By Noah Barkin
BERLIN (Reuters) - German Chancellor Angela Merkel'sconservatives are expected to retain power in a state electionin Hamburg on Sunday, but the big winner may be a new far-leftparty that has profited from a national tax dodging scandal.
Polls show that Ole von Beust, a member of Merkel'sChristian Democrats (CDU) who has ruled the city-state since2001, will lose his absolute majority in parliament but holdonto power by forming a coalition, possibly with theenvironmentalist Greens.
That partnership would be a first at state level and, ifsuccessful, could persuade Merkel to venture such a liaison atnational level when she seeks re-election in 2009. Shecurrently heads an uneasy grand coalition with the SocialDemocrats (SPD) who have dominated the left in the post-WorldWar Two era.
Voting in the northern port city of 1.7 million gets underway at 8 a.m. (7:00 a.m. British time) with the first exitpolls due to be published at 6 p.m. (1700 GMT).
Hamburg, the country's second biggest city after Berlin, ishome to some of Germany's wealthiest people as well as a largenumber of immigrants and blue-collar labourers, who work at theport and in a large Airbus factory.
It was ruled by the centre-left SPD for over four decadesbefore von Beust wrested control from them seven years ago.
SOCIAL SPLIT
In a bid to win back the former stronghold, SPD candidateMichael Naumann, a former culture minister under ex-ChancellorGerhard Schroeder, has vowed to heal the "social split" he saysexists between Hamburg's rich and poorer communities.
But he has found himself fighting off a left-flank assaultfrom the Left party, a new grouping of ex-communists and SPDdeserters, which did surprisingly well in state votes in Hesseand Lower Saxony last month and may do even better in Hamburg.
The Left, which seeks a generous new minimum wage and curbson managers' salaries, has risen in the polls since it emergedthis month that hundreds of rich Germans may have evaded taxesby hiding cash in secret accounts in Liechtenstein.
The rise of the Left has injected new uncertainty intoGerman politics by making it more difficult for the country'sbig parties, the CDU and SPD, to form ruling coalitions withtheir preferred partners.
This situation has forced them to consider previouslyunheard of partnerships. The SPD's national leader Kurt Beck,for example, is mulling using Left party votes to get hisparty's candidate elected premier in Hesse after a deadlockedvote there in January.
That has set off a storm of protest by moderate members ofBeck's own party who see the Left as unreliable populists. Theinfighting in the SPD over whether to work with the Left inHesse could end up tainting their result in Hamburg.
(Writing by Noah Barkin, editing by Ralph Boulton)
