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Election

On 30 May 2005, Merkel won the CDU/CSU nomination to challenge Chancellor Gerhard Schröder of the SPD in the 2005 federal elections. Her party began the campaign with a 21 – point lead over the SPD in national opinion polls, although her personal popularity lagged behind that of the incumbent. However, the CDU/CSU campaign suffered when Merkel, having made economic competence central to the CDU's platform, confused gross and net income twice during a televised debate. She regained some momentum after she announced that she would appoint Paul Kirchhof, a former judge at the German Constitutional Court and leading fiscal policy expert, as Minister of Finance.

Merkel and the CDU lost ground after Kirchhof proposed the introduction of a flat tax in Germany, again undermining the party's broad appeal on economic affairs. This was compounded by Merkel's proposal to increase VAT to reduce Germany's deficit and fill the gap in revenue from a flat tax. The SPD were able to increase their support simply by pledging not to introduce flat taxes or increase VAT. Although Merkel's standing recovered after she distanced herself from Kirchhof's proposals, she remained considerably less popular than Schröder, who had been perceived as the more generally competent and trustworthy candidate. The CDU's lead was down to 9 percentage points on the eve of the election, with Merkel having a significant lead in popularity based on opinion polls. On 18 September 2005, Merkel's CDU/CSU and Schröder's SPD went head-to-head in the national elections, with the CDU/CSU winning 35.2% (CDU 27.8% / CSU 7.5%) of the second votes to the SPD's 34.2%. The result was so close that both Schröder and Merkel initially claimed victory. Neither the SPD – Green coalition nor the CDU/CSU and its preferred coalition partners, the Free Democratic Party, held enough seats to form a majority in the Bundestag. A grand coalition between the CDU/CSU and SPD would face the challenge of both parties demanding the chancellorship. However, after three weeks of negotiations, the two parties reached a deal for a grand coalition whereby Merkel would become Chancellor and the SPD would hold 8 of the 16 seats in the cabinet. The deal was approved by both parties at party conferences on 14 November 2005.

Merkel was elected Chancellor by the majority of delegates (397 to 217) in the newly assembled Bundestag on 22 November 2005, but 51 members of the governing coalition voted against her. Reports at the time indicated that the grand coalition would pursue a mix of policies, some of which differed from Merkel's political platform as leader of the opposition and candidate for Chancellor. The coalition's intent was to cut public spending whilst increasing VAT (from 16 to 19%), social insurance contributions and the top rate of income tax.

When announcing the coalition agreement, Merkel stated that the main aim of her government would be to reduce unemployment, and that it was this issue on which her government would be judged.