
After long opposing tax cuts demanded by Roesler's FDP,
Schaeuble appeared at the Economy Minister's side to announce
the 6- to 7-billion euro tax cuts in 2013 -- before elections
set for later that year when Merkel will seek re-election.
German media speculated that Schaeuble, after two years of
resisting the FDP's demands, had caved in to win their backing
for measures to bolster the euro zone rescue fund to be agreed
at EU summits this weekend and on Wednesday.
Schaeuble and Roesler want to cut taxes by reducing the
so-called "cold progression", or "bracket creep", in Germany's
tax code that generates billions of euros in revenues for the
treasury because tax brackets are not adjusted for inflation.
The system has not been changed since 1958 and the state
took in an extra 76 billion euros from 2005 to 2010. It has been
taking in about 22 billion euros a year from 2010.
But Seehofer and his Bavarian CSU oppose those plans, saying
there are other ways to reduce revenue that would not require
approval from the upper house, or Bundesrat, where the
centre-right coalition has no majority.
The opposition SPD, who rule the key states of North
Rhine-Westphalia and Baden-Wuerttemberg, have already said the
Roesler/Schaeuble tax cut plan has no chance.
"Debt-financed tax cuts as a gift to voters are
irresponsible," said Hannelore Kraft, SPD state premier in North
Rhine-Westphalia. Hans Schmid, finance minister in
Baden-Wuerttemberg, added: "We're not going to be the henchman
for this chaos coalition."
Merkel's spokesman, Steffen Seibert, said he was confident
the three parties would be able to reach an agreement at some