Merkel, however, recalled that the CDU was in a deep crisis when she took over in 2000, mired in a party financing scandal surrounding ex-Chancellor Helmut Kohl.
Ahead of the party congress, Economy Minister Peter Altmaier, a Merkel ally, said, "I am convinced that with Annegret Kramp-Karrenbauer we have the best chance of the CDU winning an election". Health minister Jens Spahn was knocked out in the first round.
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Whoever wins will face towering challenges for the party, which is now drawing roughly 30% at the polls, far below the around 40% it enjoyed during Merkel's heyday.
While Kramp-Karrenbauer, 56, is viewed as similar to Merkel with an even temper and middle-of-the-road policies, Merz, 63, has become the torchbearer for those seeking a more decisive break from the chancellor.
A senior CDU official, speaking on condition of anonymity, said many delegates were undecided before the congress and could be swayed by how the candidates present themselves on Friday. Had Merz won, it would probably have meant an untimely end to Merkel's reign, since she pushed him out of politics in the early 2000s, and he believes she led the party too far left of centre.
Merz, 63, who lost out to Merkel in a power struggle in 2002 and is returning to politics after a decade in business, is backed by CDU members exhausted of Merkel's consensual politics.
Most controversially, she allowed large numbers of asylum-seekers into Germany in 2015. She moved her party relentlessly to the center, dropping military conscription, accelerating Germany's exit from nuclear energy, introducing benefits encouraging fathers to look after their young children and allowing the introduction of gay marriage.
Merkel, 64, is quitting the helm of her conservative Christian Democratic Union (CDU) after a series of poll setbacks rooted in controversy over her liberal refugee policy.
"Whether it's the rejection of multilateralism, the return to nationalism, the reduction of worldwide cooperation to deal-making or threatened trade wars. hybrid warfare, destabilisation of societies with fake news or the future of our European Union - we Christian Democrats must show in the face of all these challenges what we've got", she said.
"Schaeuble's manoeuvre shows: the CDU of the old Germany is trying to make a comeback", news weekly Der Spiegel said.
Accepting a lengthy standing ovation from delegates, many tearful and holding "Thanks, boss" placards aloft, a visibly moved Merkel said the party had won four national elections under her by holding fast to its principles.