GERMANY: MERZ IN TROUBLE AFTER STATE ELECTION DISASTER

MACRO VIEWS 21/09/2026 22/09/26 Holger Schmieding, Chief Economist | |

GERMANY: MERZ IN TROUBLE AFTER STATE ELECTION DISASTER

 CDU drops below 5% in a key state election, its worst result ever.

 Major gains for right-wing AfD in two state votes, left-wing Left surges ahead in city state of Berlin.

 Merz vows to stay on as chancellor but may face unrest in his CDU party.

 Expect noisy debates, but federal coalition likely to hold and implement somewhat softened pro- growth reforms

Friedrich Merz is fighting for his political survival. After a crushing defeat in Saxony-Anhalt two weeks ago, his CDU party did even worse in the state election in Mecklenburg-Western Pomerania (MWP) yesterday by narrowly failing to clear the 5% threshold needed to get seats in the state parliament with just 4.9% of the vote. This had never happened before in the CDU's 80-year history. Although Merz has vowed to stay on as chancellor to spearhead the much needed pro-growth reforms, it will not be easy for him to contain the unrest within his party. But as long as none of the credible challengers to him steps up and garners wide- spread support, he can probably remain in office. Ahead of the two state elections on Sunday, we had put the probability that the CDU would replace Merz as chancellor in the foreseeable future at 35%. The risk to him has not decreased.

High hurdles for a change The two hurdles to replace a chancellor remain high. First, who should take his job? The most plausible con- tender would be the popular CDU state prime minister of North Rhine-Westphalia (NRW), Hendrik Wüst. But it could make much more sense for him and the CDU to let him first prove his mettle by winning the state election in NRW on 25 April 2027 before trying to replace Merz as leader of the CDU and as chancellor some time thereafter. Another potential contender could be Markus Söder, state prime minister of Bavaria and head of the CDU's regional sister party CSU. By centre-right standards, he is seen as a somewhat populist maverick. While that endears him to some grassroot members, it limits his overall appeal. If Wüst and Söder block each other, a compromise candidate could be Boris Rhein, the modestly popular but less well known CDU state prime minister of Hesse.

As a second hurdle, any new chancellor would need an absolute majority of votes in the federal parliament. With only 328 out of 630 seats in the Bundestag, 13 dissenters from the coalition would suffice to wreck the plan. After a potentially bitter power struggle within the CDU, that could be a non-negligible risk.

Noise ahead Regardless of the fate of Merz, we have to brace ourselves for serious internal disputes within the CDU as well as within the SPD and between the two parties. The risk that they could get so out of hand that they could shatter the federal government in Berlin is not zero. But it remains low. Neither the CDU/CSU nor the SPD have a credible alternative to their coalition on the federal level. No other alliance of mainstream parties would secure a majority of seats in the Bundestag. A CDU/CSU minority government that would have to be beholden to the AfD would be unacceptable to many in the CDU/CSU. Snap federal elections remain very unlikely as both the CDU/CSU and the SPD would risk serious losses.

Left-wing populists advance in Berlin While the CDU did far less badly in the regional election in the city state of Berlin with 18.8% of the vote, it had to cease the top spot in the German capital to the left-wing Left party (25.7%) which advocates the expro- priation of parts of the local housing stock. In both MWP and Berlin, a populist protest party thus became the strongest political force, the right-wing AfD in MWP and the left-wing Left in Berlin.

Reforms at risk? To some extent, the state election results can be seen as a vote against the pro-growth reforms which the Merz coalition has planned. The SPD did relatively well in MWP (35.5% of the vote versus 38.2% for the AfD). In MWP, the SPD's popular incumbent state prime minister, Manuela Schwesig, had campaigned against a key element of the pension reform, the end of an earlier retirement scheme.

After a potentially contentious…