Chancellor Angela Merkel's center-right coalition parties and the left-leaning opposition were locked in a tight regional election race Sunday that illustrates how Germany's shifting political landscape could make it difficult for Ms. Merkel to win a third term in office.
Ms. Merkel's Christian Democratic Union remained the largest party in the state of Lower Saxony with just over 36% of the vote, according to exit polls.
The pro-business Free Democrats, the CDU's junior coalition partner, surged to nearly 10%, its best result yet in the state, shrugging off predictions that the vote would deal it a death blow. That gave Lower Saxony Gov. David McAllister's government a total of about 46% of the vote, tied with the main opposition.
The opposition Social Democrats, known as the SPD, and the Greens hope to form a center-left coalition to oust the CDU and the FDP in Lower Saxony and provide momentum for a leftist coalition in Berlin in the federal vote later this year.
But as the evening wore on and results began to trickle in, the race remained so close that analysts and the lead candidates suggested a grand coalition of the two largest parties—the CDU and the SPD—was increasingly likely.
"With a result like this, you can't rule anything out," said Mr. McAllister, when asked by reporters if he would seek a grand coalition.
Stephan Weil, the SPD's candidate for state governor, said the race was still too close to call.
"The only thing that is clear is that no one can say who will be the winner at the end of the evening," he said.
The final result from the state electoral commission isn't expected until early Monday morning.
With the federal election just eight months away, Germany's political class has turned the Lower Saxony vote into a dress rehearsal for September's main event.
If Ms. Merkel's coalition of the CDU and FDP emerges victorious when the votes are counted in Lower Saxony, analysts say, it would prove her fractious coalition parties could still win elections and give her a boost as she launches her campaign.
A victory by the Social Democrats and Greens in Lower Saxony could help restart the sluggish campaign of Peer Steinbrück, the Social Democratic challenger whose campaign to oust Ms. Merkel from office has failed to ignite excitement nationally amid a series of gaffes and missteps.
Mr. Steinbrück apologized to his party on Sunday, saying that his poor performance on the national stage robbed the Social Democrats of momentum in the regional election. But he said he also took heart in the fact that the party might eke out a victory before the night is over.
"This means that a change of government and of power are possible this year," he told SPD members at party headquarters in Berlin.
While no clear victor had emerged early Sunday evening, the political cliffhanger playing out in Lower Saxony showed German voters are waiting longer to decide whom to vote for—and that they are flocking to the four main traditional Western German parties.
The Left, an amalgam of Western German far-left parties and the remnants of the former East German ruling Communist Party, failed to win seats in Lower Saxony, ending its bid to establish itself as a national party of the far-left.
Similarly, the Pirates, a protest party founded by Internet activists, failed to win seats in Lower Saxony, ending a series of successes in several state elections over the past two years. Only last year, the Pirates were forecast to win 10% of the vote in the federal election. Now, analysts said, they look dead in the water.
The Lower Saxony race shows that the German electorate may be drifting into two largely evenly divided camps. That could make it harder for either of the big parties—the CDU and the SPD—to form stable coalitions with smaller parties of their liking in the future.
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