Stuttgart  - German Chancellor Angela Merkel on Monday rejected immediate tax cuts to stimulate the economy, telling her party, the Christian Democratic Union (CDU), she preferred to invest in Germany's infrastructure.

The CDU re-elected Merkel party leader. She was the only candidate and is to lead the CDU in a general election next September.

She was addressing a two-day national party conference in the southern city of Stuttgart amid deep divisions over how Germany should come to grips with the worst financial upheaval in decades.

She scorned proposals to cut taxes quickly as Britain is doing, calling it "a senseless competition" among nations which she would not participate in, but she appeared to leave a door open for minor tax changes when she meets with key supporters in January.

"Germany will keep all options open to fight this crisis effectively," she said. "The government can, where necessary, act at lightning speed."

The chancellor, who says she is committed to balancing the budget ultimately, has been dismayed at British plans to cut sales tax in order to jolt consumer demand back to life. She said Monday that Germany could not permanently spend beyond its resources.

Merkel said Berlin would focus on investing in Germany's infrastructure, especially motorways in the west of the country which needed modernizing, as well as extending fast internet connections to rural areas.

"Wouldn't it be a fine objective to ensure that every household in Germany has a broadband connection?" she said.

In the leadership poll, Merkel won 94.8 per cent of the 890 votes cast. There was no other candidate, so the choice was between "yes" and "no," or else to abstain. German parties usually plan their conferences tightly and discourage challenges by rivals.

The 46 "no" votes and the 16 abstentions suggested Merkel has only a small number of fundamental critics within the CDU. She did better than the CDU's four deputy leaders, who were re-elected by lesser margins.

Some media commentators said the placid reception of Merkel's one-hour speech was a warning that she does not command any great adulation, even though the conference stood and applauded for five minutes when she had finished.

"She spoke to our heads rather to our hearts," said a senior parliamentary supporter who asked not to be quoted by name.

Merkel said she would set out proposals for a new international economic order at her first meeting with incoming US president Barack Obama, and would "take the bull by the horns" and "not hem and haw."

The chancellor appealed to Germans' survival instincts, recalling how they rebuilt a country defeated in war.

She said the financial crisis was like "nothing compared to the catastrophe" that post-war Germans had suffered as they froze and starved in 1946, absorbing millions of refugees into their ruined country.

Merkel said the CDU would fight next year's election with proposals to gradually reduce income taxes and social-welfare levies to less than 40 per cent of wages and salaries.

This is not enough for many in the CDU and its Bavarian sister party, the Christian Social Union (CSU), who want tax cuts to be introduced before the nation goes to the polls in the general election on September 27, 2009.

She justified October's package of 480 billion euros (600 billion dollars) in guarantees and aid to banks, saying there had been no alternative. It had been intended to help savers, not the banks, she said.

The CDU's election policy would also be to suspend legislation to scrap the nuclear reactors that generate a significant part of Germany's electricity, Merkel told the conference.

The conference continues Tuesday. (dpa)