Exit polls in Germany show conservative challenger Angela Merkel with a thin lead after Sunday's general elections, but not enough to form a center-right coalition. Chancellor Gerhard Schroeder refuses to concede defeat and says he can still lead the next government.
It was one of the hardest-fought elections in German history, and the early indications are that Europe's biggest and richest nation may be heading for political stalemate rather than a clear mandate for change.
The first exit polls give Ms. Merkel's Christian Democrats between 35 and 36 percent of the vote and Mr. Schroeder's Social Democrats just under 34 percent. That is a worse than expected showing for the Christian Democrats and a better than expected result for Mr. Schroeder, who started the campaign 20 points behind his conservative rival.
Ms. Merkel's preferred coalition partner, the pro-business Free Democrats (FDP) made a strong showing for a small party, polling more than 10 percent of the vote. But the combined result of the two conservative groups does not give them the majority in parliament Ms. Merkel needs to form a government.
Still, Ms. Merkel, who campaigned for radical tax and labor reforms to kick-start Germany's stagnant economy, says her Christian Democrats have earned the right to form the next government because they got the most votes.
"The union party has a very clear mandate to build a government in a very difficult situation," she explained. "Of course, for a CDU-FDP government, we do not have enough votes, but I will undertake the task of building a government which is able to function."
But a defiant Chancellor Schroeder indicated he will not concede and told cheering supporters in Berlin that the election was a defeat for Ms. Merkel.
"I do not understand, and I'm sure that people in Germany do not understand either how the CDU could be so self-confident and so arrogant, how the CDU can make and claim political leadership from a disastrous result in these elections. I feel reconfirmed to make sure that, over the next few years, there will be a stable government under my leadership," he said.
Mr. Schroeder says Ms. Merkel's calls for radical change are not what Germany needs and that his own moderate reforms will soon reduce Germany's 11 percent unemployment.
Negotiations to form a governing coalition have already begun. And experts say the next government will either be a grand coalition of the Christian Democrats and Social Democrats or a Social Democrat-led coalition with the Greens and the Free Democrats. But the Free Democrats say they will not join any such group. And both of the big parties have ruled out any coalition with the new Left Party made up of former East German communists and Social Democrat dissidents.
Professor Lutz Erbring, a political scientist at Berlin's Free University, says a grand coalition of the big parties would lead to stagnation but, given the Free Democrats' refusal to join a so-called traffic light coalition, is the most likely result.
"The prospects of a red-yellow-green coalition seems so remote at this point that the chances of a grand coalition unloved by everybody and desired by none is probably what is going to happen," said Mr. Erbring.
Professor Erbring says such a grand coalition could never agree on what reforms to undertake and that political paralysis would be the end result.
But, at this stage, it is too early to know just how the final results will play out and what kind of coalition will emerge in Europe's biggest nation.