Friedrich Merz's year-old government is heading into the summer break with its central economic compact — a planned reform of the constitutional debt brake — visibly fraying. The CDU chancellor told the Bundestag on Monday that he remained committed to the package he set out at his investiture last May, but a string of cabinet briefings in the past fortnight have signalled that the parliamentary arithmetic has changed.
At issue is whether Article 115 of the Basic Law, which caps structural federal borrowing at 0.35 per cent of GDP, can be loosened to fund increased defence spending, the renewal of Deutsche Bahn's rail network and the second tranche of the €500 billion special infrastructure fund the coalition agreed last June. Reform requires a two-thirds majority in both the Bundestag and the Bundesrat — a threshold Merz could once count on, but no longer.
The trigger for the strain is the AfD. Polls released by INSA and Forsa over the weekend put Alice Weidel's party between 26 and 27 per cent of the national vote, its highest reading in any series. Three regional elections — in Saxony-Anhalt, Mecklenburg-Vorpommern and Berlin — fall this autumn; senior Merz advisers concede privately that AfD outcomes in the high teens or low twenties could put a junior coalition partner under pressure to walk.
The SPD, the CDU's federal coalition partner since 2025, has openly demanded the debt-brake reform that part of its base sees as the price of staying in government. Finance Minister Joschka Wagenknecht, a former CDU deputy in the Bundestag, has resisted, citing concerns about bond-market reaction and the precedent for future governments.
Bond markets have so far been quiet. The 10-year Bund yield is 2.51 per cent, only marginally wider than the start of the year, and the spread to Italy has actually narrowed since February. Bundesbank president Joachim Nagel said in a Frankfurt speech last week that a reformed debt brake, "carefully designed", was compatible with German fiscal prudence — language that broke with his predecessor's harder line.
The Bundesbank's June forecast for German growth, leaked to Handelsblatt over the weekend, will be revised upward — from 0.4 per cent to 0.9 per cent for 2026 — driven by stronger exports and a gradual easing in industrial production. The figures still leave Germany lagging both France and Italy this year, a politically uncomfortable comparison.
Merz, who turned 70 in February, has told allies he intends to stay in office through 2027 regardless of coalition turbulence. The next confidence vote, a procedural exercise tied to the second-half budget, falls in early July.