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Merkel urges Schroeder to concede

Merkel: "Now it's about creating a stable government in Germany. This is our job, our mandate."

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BERLIN, Germany (CNN) -- Conservative leader Angela Merkel has urged Chancellor Gerhard Schroeder's party to enter talks to form a "grand coalition" under her leadership.

Germany's conservatives won a narrow victory Sunday but fell short of the majority needed to form a center-right government with their preferred partners, the pro-business Free Democrats.

Merkel said Monday she had begun making contacts with potential coalition partners after the election, which left neither her Christian Democrats nor Schroeder's Social Democrats in a strong position to form a new government -- although both said they would try.

At a Monday news conference, Merkel urged Schroeder's Social Democrats to "accept that they are not the strongest party."

But Schroeder on Sunday night rejected the idea of a "grand coalition" with Merkel as chancellor -- although he did not rule out the possibility of a left-right government under his leadership.

On Monday, Schroeder's Social Democrats showed no sign of conceding.

Shortly after Merkel spoke, Social Democrat chairman Franz Muentefering told reporters the party had invited opposition conservatives and liberals as well as their existing Green party allies to explore possible coalition options.

"We have a responsibility to make clear that we want to rule with Mr. Schroeder as chancellor and implement a lot of that which we have undertaken to do," he said.

He said he had issued written invitation to talks with all Germany's major parties except the Left Party following a meeting of the party's executive committee.

Both the Social Democrats and the Christian Democrats have ruled out an alliance with the Left Party, led by former communists and disaffected members of Schroeder's party.

Disappointing numbers

Merkel's Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), had been expected to garner 40 percent of the vote.

Instead, according to preliminary results from 298 of 299 districts, the CSU/CSU won 35 percent.

That would give them 225 seats in the 598-seat Bundestag, or lower house of parliament -- just three more than Schroeder's Social Democratic Party (SPD), which took 34 percent of the vote.

The lower-than-expected numbers for the CDU/CSU make it difficult for Merkel to form a center-right coalition with her preferred partners, the pro-business Free Democrats, who won 10 percent of the vote for 61 seats.

Schroeder's current coalition partners, the Greens, won 8 percent of the vote and 51 seats, and the new Left Party won nearly 9 percent and 54 seats.

Still up for grabs -- and a potential focal point as parties begin coalition talks -- are two to four seats in the eastern city of Dresden, where voting was delayed until October 2 because of the death of a candidate.

Immediately after Sunday's vote, Merkel said: "Of course we hoped for a better result."

But she said her party was "the strongest political power in the country" and that it "does have a clear mandate to govern this country."

"The campaign is over," she said. "And now, it's time to create a stable government for the people in Germany.

"Germany needs to go down the path of reforms, even though many people are a little anxious, a little worried about this," she said.

Schroeder, however, argued that voters refused to grant Merkel a mandate to lead the country and called the results "disastrous" for the conservative leader.

"That they can claim a political mandate for Germany is something that I cannot understand -- and something that will not happen, ladies and gentlemen," he said Sunday.

"Those who wanted change in the office of chancellor have failed grandly. ... Over the next four years there will be a stable government under my leadership."

If Merkel can assemble a coalition, she would be the first woman to lead Germany. But to do so, she might have to share power with the Social Democrats in a "grand coalition."

Such a move would likely torpedo her plans to push through aggressive labor and tax reforms she says are needed to cut unemployment, which hit post-war highs of more than 11 percent this year.

'Traffic-light' coalition?

Social Democrat leaders have suggested adding the Free Democrats to their coalition with the environmentalist Greens to keep Schroeder in office, but Free Democrat leader Guido Westerwelle has repeatedly rejected that idea.

"I rule out categorically any 'traffic-light' coalition with red and green," Westerwelle told a news conference Monday, referring to the parties' colors, which include yellow for the Free Democrats and red for the Social Democrats.

Schroeder and his allies assailed Merkel's reform plans throughout the campaign, warning they would undermine Germany's extensive and popular welfare state.

He argued he could revamp the country's social programs without hurting ordinary Germans.

Schroeder called elections a year early after the western state of North Rhine Westphalia, one of his party's strongholds, fell to the conservatives in May. He trailed far behind Merkel in early polls, but Merkel's support faded as election day neared.

Merkel, the daughter of a pastor from the once-communist East Germany, attacked Schroeder for failing to cut unemployment and criticized his support for Turkey's acceptance into the European Union.

And Schroeder, the son of a cleaning woman widowed by World War II, reminded voters of the issue that observers credited with his 2002 win -- his opposition to the U.S.-led war in Iraq.

CNN Berlin Correspondent Chris Burns contributed to this report.