Sunday’s polls by leading institutes broadcast on German television put Merkel’s conservatives – the Christian Democrats (CDU) and Christian Social Union (CSU) – with the biggest share of the vote at 35.5%-36% and their preferred partners, the liberal Free Democrats (FDP), at 10.5% – not enough to form a governing coalition.
Chancellor Gerhard Schroeder’s SPD stood at 33.5%-34%, its partners the Greens at 8.5% and the new Left Party at 7.5%-8.5%.
With her conservatives the top vote-getters, Merkel, who grew up in the ex-communist east, seems likely to replace Schroeder, who has ruled Germany for seven years.
But without enough support to govern with the FDP, Merkel could be forced to share power with Schroeder’s SPD in Germany‘s first “grand coalition” since the 1960s.
It is a grouping markets fear would doom her plans to push through aggressive reforms of Germany‘s labour market and tax system, but one which up to a third of Germans say they favour.
Merkel believes Germany needs
A provisional official result will not be known until after midnight local time (2200 GMT), although German television will progressively update projections of the outcome.
The election is seen as a watershed with far-reaching implications for Europe, where many countries are struggling to reconcile cherished social welfare systems with the cut-throat demands of global competition.
Merkel has made the case that Germany needs to accelerate the structural reforms that Schroeder introduced in his second term to get back on track.
German growth is now the slowest in the 25-nation European Union, unemployment went above the 5 million mark this year for the first time in the post-war era, and the deficit is set to breach EU limits for the fourth straight year.
Merkel, a 51-year-old former physicist, has vowed to cut bureaucracy, ease rules on firing and cut payroll costs to reinvigorate Germany‘s once-powerful economy.
But without a parliamentary majority for her centre-right alliance, her ability to push through these measures will be limited and her power curtailed.
As an outsider who soared to the top of her party by elbowing aside rivals, Merkel could be blamed by powerful CDU barons for squandering a 20-point lead in opinion polls with a campaign that was criticised as lacklustre and gaffe-prone.
Schroeder, 61, a tireless campaigner who stunned the nation in May with a call for elections to be brought forward by a year, promised during the campaign to preserve the social benefits he accuses Merkel of wanting to eradicate.
Schroeder is keen to preserve
That strategy, while not enough to win him a third term, has helped his SPD claw its way back in the final weeks of a hotly-contested and often nasty battle, giving the party a shot at sharing power.
Another key factor in the election has been the emergence of the new Left Party, a grouping of disgruntled former SPD members and ex-communists, who stole votes from both the top parties.