INA FASSBENDER / REUTERS HOORAY FOR OUR SIDE CDU supporters in North Rhine–Westphalia.

	SPECIAL REPORT

Posted Sunday, May 29, 2005; 09.37 BST
Unlike some in his party, Schröder knows that they have. "Germany is a country in which, for a very long time, there was sufficient room for redistributing wealth," he told Time. "This is no longer the case, for two reasons. First, globalization and the economic changes it has caused, and second, a long-term development that affects the aging of the German population." The crucial difference between the SPD and the CDU, he said, is that "the Social Democrats will always try to find a balance between economic effectiveness and social compassion. Driven by the liberal Free Democratic Party, the CDU can't do this to the same extent."

Schröder's future will depend on whether voters share that judgment. Merkel — who this week will be anointed as Schröder's challenger, making her Germany's first-ever female candidate for Chancellor — has said that her party would push even harder for reform. The 50-year-old former physicist from eastern Germany has advocated deregulating the labor market, curbing the unions and lowering income taxes. "Policies that create jobs are what is socially responsible," she said in an interview with Focus magazine. At the same time, however, Merkel said she would not promise specific tax cuts or make other expensive election pledges. Europe has succeeded in linking "economic performance with social justice," she said, but "we can't disregard the laws of the economy."

One of the ironies of the North Rhine–Westphalia vote — and of Schröder's predicament in general — is that while the public punishes the SPD for its economic reforms, they may be flocking to a party that has vowed to go even further. A CDU government would likely continue with the labor-market policies introduced by the SPD as well as move to weaken job-protection laws and union control over wages. "Schröder was elected because he told people that reform could be carried out without radical measures," Roland Koch, the CDU Governor of Hesse, told Time. "But today we must have the courage to introduce challenging measures that for some people are not very comfortable, but that will lead to economic growth and jobs. We have to make the labor market more flexible and make Germany attractive again as a place for companies to invest."

Can Merkel convince Germans that she's the person to breathe new life into their once shimmeringly successful economy? Born in Hamburg in 1954, she grew up the daughter of a Lutheran pastor, studied physics at Leipzig University, and later became a protégée of Helmut Kohl, CDU leader and Chancellor from 1982 to 1998. At first she was derided in the German press as "Kohl's little girl," but soon Merkel demonstrated an independent streak and a fierce ambition. When Kohl was implicated in a party-financing scandal in 1999, Merkel — then general secretary of the party — quickly penned an open letter advising him to resign as honorary party chairman. Merkel's move won her both friends and enemies, and bolstered her image as a tough decision maker. In 2004, she forced out three major rivals to maintain the party leadership, and then moved quickly to mop up the financing scandal and turn her attention to winning nine state elections in succession. "She has exceptional analytical talent," says Koch. "When she decides on a path, she sticks to it."

In the general-election campaign, Merkel will need all the determination she's got. As Germany's first female candidate for Chancellor, she will have to overcome gender stereotypes within her own party and within the country as a whole. The CDU, which draws its strongest support from conservative Catholics, has long advocated traditional family values. When Schröder's government passed legislation to help women pursue careers, the CDU argued in parliament that a woman must have the right to choose to stay home, warning against reverse discrimination of women who opt to raise families. Germany has never had a woman as Chancellor, Foreign Minister or Economy Minister. Of the top 30 blue-chip companies listed on the Frankfurt stock exchange, not one has a female ceo. The ascent of women to positions of power may be taken for granted in some northern European countries, but gender equality is only now being implemented in Germany. "It's hard for a conservative party with a strong southern German wing to get used to the idea of having a woman leader," says Everhard Holtmann, a political scientist at Martin Luther University in Halle in eastern Germany.

Nor has Merkel yet convinced the wider public of her fitness for high office. Her association with Kohl, who left power deeply unpopular, could come back to haunt her. She's never governed a state, which for most Germans is seen as a necessary prerequisite for national office. And many West Germans look down on her simply because she hails from the east. Where Schröder is smooth and urbane, Merkel is earnest and down to earth. Schröder likes to relax with a Cuban cigar; Merkel prefers a brisk walk. Though the CDU leads the SPD in polls, Merkel's personal ratings still trail Schröder's in some surveys. Schröder will no doubt exploit the charisma gap in the campaign. In 2002, he made up a 7-point deficit after serious floods threatened much of Germany. He donned rubber boots to trudge through the affected areas, and pledged immediate financial support for victims. His rival, Edmund Stoiber, hesitated and talked about the need for responsible spending.

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