After Schröder’s 1998 victory in Lower Saxony, he was nominated as the SPD candidate for Chancellor. In the 1998 federal elections, the SPD won 40.9% of the vote, making it the strongest national party for the first time since 1972. On 27 October 1998, Schröder was officially appointed Chancellor of Germany. As in Lower Saxony, he formed an SPD-Green Party coalition. In 1999 he assumed the national chairmanship of the SPD after the resignation of Oskar Lafontaine – a position he held until 2004, when he ceded it to Franz Müntefering. In the 2002 general elections, the SPD, with Schröder once again as its top candidate, won 38.5% of the vote, the first time in history the SPD had emerged as the strongest party in consecutive national elections. During his second term as Chancellor, Schröder formed another coalition with the Greens.
The years from 2003 to 2005 were shaped by heated debates surrounding the Iraq War and Agenda 2010, whose social reforms sparked sharp controversy within segments of the SPD as well as in German society as a whole. Fearing that the SPD would lose its political majority in the Bundestag, Schröder called for a vote of confidence on 1 July 2005, in the hope that this would trigger new elections and provide a new mandate for the reforms he believed were needed by Germany’s welfare system. Early elections took place as planned in 2005, but the SPD was narrowly defeated by the center-right CDU/CSU, 34.2% to 35.2%. A new, grand coalition was formed made up of the CDU, the CSU, and the SPD under the leadership of Angela Merkel. After Merkel took office as Chancellor of Germany on November 22, 2005, Schröder resigned his Bundestag seat and retired from active politics.