The first months of Schröder's chancellorship were marked by policy disputes with his more strongly socialist finance minister (and Social Democratic party chairman) Oskar Lafontaine, who resigned in Mar., 1999. Schröder succeeded Lafontaine as party chairman. After the Social Democrats subsequently suffered a series of electoral defeats on the state level, however, Schröder moved to shore up his standing with the left, but he also subsequently won passage (2000) of reductions in individual and corporate taxes and positioned the Social Democrats as modernizing force. Internationally, he pursued a less European Union- and NATO-centered foreign policy than his predecessor, establishing good relations with Russia. He also supported the United States in its attacks on terrorists in Afghanistan, which strained relations the Green party, his coalition partners.
Schröder's coalition narrowly retained power in the 2002 elections, which increased his dependence on support from the Greens. In the election campaign Schröder ignited a transatlantic controversy by categorically rejecting any German participation in military action against Iraq; he became a strong opponent of any use of force in the subsequent months leading up to the U.S. invasion of Iraq (Mar., 2003). The Social Democrats' electoral setbacks initially led him to move forward more modestly with reforms in his second term, despite Germany's weak economy, but late in 2003 he secured passage of tax cuts and labor laws intended to revive the economy. Unhappiness with his reform program led Schröder to resign as party chairman in 2004. Losses in state elections led him to call for early national elections in 2005, and the Social Democrats narrowly lost to the Christian Democrats, led by Angela Merkel, who succeeded Schröder as chancellor. Schröder subsequently accepted a post as chairman of the stockholders committee with the Russian-led North European gas pipeline consortium.