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Chancellor Angela Merkel said Monday that her party's dismal showing in weekend elections has meant her coalition government has "lost credibility" and that she will step down as party leader and retire from politics when her current term as leader of Europe's biggest economy ends in 2021.

Merkel's told Christian Democrat leaders that she will stand down as leader of the party that has ruled Germany for the better part of two decades, marking the beginning of major changes in the region's biggest economy and the broader European Union. Merkel won't seek re-election as leader of the CDU she has guided since 2000 after its worst showing in weekend elections in the state of Hesse, home to the financial capital of Frankfurt, since the Second World War.  The move pushed the euro to session lows of 1.1378 against the U.S. dollar and trimmed gains for the DAX performance index in mid-day trading.

"Firstly, at the next CDU party congress in December in Hamburg, I will not put myself forward again as candidate for the CDU chair," Merkel told reporters Monday. "Secondly, this fourth term is my last as German Chancellor. At the federal election in 2021, I will not stand again as Chancellor candidate, nor as a candidate for the Bundestag", adding that she won't seek "any further political offices" after that.

Merkel, 64, won her fourth term as Chancellor following national elections last September, but the indecisive result led to months of horse-trading between the nation's biggest political parties in order to form a government. After failed attempts to link up with the center-right, fiscally conservative FDP, Merkel was forced to create a coalition with rival Social Democrats, a move she had earlier dismissed and which angered voters who were promised a fresh leadership. 

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Standing down from the CDU leadership will allow her successor, whom many have tabbed as Secretary General Annegret Kramp-Karrenbauer, to build support ahead of the next scheduled election in 2021. However, it also creates something of a power vacuum in Europe's most import office at time of great crisis for the European project, which is grappling with Britain's impending exit, Italy's ongoing budget crisis and strained trade and political relationships with the United States.