Slush fund scandal fails to sink Schröder's party
By Toby Helm in Berlin

GERHARD SCHRODER'S governing Social Democrats passed a crucial mid-term test yesterday, inflicting a clear defeat on the opposition Christian Democrats in Germany's largest state.

 In North Rhine-Wesphalia, the nation's industrial heartland, the Social Democrats (SPD) held on to power, winning 42.8 per cent of the vote, against 37 per cent for the Christian Democrat Union, 9.8 per cent for the Liberals (FDP) and 7.1 per cent for the Greens.

 The SPD's victory left it able to choose either the Greens, whose radical stance on the environment has frustrated the party leadership, or the Liberals for a coalition partner in the regional parliament. If, as expected, it chooses the Liberals, many believe that this could signal the end for the national "red-green" coalition in Berlin. The CDU's defeat is bound to trigger intense debate over the party's future direction as it tries to mount a serious challenge for the next national election in two years' time.

 Its controversial campaign in North Rhine-Westphalia against government plans to invite Indian and Pakistani computer experts into Germany to plug a skills gap is widely seen as having backfired. The CDU candidate for prime minister in the state, Jürgen Ruttgers, shocked many party supporters in business and the Church by campaigning under the slogan "Children rather than Indians" and "More education rather than immigration". The SPD and even CDU moderates accused him of extremism.

 Last night the SPD was trumpeting a remarkable turnaround in its fortunes since last September when Mr Schröder was being punished at the polls for a first year of indecisive leadership and unpopular policies. At that time SPD strongholds were falling like ninepins in important city halls such as Cologne, where the CDU won 50.3 per cent of the vote in one local ballot.

 Party leaders feared that Mr Schröder's government might not survive if the SPD lost in North Rhine-Westphalia, where it has ruled for 34 years. Since that low point for the Schröder government, the popularity of the SPD has improved thanks to a better economic outlook, falling unemployment and the CDU slush fund scandal that destroyed the reputation of the party's father figure, the former chancellor Helmut Kohl.

 Even a much publicised SPD scandal in North-Rhine Westphalia, in which Social Democrat politicians have been accused of taking free flights from a state-owned bank, failed to cancel out the far-reaching effects of the Kohl scandal. In the last regional election in North Rhine-Westphalia in May 1995 the SPD won 46 per cent of the vote, the CDU 37.7 per cent and the Greens 10.