GERMAN POLITICS: A HUGE SETBACK FOR MERZ

MACRO VIEWS 07/09/2026 07/09/26 Holger Schmieding, Chief Economist | |

GERMAN POLITICS: A HUGE SETBACK FOR MERZ Voters in the small east German state of Saxony-Anhalt have delivered a huge blow to German chancellor Friedrich Merz and his government. Whereas support for his CDU plunged by more than half relative to the last state election five years ago, the right-wing AfD more than doubled its share of the popular vote to score its best-ever result in any major election. Depending on post-election manoeuvring on the state level, the AfD may well be able to form its first-ever state government. According to surveys by pollsters, the unpopularity of Merz and concerns about the pension and other reforms which his government is planning to raise Ger- many’s growth potential played a significant role in the rise of the AfD at the expense of the CDU in Saxony- Anhalt. The losses for the CDU go well beyond what opinion polls had projected beforehand – see table below.

This can throw the CDU into significant turmoil. Nonetheless, I still regard it as more likely than not that Merz as chancellor and his CDU/CSU-SPD coalition will soldier on until the end of the regular term of the federal parliament in early 2029. The two parties have no alternative to their coalition on the federal level. Replacing Merz as head of the coalition would be a high-risk adventure from which his party will probably shy away. Of course, the risks for Merz and for the cohesion of his coalition have clearly risen with the Sax- ony-Anhalt result. Whereas the CDU/CSU-SPD coalition will likely soften the planned pro-growth reforms at the margins, I still expect them to pass the bulk of these changes this autumn. The planned increases in defence and infrastructure spending should also not be affected. The debate about Merz, his coalition and the reforms could heat up after the two state elections in Mecklenburg-West Pomerania (MWP) and in the city state of Berlin on 20 September.

The Saxony-Anhalt result By raising its share of the vote from 20.8% in 2021 to 43.8% in the 2026 state election, the AfD has won 39 of 83 seats in the state parliament. Although the AfD will thus fall short of the 42 seats needed for an absolute majority, the party is now in the pole position to form the next state government. It may try to do so with the tacit help of the ultra-populist BSW with 5 seats. The three mainstream parties, that would have wanted to form a CDU-led coalition, will have only 31 seats between them in the new state parliament, with 15 for the centre-right CDU and 8 each for the centre-left Greens and centre-left SPD. Even if the left-wing populist “The Left” (also 8 seats) were to support the mainstream parties on a case-by-case basis, the seats in parlia- ment (39) would not add up to a majority for them. See the table below for the preliminary official election result. A major part of the gains for the AfD came from mobilising previous non-voters as turnout rose from 60.3% in 2021 to 77.8% this Sunday.

Repercussions for Merz and his coalition The result will trigger a period of potentially noisy soul-searching within the CDU. This adds to the tail risk that internal disputes within the CDU could get so out of hand that they could shatter the federal government in Berlin. Nonetheless, it still seems more likely that Merz and his CDU/CSU-SPD coalition will stay on until the next regular federal election in early 2029 despite serious midterm setbacks. Neither the CDU/CSU nor the SPD have a credible alternative to their coalition. No other alliance of mainstream parties would secure a majority of seats in the Bundestag. Snap federal elections remain unlikely as both CDU/CSU and SPD would risk serious losses. Despite the likely noise, I thus expect no major impact of the Saxony-Anhalt vote and of the subsequent state elections in MWP and Berlin on 20 September on key policies at the federal level. With some adjustments to soften the envisaged cuts, the coalition will probably implement the bulk of its planned pro-growth reforms as well. Once again, the alternative – namely to shy away from reforms to strengthen Germany’s growth potential – would likely be even worse…