A yawning power vacuum has just opened at the heart of Europe. At a time when a shaken West and indeed much of the rest of the world is nervously looking to Germany for ideas and leadership, efforts to form a new government in Berlin have collapsed. For the first time in the country’s postwar history, there is no combination of political parties willing and able to form a majority government. As a result, Germany and its allies are confronting the possibility of prolonged instability.

In a remarkable display of sang-froid, Chancellor Angela Merkel reasserted her claim to the leadership of her centre-right Christian Democratic party on Monday. It is accordingly up to her to determine whether this moment turns into a full-fledged constitutional crisis or a crucible of political renewal. Is she part of the problem — or can she broker a solution?

There are certainly grounds for worries about a constitutional crisis. Merkel’s Christian Democratic Union, the Christian Social Union — its Bavarian sister party — and the Greens may return to the table. The problem is the liberal Free Democrats, headed by Christian Lindner. It was Lindner who finally scuttled the talks over the weekend, and he would lose all credibility, and likely his job, if he were to reverse himself. Merkel’s former coalition partner, the centre-left Social Democrats, are categorically refusing to work with her party again. A tolerated minority government — never attempted before — would require an extraordinary measure of trust, energy and common purpose from all sides.

New elections are the only option left. But Germany’s constitution, designed in 1949 to prevent Weimar-like snap polls, makes this deliberately difficult. The vote may not take place before the spring. Allies, adversaries and crises will not wait upon the whims and weaknesses of German politics. And the aura of the Chancellor, renowned both for her iron constitution and deft negotiating touch, has been dimmed by a lacklustre campaign and whispers of diminished purpose. Yet it is by no means impossible that this crisis could beget a new beginning. Merkel is legendary for her ability to marshal the troops in times of crisis. The Greens remain keen on forming a coalition with the conservatives. To them, the talks were proof that a first-ever Christian Democrat-Green coalition at the national level could be made to work.

The Liberals, on the other hand, are facing a barrage of criticism for walking away on Sunday, which they justified by high-minded talk of “principles” they have yet to explain. The Social Democrats’ refusal to contemplate working with a Merkel-led government comes across as a suicidal sulk — not least because there is at present no possible left-of-centre majority in sight. Finally, a new survey shows that Germans’ nerves may be more robust than their leaders give them credit for: a majority prefers new elections to a tolerated minority government.

Merkel is of course the architect of the political landscape that may now witness her undoing — or her regeneration. She did her conservative party a huge service by modernising it and moving it — like Bill Clinton and Tony Blair — towards the political middle. Yet in so doing, she left the party’s right flank uncovered. The resulting vacuum has been filled by the right-wing, xenophobic and ethno-nationalist Alternative for Germany.

Merkel’s pragmatism, as well as a certain aversion to drama and ideology that was no doubt honed in her early life under communist East German rule, has long appealed to many ordinary Germans. But Merkel’s tendency to stick to a course even when it has proved to be unpopular — such as an overly expansive welcome to refugees or abolishing nuclear power — has often infuriated her peers and voters alike. Merkel’s detractors have resurrected a Thatcher-era joke to describe the predicament: “Who is the most powerful woman in Germany?” Answer: “Tina” (There Is No Alternative).

And while many Germans were willing to take in large numbers of refugees, they were upset and angry at the Government for its apparent inability to get a grip on the long-term management of the situation. As exit polls on Election Day showed, almost two thirds of the 12.6 per cent who voted for the AfD did so out of protest rather than out of conviction.

The blame for the present impasse does not rest entirely with the Chancellor. Part of the problem may be that Germany is simply too rich and saturated for its own good. With 30 billion extra euros in state coffers and GDP growth projected at 2.2 per cent, the temptation to please voter bases by holding out for special bonuses may just have been too great for all sides.

It may be that the only way for the established parties to reassure ordinary Germans that they have truly understood the lessons of this election is by cleaning house — by selecting a full slate of new leaders, with a new negotiating mandate that makes it clear they will put country over party in the next round.

Merkel has made her share of mistakes during her quarter-century political career, including 12 years as chancellor. Yet, overall, she has served with enormous distinction. Now her culminating achievement may well be to help to pave the way for a new generation of leaders — by setting an example herself. She has not so far groomed a successor, but aspirants are waiting in the wings. Her choice now is to act or to have the decision taken out of her hands by others. The responsibility of Germany’s political elites is enormous. How they proceed will determine not just the composition of the next government but also its ability to deal with growing internal and external challenges. Europe, and the world, are watching.

• Constanze Stelzenmüller, an expert on German, European, and transatlantic foreign and security policy and strategy, is the inaugural Robert Bosch senior fellow in the Centre on the United States and Europe at Brookings