Mercury condenses at 233K into the rhombohedral structure with an angle of 70.53o . Theoretical predictions of this structure are difficult. While a Hartree-Fock treatment yields no binding at all, density-functional (DFT) approaches with gradient-corrected functionals predict a structure with a significantly too large lattice constant and an orthorhombic angle of about 60 o , which corresponds to an fcc structure. Surprisingly, the use of the simple LDA functional yields the correct structure and lattice constants in very good agreement with experiment; relativistic effects are shown to be essential for reaching this agreement. In addition to DFT results, we present a wavefunction-based correlation treatment of mercury and discuss in detail the effects of electron correlation on the lattice parameters of mercury including d-shell correlation and the influence of three-body terms in the many-body decomposition of the interatomic correlation energy. The lattice parameters obtained with this scheme at the coupled cluster level of theory, CCSD(T), agree within 1.5% with the experimental values. We further present the bulk modulus calculated within the wavefunction approach, and compare to LDA and experimental values.