Germans began voting on Sunday in state elections in Hamburg seen as a crucial test of the ability of Chancellor Angela Merkel's conservatives to stem a swing to the political left.
Opinion polls have given Merkel's Christian Democrats (CDU) 42 percent of the vote -- a clear lead over the Social Democrats (SPD), who can hope for 34 percent, but not enough to retain sole control of the 121-seat regional legislature in Hamburg.
The conservatives have governed on their own in the prosperous northern harbour city since 2004 when they won 47 percent of the vote.
Sunday's election is expected to see them cede votes not only to the SPD, but to two other parties to the left -- the environmentalist Greens and a group called The Left tipped to take 6.9 percent of votes.
The Left, which is made up of former East German communists and SPD defectors, could reshape Germany's political landscape after winning seats in regional elections in Hesse and Lower Saxony in January.
The SPD was this week mulling an alliance with The Left in Hesse, after Merkel's party paid dearly at the polls there for running a hardline campaign on crime and immigration.
The prospect of such an unprecedented pact has triggered an outcry which observers say could have an impact on the Hamburg vote.
A survey published by Bild am Sonntag newspaper said SPD supporters so strongly oppose working with the ex-communists that one in four would demand party chief Kurt Beck's departure.
The SPD's leader in Hamburg, Michael Naumann, has said he would rather remain in opposition than rule with The Left, making a possible outcome of the vote here a coalition of the CDU and the Greens.
"We will not work with them so we would like to tell voters that every vote for The Left is a lost vote," Naumann said this week.
The Hamburg and Hesse polls, along with another last month in Lower Saxony, are seen as dry runs for national elections in 2009 when Merkel hopes to improve on a lacklustre performance in 2005 that forced her into a left-right coalition with the SPD at a national level.
The economy has been the dominant campaign issue in Hamburg and the mayor, Ole von Beust, is pointing to a solid record that includes cutting unemployment to 8.7 percent from 10.3 percent in early 2007.
He claims that his government created 23,000 new jobs over the past year alone.
The Social Democrats, who have been pushing hard for the introduction of a general minimum wage in Germany, have countered that 30,000 workers in the city-state are living below the breadline.
Both the SPD and the CDU fear fallout from revelations of massive tax fraud by the German elite involving secret trusts held in Lichtenstein.
The scandal risks entrenching discontent with the wealth gap between fat cat bosses and workers who feel the government has not allowed them to taste the fruits of the country's economic recovery.
Civil servants striking for pay rises this week drove home the point when they held up banners reading: "We need at least eight percent because we also want to invest in Liechtenstein."
In her weekly Internet message to Germans, Merkel tried to control the damage by saying the scandal should not be seen as a general indictment of Germany's business managers.
