But the pioneering Protestant minister's daughter who grew up in communist East Germany won't have a free hand to implement her policies after failing to convince voters to give her a centre-right majority in the September 18 election.
Instead, she must share power with outgoing Chancellor Gerhard Schroeder's Social Democrats, who are likely to resist trimming labour union influence.
Ms Merkel, a 51-year-old former scientist, proposed making it easier for small companies to fire people so they won't be afraid to hire during upswings. And she wanted to let companies opt out of the one-size-fits-all regional wage agreements that unions favour, but which make struggling smaller companies pay the same wage scale as profitable big ones.
She will also have to share foreign policy with the Social Democrats, to whom she has had to give the foreign ministry job.
She has been noticeably more pro-American than Mr Schroeder's party, whose rank-and-file members have applauded Mr Schroeder's willingness to stand up to the US in opposing the war in Iraq.
Both her economic views and foreign policy outlook appear to have been shaped by her years growing up under repressive communist rule.
Ms Merkel has been a supporter of the transatlantic alliance in contrast with Mr Schroeder, who cultivated a strong partnership with France.
In an autobiography, Ms Merkel recounted that while living behind the Iron Curtain she was resigned to the fact that "that I would only fly to the United States at age 60".
Instead, she made the trip in her 30s in 1991 as Chancellor Helmut Kohl's minister for women, meeting then-President George Bush and former President Ronald Reagan.
On the campaign trail she avoided issues such as Iraq, knowing that Mr Schroeder's vociferous opposition to the war remains popular. But few doubt she would get along better with Washington: she has criticised Mr Schroeder for opposing the use of force in Iraq.
However, Ms Merkel opposes EU membership for Turkey, which both Mr Bush and Mr Schroeder support.
She says the EU should offer a "privileged partnership" short of full membership instead.
Ms Merkel, who has been nicknamed the 'Iron Frau' is married to her second husband, Joachim Sauer, a chemistry professor at Berlin's Humboldt University.
Mr Sauer shuns the limelight, except for the couple's annual red-carpet walk at the Wagner opera festival in Bayreuth that has earned him the nickname, "phantom of the opera". In 1977, she married fellow college student Ulrich Merkel but divorced in 1982.
She was born Angela Dorothea Kasner in Hamburg in West Germany on July 17, 1954. Her minister father, Horst Kasner, moved the family to Templin, a small town 80 kilometres north of Berlin in the communist east three years later to train new clergy in the atheist state.
Graduating from Leipzig University in physics, she was a theoretical researcher at the East German Academy of Sciences when the Berlin Wall fell in 1989.
She got involved in a new political group, Democratic Awakening, which fizzled quickly in the first free East German election in March, 1990. She was elected to parliament that year as a member of Chancellor Helmut Kohl's Christian Democrats and was named as women's minister by Mr Kohl.
She became the party's general secretary in 1998 and moved up to become its chairperson in 2000 after urging the party to dump Mr Kohl during a scandal over illegal contributions.