German Chancellor and Christian Democratic Union (CDU) leader Friedrich Merz speaks at a CDU election campaign event in Berlin, Germany on September 17, 2026.
Sean Gallup Getty Images News | Getty Images
Left-wing and far-right parties advanced in Germany’s two state elections over the weekend, giving the ruling Christian Democratic Union (CDU) another shot in the arm and complicating the path to its increasingly unpopular pro-growth policies.
Chancellor Friedrich Merz has accepted that the vote in the northeastern state of Mecklenburg-West Pomerania, where the far-right Alternative for Germany (AfD) came first, was a “disaster” for the CDU. CDU also suffered a crushing defeat in Berlin, with Die Linke (left wing) coming out on top. The centre-right CDU has led the national coalition government under Chancellor Merz since 2025, and was previously led by longtime chancellor Angela Merkel and has been Germany’s dominant political force since the war.
It is unlikely that the AfD will be able to govern Mecklenburg-Vorpommern, as other parties boycott cooperation with the far-right. But its success will provide further momentum to a political faction that ranked No. 1 in separate state election results earlier this month and leads in voting intentions nationwide, according to a Politico poll.
The rise of far-right populism in Europe’s largest economy, for decades seen as a bastion of stability, centrist policymaking and EU leadership, has drawn attention across the continent.
Merz said Sunday he would remain in power despite the outcome, pledging to push through a range of policies aimed at boosting Germany’s struggling economy, including tax, health and pension reforms, long-awaited defense and infrastructure spending programs and easing bureaucracy to support small and medium-sized businesses.
He added at a press conference on Monday that he was “grateful” to Germany’s centre-left Social Democratic Party, which had committed itself to a position as a junior partner in Merz’s ruling coalition.
“That applies to us, and it applies to me. We are determined to work together to meet the historic challenges facing this country,” he added.
Merz’s popularity has declined amid public dissatisfaction with a host of issues across the political spectrum, including rising prices, energy instability, stagnant wages, the collapse of Germany’s traditional manufacturing and industrial sectors, and a lack of leadership on the environmental transition. The AfD has proposed extreme anti-immigration and anti-refugee policies and has also criticized EU aid to Ukraine.
Markets ignored the election results on Monday, with German bond yields falling and stock markets rising in line with global developments, but Andrew Kenningham, chief European economist at Capital Economics, said the impact would be felt for a long time.
Kenningham said in an email that Germany’s growth outlook is improving, with the economy expected to expand by about 1%. However, he said this was due to temporary factors such as fiscal stimulus and the fading effects of the 2022 energy shock.
“The fact remains that Germany faces major structural challenges due to high energy prices, an overly regulated and expensive labor market, the severe impact of the ‘China Shock’ and a declining population, and is not in a position to benefit from technological change, including AI,” Kenningham said.
“The importance of this election is that it shows that there is not enough public support for the kind of pro-growth reforms Merz wants to implement, and points to further political gridlock and (possibly) ineffective governments in the future.”
Carsten Brzeski, head of global macro at ING, said recent election results show how years of economic stagnation have strengthened the far right and far left, and that “there is no majority in favor of reform.”
Much of Merz’s agenda still needs to pass through parliament, but with the CDU in an “existential crisis” that makes it difficult to cooperate with other parties, Brzeski told CNBC’s “Squawk Box Europe” that further steps are still needed to truly improve Germany’s global competitiveness.
“This seems like a real impasse. And to be honest, I’m not surprised. Everyone is talking about next year’s super-election year in Europe. I wouldn’t be surprised if we have to add the German elections to this super-election year in 2027,” Brzeski said.
