The far-right Alternative for Germany surged to first place in a Saxony-Anhalt state election, reopening rifts inside Chancellor Friedrich Merz's coalition. His Social Democrat partners now want planned pension, care and tax reforms softened, while Merz insists the package must go ahead.
The AfD's win in Saxony-Anhalt on Sunday has put Chancellor Friedrich Merz's reform program on shaky ground, with his coalition partner demanding changes just as it looked set to move forward. The Alternative for Germany surged into first place in the eastern state, reflecting voter frustration over bureaucracy, the rising cost of living, and uncertainty over pensions.
Merz, whose personal approval ratings are at a historic low, insisted the planned reforms — including a higher pension age and a clampdown on sick pay — must go ahead, while admitting he needs to explain them better to voters. His centre-left SPD partners disagree. They want talks on changes to the pension and care proposals, plus a fresh discussion of the 2027 budget and a reopening of debate over inheritance and wealth tax.
Coalition tensions rise
The AfD's rise has forced Germany's mainstream centre-left and centre-right parties into coalition to keep the far-right out of power. But analysts warn the SPD's demands could delay the reforms — or derail them entirely if tensions escalate further.
"The main question will be whether both coalition partners will move closer together to push through with reforms or whether a survival instinct leads to the coalition's self-destruction," said Carsten Brzeski, global head of macro at ING. Commerzbank senior economist Ralph Solveen agreed the election would likely trigger calls for change that raise tensions within the government.
SPD co-leader Baerbel Bas said, "The government must convey the message that the reforms will improve people's lives" — adding that message isn't getting through right now.
An economic package that hasn't landed
Merz came to power in 2025 pledging tough reforms to revive the economy, but an initial package unveiled in July failed to restore voters' confidence. An investment surge made possible by a special €500 billion ($580 billion) infrastructure fund and an exemption from debt rules for defence spending is taking longer than expected to feed into the economy.
The economy is gaining momentum, and economic institutes have revised their forecasts upward. But the improvement came too late to convince voters in Saxony-Anhalt, Germany's poorest state by GDP per capita. Saxony-Anhalt represents only 1.8% of German GDP, and key levers such as taxes and labor-market structure sit beyond a state government's reach, so the result won't materially alter national fiscal policy.
Even so, economists fear the AfD win could deter foreign investment and discourage skilled workers, while the result also points to wider public fatigue with European integration and open markets. Marcel Fratzscher, president of the Berlin-based DIW research institute, argued the reforms need to go further, warning that failing to act would make it more likely the AfD wins an absolute majority in 2029.
Source: Economic Indicators News
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