Merkel and Schroeder both claim Chancellor's office

Germany’s opposition leader Angela Merkel and the chairman of Chancellor Gerhard Schroeder’s party made the first contacts with potential coalition partners in a scramble for power after Germany’s inconclusive election.

Voters denied both Schroeder and Merkel a majority, but each is demanding the chancellor’s office, launching a struggle that could last weeks while business leaders and economists warn decisive action is needed to fix the struggling economy.

Germany’s foreign policy – how to deal with Turkey’s bid for membership in the European Union, talks on Iran’s nuclear program, and relations with the US - also remains on hold.

Merkel, whose campaign to become the first female chancellor was thrown into doubt after her party barely managed to finish first, said her conservatives would seek to form a government “as soon as possible”.

“We are the strongest group in the parliament and the government has no majority,” she said at a news conference yesterday. “The chancellor needed a new confirmation and he did not get it.”

But Social Democrat chairman Franz Muentefering said Schroeder should lead the country, and rejected Merkel as chancellor at the head of a “grand coalition” of conservatives and Social Democrats.

“The message was clear: this country does not want Mrs. Merkel as chancellor,” he said.

Schroeder’s seven-year-old government of Social Democrats and Greens was ousted on Sunday after failing to cut the country’s high unemployment and bring about substantial economic growth. But Merkel’s call to reform the country’s rigid rules on hiring and firing and simplify taxes also were rejected by an electorate that seemed sceptical of drastic change.

Schroeder exulted in a strong comeback from as much as 20 points down in the polls, while a subdued Merkel had to admit that the vote was “a success, if not a perfect one”.

Official results showed Merkel’s group winning 225 seats, three more than the Social Democrats. The Free Democrats got 61, the Greens 51 and the new Left Party 54. Voting in one district, in the eastern city of Dresden, has been delayed until October 2. The Bundestag has at least 598 seats, plus seats added due to the country’s system of proportional representation; the final number of seats will be known after the Dresden vote.

Most speculation has focused on a “grand coalition” between the Christian Democrats and the Social Democrats. But that would face an obstacle in clashing demands from each side that their leader be chancellor.

Some fear such a government would be incapable of making tough decisions about how to tackle the country’s problem with sluggish economic growth. Last year, 1.6% was considered a recovery after three years of near zero expansion.

The head of Germany’s HDE retail trade association said the country needs political clarity and a government that can reform its tax and labour law systems.

“An unstable government and a perpetual election campaign with an uncertain outcome is the last thing our country needs,” said association head Hermann Franzen. “Get to work.”

Party officials spent most of their time today ruling out potential combinations. The heads of the Left Party, Gregor Gysi and Oskar Lafontaine, said they wouldn’t keep the current government in power in an all-left coalition of Social Democrats, Left Party and Greens.

The pro-business Free Democrats said they wouldn’t form a government with the Social Democrats and Greens, nor would they join in a coalition with the Christian Democrats and Greens, dubbed the “Jamaica” coalition because the party colours – black, yellow and green – are those of that country’s flag.

The Social Democrats and the Christian Democrats both ruled out working with the Left Party.

Parliament must meet in 30 days, but the wrangling could drag out while Schroeder remains interim chancellor. If parliament can’t choose a winner in three tries, President Horst Koehler can appoint a minority government, raising the spectre of instability and another election before parliament’s four-year term is up.

Meanwhile, Merkel must shore up support in her own party after a disappointing campaign. She said she would run for the leadership of her party’s parliamentary group in a vote today.