Chancellor Friedrich Merz has told Berlin’s press corps that he is “not very confident” of reforming Germany’s constitutionally enshrined debt brake during the current legislative term, a statement that directly undercuts a central demand of his Social Democratic coalition partners. Speaking at the traditional summer press conference, Merz argued that the two-thirds Bundestag majority required for a Basic Law amendment is unattainable because it would need votes from either the Left Party or the Alternative for Germany (AfD), both of which the CDU officially refuses to engage. The admission, viewed from within the coalition, signals that the SPD will be forced to shelve a flagship project, sharpening the ideological fault lines inside a government already struggling with record-low approval ratings.

Merz used the same appearance to project confidence that his government can prevent the AfD from securing outright majorities in Saxony-Anhalt, Mecklenburg-Vorpommern and Berlin when voters go to the polls on 6 and 20 September. He declared he would “do everything in my power” to keep the far-right party from executive office, citing Germany’s historical responsibility. Yet he declined to specify how, and his refusal to rule out a scenario in which a CDU minister-president is elected with Left Party votes—while insisting party conference resolutions prohibit cooperation with both AfD and the Left—was read in Berlin as a hedge against the arithmetic of fragmented parliaments. The AfD currently polls above 40% in Saxony-Anhalt and around 35% in Mecklenburg-Vorpommern, putting it within reach of governing majorities.

The political manoeuvring unfolds against a backdrop of deepening industrial distress. Federal employment data show the manufacturing sector shed 177,000 jobs in 2025, with automotive and mechanical engineering among the hardest hit. Volkswagen’s chief executive has warned that up to 50,000 additional positions could be eliminated globally, and four German plants face possible closure. Merz acknowledged that structural reforms are “taking longer than expected” and attributed the delay partly to U.S. tariff policy and global imbalances. Asked about Chinese electric-vehicle manufacturers acquiring underutilised German factories, he described such takeovers as an “emergency solution” that would not resolve the country’s structural problems, while also criticising Beijing for what he called an unfair devaluation of the yuan by 25–30%.

The immediate test for the coalition will be the September state elections. A strong AfD performance, particularly if it forces the CDU into uncomfortable parliamentary arrangements, could destabilise the federal government, especially if the SPD suffers losses that trigger internal leadership challenges. Beyond the elections, the unresolved debt brake question and a pending electoral law reform—which the CDU/CSU insists must restore the direct mandate for every constituency winner—are likely to resurface as coalition flashpoints. Merz, whose personal dissatisfaction rating stands at 85%, said his government had “found its rhythm” and delivered on promises, but he conceded that the reforms enacted so far are not enough. The next legislative milestones, including a planned overhaul of the pension system and a reduction of corporate documentation requirements, are expected by year-end, though many economists in Frankfurt and Munich doubt they will be sufficient to reverse the country’s economic stagnation.