Germany's federal election campaign has begun in earnest, with the Bavarian state premier Edmond Stoiber throwing his hat in the ring as candidate for chancellor. The battle between Mr. Stoiber and incumbent Chancellor Gerhard Schroeder will be bruising. It may also be crucial for the future of both Germany and the European economy.

In the last election, Chancellor Schroeder, a Social Democrat, skillfully exploited the economic failures of the previous government, led by Christian Democrat Helmut Kohl.

But his own economic record is now looking shaky. His promise, when he took office in 1998, to reduce unemployment to 3.5 million, now seems unattainable as it creeps back to the 4 million-plus levels he inherited from Mr. Kohl. Economic growth in Germany is below one per cent a year, and job creation lags far behind France, Britain and even Italy.

As Europe's largest economy, Germany's performance has a major influence on what happens elsewhere on the continent.

With the exception of his foreign policy successes, such as giving Germany a higher international profile and winning approval for German involvement in the war in Afghanistan by outmaneuvering the pacifist elements in his own coalition, Mr. Schroeder has not had a good 12 months.

Now the chancellor and his Social Democrats are losing in the popularity stakes. The opposition Christian Democrats and even more strikingly their Bavarian sister party, the Christian Social Union, are making a comeback in the opinion polls.

After months of internal squabbling, the two opposition parties have agreed on a tough, elegant and highly popular choice for their candidate for chancellor: Bavarian premier Edmond Stoiber.

And Mr. Stoiber, who claims to have made Germany's richest state even richer, has learned from Mr. Schroeder's successful challenge to Helmut Kohl. Presenting himself as the more competent economic manager, Mr. Stoiber hopes to benefit from the current government's failures.

Since federal elections are not until September 22, it is far too early to tell if he will succeed. Past experience suggests a Bavarian candidate may not do well in the rest of the country, particularly in the formerly communist eastern states. His right of center politics and anti-immigration stance may be popular with parts of Mr. Schroeder's own working class constituency. But his economic policies are in many ways less liberal and reformist than Mr. Schroeder's. Also, his skeptical attitude about the European Union may play badly with Germany's traditionally pro-European middle class.

The Bavarian leader is very confident, but his victory is by no means a foregone conclusion.