Germans vote in close-fought election

BERLIN (Reuters) - Germans headed to the polls on Sunday to cast their votes in a closely fought election that will decide the agenda for reform of Europe's largest economy and could bring in the country's first woman chancellor.

The conservative Christian Democrats (CDU) under Angela Merkel have consistently led the opinion polls and she is expected to become chancellor, displacing Gerhard Schroeder whose centre-left government has held power for seven years.

But with many of the country's 62 million voters undecided on the eve of the vote, it was unclear if she could muster enough support to form the centre-right coalition she says is needed to push through deep reforms of Germany's ailing economy.

If Merkel cannot form the ruling alliance she wants, she will probably be forced to share power with Schroeder's Social Democrats (SPD) in a "grand coalition" markets fear could stall reforms Schroeder himself began and Merkel wants to accelerate.

"I was very confused over how to vote. It's never been so hard to decide," said Bettina Quentin, 39, a health worker casting her vote at a school in the east of Berlin.

For Germany and the rest of Europe, the stakes are high and for a new leader, the challenge of dealing with near-record jobless numbers and straining public finances will be daunting.

Surveys show that most Germans believe their country must adapt if it is to keep the prosperity built up since the end of World War Two but they are deeply uncertain about how far reform should go and how the burden should be shared.

"We need change so that Germany can get back on its feet," said Ursula Becker, a 79 year-old pensioner casting her vote in the Sachsenhausen district of Frankfurt.

"In Europe we were always among the first ranking countries. We don't have to always be the first but we must be among the first," she said.

CANDIDATES VOTE

Schroeder and his wife Doris cast their votes in a blaze of photographers' flashlights at a sparsely furnished polling station walking distance from their home in the western city of Hanover just after 11 a.m. (0900 GMT).

He made a joking show of looking over the barrier as his wife filled out her vote card before leaving with her arm in arm without making any statement to waiting reporters.

Merkel voted in central Berlin just after midday, casting her ballot in a scrum of yelling cameramen with her husband Joachim Sauer, an academic chemist famous for shunning the media spotlight.

A provisional result is expected in the early hours of Monday but if it is close, a final decision could depend on one district in the eastern city of Dresden where polling has been delayed until October 2 because of the death of a candidate.

The area around the German parliament was packed with broadcast trucks and camera crews setting up equipment before polls close and the first exit polls are announced at 6 p.m (4am NZT).

For Merkel, an unglamorous but determined 51 year-old from the formerly communist east, victory would make her one of the most powerful leaders in Europe 15 years after she entered politics following the fall of the Berlin Wall.

But Schroeder, 61, has thrown himself into campaigning with a drive that has rocked his opponents and raised the possibility that the SPD may be able to salvage something from the election even if he himself steps down.

His "Agenda 2010" reforms to welfare and labor market rules have been the most ambitious attempt to overhaul the social security system in decades.

He has stood on his record in keeping Germany out of the Iraq war, appealed to Germans' deep attachment to the principle of solidarity and social balance and attacked the conservatives as cold, unsocial friends to the rich.

Merkel has accused him of botching his own reforms and lacking ideas for the future, contrasting Germany with more prosperous regions like Scandinavia.

But it was bitter resentment of Schroeder's reforms, backed by the CDU, that helped foster the rise of a new leftist party of former communists and disaffected ex-Social Democrats that could gain enough votes to deny Merkel a majority of her own.