Merkel holds on by fingertips but Schroeder celebrates

Angela Merkel was holding on to her chances of becoming Germany's first woman Chancellor by her fingertips after her conservative Christian Democrats appeared to have won only a wafer-thin election lead that left the composition of the country's future government wide open.

Provisional results in the general election last night showed that Merkel's party had won only 35.2 per cent of the vote - placing her party a mere 0.9 per cent ahead of Gerhard Schroeder's Social Democrats.

The result mirrored New Zealand's knife-tight election result, under the same system of MMP.

Although still narrowly the strongest party, the conservatives' poor showing deprived Merkel of the parliamentary majority she needed to form the coalition government she had wanted with Germany's liberal Free Democratic Party, which won 9.8 per cent of the vote.

Clearly shocked by her party's performance, Merkel insisted: "We have emerged as the strongest party in the election. We have a clear mandate to form the next government. I shall be holding discussions with all parties on how to form a stable coalition."

Chancellor Schroeder, whose Social Democrats performed far better than predicted, admitted he had narrowly lost the election but claimed that he was still in a position to lead a government. "There will still be a stable government under my leadership," he insisted, "I am really proud of my party."

Earlier, Schroeder had said he would quit politics if his party failed to emerge as the strongest political force in the election.

Liberal Free Democrat leaders flatly refused to contemplate joining a coalition with any other party than the conservatives: "We fought this election on a campaign to get rid of the red-green Government. We are not going to join a coalition which will only prolong the misery," Guido Westerwelle, the FDP leader said.

The Social Democrats have also refused to enter into a coalition with the newly formed radical Left Party which gained 8.7 per cent of the vote - yet they were left without a big enough majority to continue governing with the environmentalist Greens which won 8.1 per cent.

As a result, the most likely option Merkel faced was a "grand coalition" government with the Social Democrats - an arrangement hitherto rejected by both parties during the campaign because of its inherent inability to agree on policy.

The only other option open to Merkel was the very slim possibility of a so-called "Jamaica coalition" comprised of Christian Democrats, Liberals and Greens. Joschka Fischer, the Greens Party leader, said he would hold talks with Merkel, but admitted that the prospect of such an alliance was "unrealistic".

At conservative party headquarters in Berlin, party members said they were dismayed at seeing their hopes of a clear victory dashed at the polls: "I couldn't believe the result," said one CDU MP. "The outcome will shatter the party. It can only be seen as a chance to attempt a new beginning."

The result was a severe blow to Merkel's standing as party leader. Opinion polls had predicted that her party was on course to beat the Social Democrats by some 10 per cent. An opinion poll conducted after polling concluded that 71 per cent of German voters were confused about Merkel's controversial proposals to raise VAT and introduce an eventual 25 per cent flat tax.

But German voters punished Schroeder for failing to live up to his 1998 election pledge to halve the country's then 3.5 million unemployed. During his seven years as Chancellor, Germany's jobless rate has spiralled to five million, the highest since the country's pre-Nazi Weimar era.

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