German Election Setbacks Put Merz Reform Plans Under Pressure

German Chancellor Friedrich Merz has pledged to continue with his government’s reform programme despite major losses for his conservative bloc and coalition partner, the Social Democrats (SPD), in recent state elections.

The results in Saxony Anhalt and Berlin, where the far right Alternative for Germany (AfD) made significant gains, have increased pressure on Merz’s coalition to adjust policies on taxes, pensions and healthcare.

The SPD has called for a new approach focused on protecting households during economic changes. A party strategy document said the coalition could not simply continue as before and proposed a new policy package to be discussed at a special party meeting in December.

Economic concerns were a major factor in the elections, with voters worried about rising prices and household financial security. Merz responded shortly before the polls by announcing a €2.5 billion tax reduction and plans to limit fuel prices, which have risen sharply amid the war involving Iran.

Disagreement over pension reforms is also growing. The government has proposed ending the option for workers with 45 years of contributions to retire with a full pension at 63. The proposal has faced opposition from CDU and SPD state leaders in eastern Germany, where lower household savings and the economic disruption following reunification have raised concerns about its impact.

Merz’s government approved a broader reform programme in July after months of negotiations. The package is intended to revive an economy that has endured years of weak growth and industrial pressure, while a separate €500 billion spending programme was approved to upgrade infrastructure and strengthen Germany’s armed forces.

Economists have warned that reopening the reform package could delay measures businesses and investors need for long term planning. At the same time, continued political pressure from voters and the growing support for the AfD are forcing the coalition to reconsider how its policies are presented and implemented.

The latest political setbacks have therefore created a difficult balance for Merz, who must maintain his reform agenda while responding to growing concerns over living costs and economic security.