UPDATE 1-German candidates clash on euro and taxes in tight TV duel
* Lone TV duel comes three weeks before German election
* No clear winner in debate between Merkel and Steinbrueck
* Challenger calls chancellor's euro policies "failure"
* Merkel's conservatives far ahead of rival SPD in polls
By Noah Barkin and Stephen Brown
BERLIN, Sept 1 (Reuters) - Chancellor Angela Merkel and her Social Democrat challenger in this month's German election clashed over the euro, tax policy and U.S. spying in a television debate on Sunday that produced no clear winner.
The only TV duel of the campaign, watched by an estimated 15 million viewers, was one of SPD candidate Peer Steinbrueck's last chances to change the momentum in a race in which he has trailed the popular Merkel from the very start.
He accused the conservative chancellor, who is seeking a third term in the Sept. 22 vote, of crushing southern European countries with austerity, failing to properly manage an exit from nuclear energy and overseeing a rise in low wage jobs.
"For four years we have been at a standstill. I want to change this," Steinbrueck said.
Merkel, 59, said SPD plans to raise taxes would put Germany's prosperity at risk, and noted that Steinbrueck's party had supported her euro policies throughout the crisis. Smiling, she turned to him and said: "You voted for everything."
Dressed in black, both candidates appeared relaxed, made no obvious gaffes and apppeared to have good grasp of the issues.
Merkel, wearing a twisty necklace in the colours of the German flag, turned often to speak directly to her challenger, while Steinbrueck stared straight ahead at the panel of four questioners, which included cult talk show host Stefan Raab.
A poll by Infratest Dimap conducted after the debate gave Steinbrueck the edge, with 49 percent of respondents saying he won and 44 percent backing Merkel. Another poll by Forsa put Merkel slightly ahead, 44 versus 43 percent.
The 66-year-old former finance minister is known for his quick wit, but also for a know-it-all tone that can make him seem arrogant. His challenge in the debate was to criticise Merkel's policies without appearing overly aggressive, and in that he largely succeeded.
"Steinbrueck may have added a few points," said political scientist Juergen Falter. "The question is whether it is enough to mobilise voters for the SPD."
Some of the sharpest clashes came on the subject of Europe, a topic that had played only a small role in the campaign until a debate flared late last month over whether Greece might require a third bailout after the German vote.
Steinbrueck dismissed Merkel's European policy as a "failure" because of continued recession and sky-high unemployment in the southern euro countries that have had to swallow deep spending cuts in exchange for bailouts.
"I would have followed a different crisis strategy. Of course there must be budget consolidation in these countries, but not a deadly dose," Steinbrueck said.
"Germany once got help too and we must not forget that," he said. "Germany was massively helped after the Second World War with the Marshall Plan."
Merkel retorted that it was under SPD chancellor Gerhard Schroeder that Greece had been allowed to join the euro in the first place.
"As chancellor I have a responsibility to ensure the reform pressure on Greece does not let up," she said. "There could be a new Greek package but nobody knows how big it will be."
With three weeks to go until the vote, a survey from Emnid published on Sunday showed Merkel's conservative bloc -- the Christian Democratic Union (CDU) and the Christian Social Union (CSU) -- with a 16 point lead over Steinbrueck's SPD.
The size of the gap means it is highly likely that Merkel will remain chancellor after the election. What is less certain is whether she will win enough votes to continue her centre-right coalition with the business-friendly Free Democrats (FDP).
Should she fall short, she will be forced into difficult coalition talks with the SPD, with whom she ruled between 2005 and 2009. Steinbrueck was finance minister in this right-left "grand coalition", but he has ruled out serving under Merkel a second time.
FOUR GOOD YEARS
One of the reasons Steinbrueck has struggled to make a dent in Merkel's popularity is that the German economy has performed better than its European peers during the euro crisis, with unemployment now hovering near its lowest levels since reunification in 1990.
"We have had four good years for Germany and I want the next four years to be good as well," she said.
But Steinbrueck stressed that not everyone was prospering, with 7 million people earning less than the 8.50 euro per hour minimum wage that his party wants to introduce, funded by income tax increases for Germans earning above 100,000 euros annually.
"The tax hike plans of the Social Democrats and the Greens bring with them the risk that we spoil the good situation that we have instead of improving it," Merkel responded.
The candidates also touched on Syria, ruling out German participation in a military intervention that would be deeply unpopular here.
Steinbrueck suggested that Merkel had not reacted forcefully enough to revelations of U.S. and British surveillance which have touched a nerve in a country still haunted by domestic spying under the Nazis and East German Stasi secret police.
The last two German debates, in 2009 and 2005, had little impact on the election result.
But in the 2002 clash, Schroeder came from behind to win re-election after wrong-footing conservative Edmund Stoiber on his support for the looming U.S.-led invasion of Iraq.
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