Chancellor Angela Merkel
Angela Merkel - who was not present at the ceremony - is the Chancellor of the Federal Republic of Germany. President Barack Obama said on Tuesday he would give her the award on her next state visit. She is the first woman and first East German to serve as Chancellor of a unified Germany, which this year marks its 20th anniversary. She has often said that freedom is the happiest experience of her life. Chancellor Merkel was born in Hamburg but was raised in what was then Communist East Germany after her family moved to Templin. Her political career began when she joined the new Democratic Awakening party in 1989 after the fall of the Berlin Wall. In 1990, as West and East Germany merged into one reunited country, her party joined with the Christian Democratic Union, and she was elected to the German parliament. She has been chairman of the CDU since April 2000 and was recently reelected to another term. REUTERS

German Chancellor Angela Merkel on Monday acknowledged a bitter defeat in a state election in Hamburg, which could reverberate in six more votes this year and in her response to the euro zone crisis.

Merkel's Christian Democrats were swept from power in Germany's second city in the regional election on Sunday with their worst result since World War Two, plunging 20.7 percentage points from the last election there to 21.9 percent of the vote.

Merkel pinned the defeat on local issues, saying school policies and the surprise resignation of popular CDU mayor Ole von Beust last year were to blame.

About 80 percent of the issues that played a role in Hamburg were local Hamburg matters, Merkel told a news conference after the party leadership met to analyse the result.

It was a bitter defeat for the CDU. It was a difficult situation and a lot of voters were disappointed, she said.

The rout could limit the chancellor's room to manoeuvre in the euro zone debt crisis, where she has demanded economic policy coordination along German lines. Domestic opposition to Germany picking up the euro zone's bills will rise, analysts said.

The loss in Hamburg was far worse than anyone had expected, said Dietmar Herz, political scientist at Erfurt University. Merkel will likely take a tougher line defending Germany's interests to mollify her conservative supporters.

The chancellor faced widespread criticism in Germany last year for providing guarantees, backed by taxpayers, for rescue packages for Greece and the wider euro zone. That was part of the reason she lost control of the upper house, or Bundesrat, by failing to hold North Rhine-Westphalia state in an election last May.

Commerzbank chief economist Joerg Kraemer said the Hamburg defeat would probably not directly affect Germany's negotiating position on a revamped euro rescue package to be launched in March.

But that could change if her CDU is also beaten next month in the more influential state of Baden-Wuerttemberg, where the conservatives have been in power for six decades, he said.

Every German politician has the sensitivities of voters about the euro zone in the back of their minds, Kraemer said. But Hamburg will not have a big effect because it was about local issues. In Baden-Wuerttemberg, they know the public is already sceptical about help for periphery euro states.

ONE DOWN, SIX TO GO

While the CDU had expected to lose Hamburg and its three seats in the 69-seat Bundesrat, the dimensions of the defeat in Germany's richest city were nevertheless stunning and could cause turbulence ahead of elections in three states in March.

The opposition Social Democrats took back control of Hamburg with 48.3 percent of the vote, compared with 34.1 percent in the 2008 election. That gives them 62 seats and an absolute majority in the 121-seat state assembly -- their best result in 17 years.

Merkel's weaker position in the Bundesrat, which represents the states, will make it harder for her centre-right coalition to pass legislation. About half the laws that pass the lower house also need upper house approval.

Hamburg was the 17th consecutive regional election in which the conservatives' tally declined from the previous vote -- a frightening tailspin that raises nervousness among party officials alarmed about their diminishing job security.

Merkel will be not able to just sweep Hamburg under the carpet and move on, said Gero Neugebauer, political scientist at Berlin's Free University. It definitely will have national implications, sending signals for other elections this year.

The size of the defeat in Hamburg gave Merkel a glimpse of the abyss that she may be staring into at the end of 2011, he added. If things go badly, she could lose the next six votes and that would make it almost impossible for her to continue.

In 2005, her predecessor Gerhard Schroeder called early elections after his SPD, which had been in a minority in the Bundesrat since 1999, lost a string of state elections that further eroded its position in the upper house.

Merkel is suddenly facing other problems. Her popular Defence Minister Karl-Theodor zu Guttenberg has been embroiled in a plagiarism scandal over his academic thesis, allegations he has dismissed. Rumours that he will resign have swept Berlin.

Merkel's coalition now has 31 of the 69 seats in the upper house after losing Hamburg. There are 24 more Bundesrat seats up for grabs in the next six elections and Merkel's coalition could in a worst-case scenario lose 13 more seats this year.

The CDU got crushed in Hamburg because unpopular candidate Christoph Ahlhaus ran a poor campaign. The SPD challenger, ex-Labour Minister Olaf Scholz, won back traditional SPD voters and moderates by focussing on the economy and debt reduction.

The SPD hope the Hamburg outcome will send a signal to voters in other state votes, especially in Baden-Wuerttemberg.

Commerzbank Germany Elections Commerzbank