Merkel, 64, has been chairwoman of her conservative Christian Democrats (CDU) since 2000 and chancellor since 2005
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 a day after Sunday's vote in the state of Hesse, at which the CDU came first but suffered a slump in support from the last election there in 2013.
"I have the firm feeling that today the time has come to open a new chapter," Merkel, looking serious but calm, told reporters in Berlin after a meeting of the CDU's leadership.
Drawing the consequences of the CDU's weak result in Hesse and dissatifaction with her coalition, she said: "Firstly, at the next CDU party congress in December in Hamburg, I will not put myself forward again as candidate for the CDU chair."
"Secondly, this fourth term is my last as German chancellor. At the federal election in 2021, I will not stand," she added.
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, as she had previously said the party chair and chancellery should be held by the same person.
Her authority has already 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 centre-left party could yet pull out of the government at a mid-term review next year.
Germany's other leading CDU chancellors - Konrad Adenauer and Helmut Kohl - both had messy ends to their time in office.
Merkel standing down from the party chair will allow a new CDU chairman or chairwoman to build a profile before the next national election.
Merkel said CDU party Secretary General Annegret Kramp-Karrenbauer and Health Minister Jens Spahn - a leading critic of the chancellor - had announced they would seek the party chair. Party sources said Friedrich Merz, a former parliamentary leader of Merkel's conservative alliance, would also run.
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 US president, Jacques Chirac was in the Elysee Palace in Paris and Tony Blair was British prime minister.
In Sunday's vote in Hesse, the CDU came out top but lost 11 percentage points in support from 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.