BERLIN (Reuters) - German Chancellor Angela Merkel said on Monday she would not seek re-election as party chairwoman and that her fourth term as chancellor would be her last, heralding the end of a 13-year era in which she has dominated European politics.
Merkel, 64, has been chairwoman of her conservative Christian Democrats (CDU) since 2000 and chancellor since 2005. Her decision to step down as chairwoman comes after her party suffered its second regional election setback in as many weeks.
Merkel made the announcement on the day after Sunday's vote in Hesse in a speech to mark the 20th anniversary of the German Federal Government Commission for Culture and the Media (BKM).
The move sets in motion the process for the CDU to settle on and groom Merkel's successor. It caused the euro to fall briefly and German government bond yields rose.
Stepping down as CDU chairwoman further undermines Merkel's authority, which has been dented this year by the two regional election setbacks and a close ally losing his role as leader of her conservatives' parliamentary group.
Merkel has loomed large on the European stage since 2005, helping guide the EU through the euro zone crisis and opening Germany's doors to migrants fleeing war in the Middle East in 2015 - a move that still divides the bloc and Germany.
"We are witnessing a continuation of the pattern in place ever since Merkel’s mistakes in the 2015 migration crisis: the gradual but steady erosion of her political power," said Carsten Nickel, managing director at Teneo, a consultancy.
"Rather than outright instability in Germany and Europe, it simply means a continuation of the current leadership vacuum."
Monday's news came as a surprise to CDU party officials, who had expected Merkel to seek re-election as chairwoman at a party congress in Hamburg in early December.
The shock move started the race in the CDU to succeed Merkel. It also raises questions about whether she can stage manage a smooth exit.
Merkel is under pressure from her Social Democrat coalition partners to deliver more policy results and the center-left party could yet pull out of the government at a mid-term review next year.
Germany's other leader CDU chancellors - Konrad Adenauer and Helmut Kohl - both had messy ends to their time in office.
SUCCESSION RACE
Merkel standing down from the party chair will allow a new CDU chairman or chairwoman to build a profile before the next national election.
Party sources said Merkel's favored successor, CDU party secretary general Annegret Kramp-Karrenbauer, Friedrich Merz, a former parliamentary leader of Merkel's conservative alliance, and Health Minister Jens Spahn had announced their candidacies for the party chair.
Merkel's weakness at home may limit her capacity to lead in the European Union at a time when the bloc is dealing with Brexit, a budget crisis in Italy and the prospect of populist parties making gains at European parliament elections next May.
When Merkel came into office in 2005, George W. Bush was U.S. president, Jacques Chirac was in the Elysee Palace in Paris and Tony Blair was British prime minister.
In a vote in the western state of Hesse on Sunday, the CDU came out top but lost 11 percentage points in support compared to the last election in 2013.
"With these latest results, it has simply become untenable that Merkel continues to lead the CDU," said Mujtaba Rahman, managing director at Eurasia Group, a consultancy.
(Additional reporting by Joseph Nasr; Editing by Raissa Kasolowsky)