Divided German Voters Leave New Leadership Uncertain

Manuela Stender, 43, another resident of Reinickendorf, said she voted for the Social Democrats in part out of resignation. "The others would not necessarily do things any differently," said Stender, who is unemployed. "When it comes down to it, they all make promises they can't keep."

Many analysts and political experts said they feared a grand coalition would just bring political gridlock, making it even more difficult for Germany to find a way out of its economic doldrums.

"Germans weren't ready to vote for reform. They just weren't ready to make those hard decisions necessary to make Germany competitive again," said Gary Smith, executive director of the American Academy in Berlin. "The prognosis for reform is not good in the next couple of years. It's hard to imagine a not-so-grand coalition pushing Germany ahead, except in the smallest possible steps."

Germany exports more goods than any other country and has a major impact on the economic health of the rest of Europe. But the nation of about 82 million has been in a rut for a decade, hampered by the enormous expenses required to absorb East Germany after the collapse of the Berlin Wall. Growth also has been stifled by expensive social welfare programs as well as strict workplace protections that discourage job creation.

Unemployment hit 11.6 percent this year, the highest mark in 60 years. Although the elections were not scheduled to take place until next year, Schroeder decided in June to call for an early vote, saying he no longer had enough support within his own party to continue.

Juergen Falter, a political scientist at the University of Mainz, said the electorate was torn. About half wanted change, he said, even if it meant more spending cuts and trims to the country's generous social safety net. The other half just said no.

"There's a German saying that essentially translates to say, 'Wash me, but don't make me wet,' " Falter said. He predicted that it could take two or three years of rising unemployment coupled with weak economic growth before a clear majority of voters is ready to embrace a new direction.

Merkel and the Christian Democrats began the campaign with a double-digit lead in opinion polls, but their advantage dwindled steadily as she turned off voters with her straight talk about the country's problems. Her main proposal was to increase the sales tax -- already 16 percent on most items -- to raise money for her job-creation plan.

"They made several blunders," Falter said of the Christian Democrats. "Mistake number one was to tell people they would raise taxes. That just didn't go down very well."

Schroeder took advantage of Merkel's missteps, turning the campaign into a referendum on her policies instead of his job performance. He also repeatedly raised the specter that a Merkel-led government would send troops to Iraq, an extremely unpopular notion in Germany. The tactic worked for Schroeder in 2002, when he won a second term by emphasizing his opposition to U.S. policy in Iraq after trailing badly in the polls.

The biggest beneficiaries in the elections were Germany's smaller political parties. Merkel's ally, the Free Democrats, received about 10 percent of the vote, higher than expected but not enough to form a majority government with the Christian Democrats.

The Greens, who have served as Schroeder's junior partner in government for the past seven years, won about 8 percent.

The Left Party, a new group consisting of former East German communists and defectors from Schroeder's party, played the spoiler by capitalizing on anger over his welfare spending cuts. The Left drew about 9 percent of the vote, giving it control over a potential swing bloc of seats in Parliament.

"Our daring endeavor has paid off," said Oskar Lafontaine, a former finance minister under Schroeder who abandoned the Social Democrats and co-founded the Left Party. "We now know for sure that there will be leftist representation in the German Parliament."

Both Schroeder and Merkel ruled out the possibility of forming a coalition with the Left Party, saying its views were incompatible with those of the mainstream parties. But with no easy formulas emerging after the elections, all options will come under discussion as the parties begin jockeying for control of the new government.

Special correspondent Shannon Smiley contributed to this report.