LONDON, May 15 (Reuters) - German bonds had a slight edge over euro zone peers on Monday after Chancellor Angela Merkel's conservatives defeated the ruling Social Democrats in a key state election, lifting their hopes of retaining power in September's national vote.
Schulz's Social Democrats lost Germany's most populous state North Rhine-Westphalia to Merkel's Christian Democratic Union on Sunday.
Meanwhile, the 12,7% for the Free Democratic Party (FDP) means the CDU can form a government with the center-right and the Greens (6,3%), no longer relying on a grand coalition. Kraft immediately announced her resignation from all party offices late 14 May after the bad results of the SPD in the federal state elections of North Rhine-Westphalia.
"It's clear that campaigning for the federal election is only just starting now", Schulz told the ARD broadcaster after the results, which he called a "bitter defeat". But overshadowing Kraft's campaign for yesterday's election has been criticism of her government's handling of the 2016 New Year's Eve attacks on women in Cologne, as well a December terrorist attack on a Berlin Christmas market that was carried out by a one-time resident of North Rhine Westphalia.
Nationally, too, the focus on stability and security over change and social justice seem to be paying off: the CDU is 10 percentage points ahead of the SPD in polls. Sunday's results mark the third victory in recent state elections for Merkel's party, giving the German Chancellor another shot of momentum heading into the nationwide vote. But during the campaign, he was all for deporting immigrants who have committed crimes, and for making it impossible to miss another Anis Amri - the man who drove a truck into a Christmas market in Berlin a year ago and who was registered as an asylum-seeker in North Rhine-Westphalia.
"The defeat of the Social Democrats in North Rhine-Westphalia and their candidate for Chancellor Martin Schulz is particularly painful".
Germany's right-wing nationalist party, Alternative für Deutschland, won a little over 7% of Sunday's vote and will therefore have representation in the NRW parliament.
But he urged the party to concentrate on the national election.
"This is a great day for North Rhine-Westphalia", said local CDU leader Armin Laschet, who will most likely become state premier.
That could boost the FDP's hopes of forming a coalition with Merkel at national level after September's election, as they did during her second term from 2009 to 2013. "It's a tough day for the SPD and also tough for me personally".
Merkel's CDU has won the three state elections held in Germany this year, and these wins are deemed to bode favorably for its performance in the national general elections in September.
Merkel's party scored a similar upset win over a Social Democrats-Greens coalition in the rural northern state of Schleswig-Holstein on May 7 after pulling off an unexpectedly strong win in the small state of Saarland, on the French border, on March 26.
Schulz conceded Sunday's loss, saying, "This is a hard day for the Social Democrats, a hard day for me personally as well". It's like Germany itself in many ways, and to have a chance at beating Merkel this year, it would have been necessary to beat her party there.
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