The Free Democrats (FDP), in power with Merkel's conservatives nationally since 2009, scored a paltry 1.8 percent in Berlin's regional vote Sunday, failing by a wide margin to clear the five-percent hurdle to win a seat.

Newspapers leapt on the debacle, with the country's most-read daily Bild screaming: "Liberals in ruins... what a humiliation."

Several papers mocked the fact the venerable pro-business party came behind the Pirate Party and nearly behind an animal welfare group.

The party's general secretary Christian Lindner called the Berlin humiliation a "low point" and a "wake-up call", adding: "We knew these elections would be difficult... that has been confirmed in dramatic fashion."

Although Merkel's conservative Christian Democrats (CDU) managed a small gain in support in Berlin, the vote -- the last in this so-called "super election year" -- caps a miserable series of results for the ruling coalition.

In seven regional elections in 2011, the FDP have been ignominiously shut out of the state parliament in five.

The CDU have fared scarcely better, losing support in all but one election and suffering the indignity of ceding the state of Baden-Wuerttemberg, which it had governed for 58 years, to the Greens.

In Berlin, it scored 23.4 percent, coming a distant second to the Social Democrats, the biggest opposition party on the national level, who gained 28.3 percent.

After winning federal elections in 2009 -- largely on the coat-tails of the FDP, which scored 14.6 percent -- Merkel triumphantly hailed the coalition as the "dream team" to lead Europe's top economy.

But both parties have seen voters drift away amid anger over Merkel's handling of the euro crisis, the FDP's failure to push through promised tax cuts and constant internal bickering.

This squabbling intensified in the week before the election with the FDP's leader, Vice Chancellor and Economy Minister Philipp Roesler, defying Merkel over the euro crisis by evoking a possible default for debt-mired Greece.

The setback for the coalition came ahead of a key vote on expanding the eurozone's rescue fund on September 29, as an increasingly vocal eurosceptic wing of the FDP seized on the party's unpopularity to push its agenda.

Several FDP members have threatened to vote against the bill and although Merkel is assured of a majority, as the opposition says it will vote in favour, a crisis will likely ensue if she needs to rely on her political foes.

Carsten Brzeski, senior economist at ING bank in Belgium, said the Berlin result had put "a spanner in the works" ahead of the vote, which will be watched very closely by financial markets.

While a block "no" vote is unlikely as it would be "political suicide" for the FDP, a "more vocal controversy on the German government's future course in the sovereign debt crisis looks probable," he said.

However Holger Schmieding, another analyst from Berenberg Bank, said the FDP's debacle could even favour Merkel, as it proved an increasingly eurosceptic line is not resonating with voters.

"The fact that this otherwise popular theme did not pay off for the FDP in the Berlin regional election can be seen as good news for Merkel's pro-European line," he said.

Likewise, the Der Spiegel news weekly commented on its website that the FDP's move towards eurosceptism "has not worked and Angela Merkel can be happy about that."

"The chancellor feels vindicated in her euro policy," added Spiegel.

Copyright AFP (Agence France-Presse), 2011