Merz coalition unveils reform package as Germany's AfD gains ground in the polls

Germany's governing coalition, led by Chancellor Friedrich Merz, unveiled a package of economic reforms in early July aimed at reviving growth and competitiveness in Europe's largest economy, even as new polling shows the coalition losing ground to the far-right Alternative for Germany (AfD) and the left-wing Die Linke.

The reform package includes tax relief targeted at lower-income families alongside far-reaching changes to Germany's pension system, measures the coalition has framed as a long-overdue response to years of sluggish growth and competitiveness concerns in an economy that has struggled with high energy costs, an aging population, and increased competition from both the United States and China in manufacturing and technology sectors. The package won some praise from economists who noted that the government was finally delivering concrete policy changes after months of internal wrangling between Merz's conservative CDU/CSU bloc and its more left-leaning junior coalition partner, the center-left Social Democrats (SPD).

That wrangling had been widely seen as symptomatic of the inherent tension in a coalition that pairs Germany's traditional center-right party with a center-left partner — a combination that became necessary after the February 2025 federal election produced a fragmented result that made other coalition arrangements difficult to assemble. The reform package's unveiling represents the coalition's most significant joint policy achievement since taking office, following a stretch widely characterized in German media as one of drift and internal disagreement.

Despite the reform push, polling in July shows the coalition's popularity declining rather than recovering. Surveys indicate that the CDU/CSU-SPD government is losing voting intention share to both the AfD on the right and Die Linke on the left — a pincer dynamic that reflects broader discontent with the political center in German politics, mirroring similar trends seen elsewhere in Europe. The AfD's continued rise is particularly notable given that German mainstream parties have maintained a longstanding informal agreement to exclude the party from any coalition government at the federal level, a firewall that becomes harder to sustain politically the larger the AfD's vote share grows.

Germany's next regular federal election is not scheduled until early 2029, meaning the current coalition is not under any immediate institutional pressure despite its declining approval ratings — a contrast with the more volatile coalition arithmetic seen in some other European democracies this year. Still, sustained polling weakness this early in a governing term is often read by political analysts as a warning sign for a coalition's ability to pass more difficult reforms later in its mandate, when politically costly measures become harder to justify to an already skeptical electorate.

Analysts say the coalition's central challenge is one familiar to governing parties across much of Europe: delivering visible economic improvement fast enough to blunt the appeal of parties on the political extremes, while managing the internal compromises inherent in a coalition spanning much of the ideological center. Whether the newly unveiled pension and tax reforms are enough to reverse the coalition's polling slide is likely to become clearer only once their economic effects begin to be felt by German households later this year.