Conservative challenger Angela Merkel (search) claimed a mandate to form a new German government Sunday, but Chancellor Gerhard Schroeder (search) refused to concede after his party's strong finish in surprisingly close parliamentary elections.
The vote centered on different visions of Germany's role in the world and how to fix its sputtering economy. Schroeder touted the country's role as a European leader and counterbalance to America, while Merkel pledged to reform the economy and strengthen relations with Washington.
Preliminary vote tallies and exit polls showed Merkel's Christian Democrats (search) leading Schroeder's Social Democrats but failing to win the majority needed to govern, even when combined with her preferred coalition partner, the pro-business Free Democrats.
Supporters at Merkel headquarters were subdued after the party's poor performance. The Christian Democrats consistently polled above 40 percent during the campaign, with surveys giving it a double-digit lead.
If Merkel is to become Germany's first female chancellor, she has to find a coalition partner that would force her to water down plans to shake up the sluggish economy, Europe's biggest.
One leading possibility: a linkup between her Christian Democrats and Schroeder's Social Democrats, viewed by some as a recipe for paralysis in a country plagued by 11.4 percent unemployment.
The inconclusive election result opened a scramble among the parties to see who could come up with a majority.
Schroeder, written off as a lame duck a few weeks ago, refused to concede defeat, saying he could still theoretically remain in power if talks with other parties were successful.
"I feel myself confirmed in ensuring on behalf of our country that there is in the next four years a stable government under my leadership," he said to cheering supporters at party headquarters, flashing the thumbs-up signal and holding his arms aloft like a victorious prizefighter.
But Merkel claimed a mandate from voters to form a new coalition government. Voters were choosing lawmakers for the 598-seat lower house of parliament, which elects the chancellor to head the government.
"What is important now is to form a stable government for the people in Germany, and we ... quite clearly have the mandate to do that," she said.
ZDF public television projections based on exit polls and early counting gave the Christian Democrats 35.2 percent, the Social Democrats 34.1 percent and current coalition partner the Greens 8.2 percent.
The Free Democrats had 10.2 percent, and the new Left Party, formed from renegade Social Democrats and former East German communists, 8.6 percent.
ARD television showed near-identical results, with Merkel's party at 35.2 percent and the Social Democrats at 34.2 percent.
A projection by the Forsa agency showed the Christian Democrats ahead by 34.8 percent to 34.2 percent but winning fewer seats due to Germany's mixed election system, in which parties run in districts and on proportional party lists.
An official national result — excluding one district in the eastern city of Dresden where voting was delayed until Oct. 2 because of a candidate's death — was expected during the night. With 255 of 299 districts declaring, Germany's election authority showed Merkel's party with 36.2 percent and Schroeder's 34 percent.
The result was a big comedown for Merkel, who smiled but twisted her fingers in apparent agitation as she argued that she had a mandate to be the next chancellor. A grinning Schroeder said the apparent outcome marked a failure for Merkel.
Both Merkel and Schroeder said they would talk to all parties except the Left Party. Free Democrats leader Guido Westerwelle said his party would not work with the current government pair, the Social Democrats and Greens.
Schroeder's performance was a reminder of the 2002 vote, when he came from behind to narrowly win re-election after his vociferous opposition to the war in Iraq received public approval.
A turning point was Schroeder's performance in their only head-to-head debate Sept. 4. He hammered her tax adviser, Paul Kirchhof, for having proposed a 25-percent flat tax, even though that is not part of Merkel's program.
Merkel also was hurt by a campaign gaffe by Edmund Stoiber, leader of the Bavarian sister party the Christian Social Union. Stoiber disparaged voters in the economically struggling former East Germany, saying he did not want the "frustrated" east to decide the result.
Now, Merkel's plans to make it easier for small companies to fire people, cut payroll taxes and let companies opt out of regional wage bargaining agreements seem much farther away. Her foreign policy plans — among them, to oppose Turkish membership of the European Union — also were up in the air.
Juergen Thumann, head of the Federation of Germany Industry, said the result was "bitterly disappointing."
"This will making governing much more difficult," he said on N-TV television.
Schroeder defiantly taunted Merkel in a joint television appearance Sunday night, saying she would not receive the post of chancellor in any deal with the Social Democrats.
"If Mrs. Merkel manages to form a coalition with the Free Democrats and Greens, I can say nothing against it," Schroeder said. "But she will not win a coalition under her leadership with my Social Democratic Party."
Asked if he would be chancellor in a left-right coalition, Schroeder answered, "How else would it work?"
If the new parliament cannot elect a chancellor in three attempts, President Horst Koehler could appoint a minority government led by the candidate with a simple majority.
ZDF projected the following division of seats: Christian Democrats, 217; Social Democrats, 213; Free Democrats, 63; Left Party, 54; and Greens, 51. More seats can be added to the lower house of parliament in Germany's system of proportional representation.
Other possibilities were an all-left government of Social Democrats, Greens and the Left Party, but a Left Party leader, Oskar Lafontaine, ruled out joining such a coalition.
Another possibility would be the Christian Democrats, the Greens and the Free Democrats.