Merkel wins new term to lead Germany out of slump

Heightened security after warnings from Al-Qaeda leader Osama bin Laden and other Islamic militants over Germany's military mission in Afghanistan also cast a shadow over voting. Turnout hit a historic low at 72.5 percent.

Merkel, Forbes magazine's most powerful woman on the planet for four years running, had argued that Germany needed a new, centre-right government to stem its steepest post-war economic downturn.

The leaders of Britain and France, Gordon Brown and Nicolas Sarkozy, were quick to congratulate Merkel on her triumph, which analysts said could put Europe's top economy back on a course for growth.

"We could get another boost for the economy and of course if Germany grows that's good for the neighbours," ING senior economist Carsten Brzeski said.

Awaiting Merkel's new-look coalition is a bulging in-tray of problems.

Unemployment is forecast to shoot higher, and health care, education and the bloated social security system are in dire need of reform. Public finances are in tatters and its population is ageing fast.

Abroad, the main challenge is Afghanistan, where Germany has around 4,200 troops in the NATO force ensnared in the eighth year of an ever more deadly struggle with insurgents.

With all of the main parties in the Bundestag lower house backing the deployment, with the exception of the far-left Die Linke, the Afghan mission failed to register as a decisive issue.

Die Linke, however, had an exceptionally strong showing with more than 12 percent of the vote, putting the ecologist Greens in last place among the major parties with around 10 percent.

If there is not a sufficient effort to build up the Afghan army and police, "the US will have a second Vietnam, and Germany its first," the Berliner Zeitung daily said in an editorial last week.

Merkel moved her conservative party steadily to the centre in her first term in power and the next kingmaker will have a significant say in which tack the government takes.

The FDP is expected to pressure her to push through deep tax cuts to kickstart the economy, sign off on her plans to extend the life of the country's 17 nuclear reactors and resist efforts by Merkel, a former environment minister, to slash greenhouse gas emissions.

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