Merkel says must tackle bottlenecks before boosting investment

By Michael Nienaber and Andreas Rinke

BERLIN (Reuters) - German Chancellor Angela Merkel rejected criticism from her SPD challenger on Sunday that she was neglecting the country's infrastructure, pointing to already increased investment levels and capacity bottlenecks in some parts of the economy.

SPD leader Martin Schulz has accused Merkel of making empty promises about Germany's economic and political future as the former president of the European Parliament set out his own plans to boost investment and enhance European unity.

The exchange comes 10 weeks before the federal election in which Merkel seeks a fourth term and follows a repeated call on Berlin by the International Monetary Fund to increase investment as a way to boost imports, support the recovery in other countries and reduce its record trade surplus.

Asked in a television interview by ARD public broadcaster about her investment plans and Schulz's criticism, Merkel said: "We currently cannot spend the money that we have." She pointed to planning and capacity bottlenecks in the construction industry as well as at the level of regional authorities.

Germany has earmarked billions of euros in investments for schools, nurseries, hospitals and housing, but local authorities have so far spent only a fraction of that windfall due to planning bottlenecks.

Merkel said the federal government had put aside additional money for more investment in its mid-term budget plans, adding: "We still have a lot to do in this regard."

Merkel said Germany had to increase investment in high-speed internet broadband connections. "We say, for example, that we have to use at least one third of the additional tax revenues for investment. It can also be more," she said. "But we also must be able to get everything built on the ground."

Merkel underlined her determination to run for a full four-year term in the Sept. 24 election.

She also said again that she was opposed to the introduction of a cap to limit the number of refugees that Germany can integrate each year, as demanded by her Bavarian CSU allies, saying there were other measures to control migration flows.

Asked about the violence at the G20 summit in Hamburg earlier this month, Merkel defended the decision to hold the meeting in Germany's second-biggest city.

She distanced herself from local politicians within her conservative party who had called for Hamburg's mayor Olaf Scholz, a senior SPD member, to step down because of the riots.

Merkel said the riots were absolutely unacceptable but it was still right to have invited G20 leaders to Hamburg. "For this, I have the same responsibility as Olaf Scholz does - and I'm not dodging," she added.

Turning to Turkey, Merkel said that German lawmakers should be allowed to visit the Bundeswehr soldiers at a NATO air base in Konya and that more talks were needed to resolve the dispute.

But Merkel said there could be no negotiations with Ankara about the extradition of Turkish asylum seekers and granting German lawmakers access to the air base because both issues were completely unrelated.

(Reporting by Michael Nienaber; Editing by Greg Mahlich)