Merz’s dilemma: Redraft German economic reforms, or go down defending them

BERLIN — Friedrich Merz faces a stark choice: Reshape the unpopular reform drive on which he has staked his chancellorship — or risk going down defending it.

The day after his conservatives’ worst election defeat in postwar German history and the far-right Alternative for Germany party’s second win in two weeks in votes in the east of the country, Merz acknowledged that the German public’s rejection of his reform drive was a big part of his party’s problem. But he exhibited no clear plan for what to do about it.

Leaders from Merz’s Christian Democratic Union publicly closed ranks around the chancellor and his reform drive on Monday, despite growing internal concern that his leadership is rapidly driving their party toward demise.

In truth, they have little choice. The alternative — an attempt to replace him — is too divisive and risky at a time when the AfD is leading in polls, and the Kremlin is threatening Europe in increasingly aggressive terms.

Merz suggested he recognized the scale of the alarm inside his party.

“This is a severe blow, and its repercussions will be felt for a long time,” Merz said of the result in the northeastern state of Mecklenburg-Western Pomerania, where the CDU crashed out of the state parliament with just 4.9% of the vote.

But then the chancellor offered little more than a promise to come up with a plan — saying he had scheduled meetings with CDU leaders and state premiers in the coming days to discuss how they should chart a new course.

“We want to move the reform process forward, but we know that we also owe the people answers to their concerns and fears,” he said. “Many people are worried about their jobs, worried about their families, worried about their retirement income, and worried about health care. It is the historic task of the coalition here in Berlin — and of the political center as a whole — to prepare our country to face all these challenges in the years ahead.”

Economists argue the reforms Merz wants, such as overhauls of the public pension and healthcare schemes to make them more sustainable as the country’s population rapidly ages and costs skyrocket, are essential to reviving Germany’s competitiveness.

Whereas previous governments avoided tackling such reforms due to the political perils of measures like raising the retirement age and trimming health insurance benefits, Merz has embraced the task. He has dubbed himself the “reform chancellor” and argues that he’s tackling a generational task on par with rebuilding Germany after World War II.

But voters view the reform drive — and the way Merz has often taken a lecturing tone when promoting its necessity — in overwhelmingly negative terms.

In late August, a survey by the Hans Böckler Foundation of the German labor union association found that about 81 percent of respondents were concerned about their financial security as a result of the government’s reform push. The same poll found 42 percent were cutting back on their consumer spending as a result of those fears.

This is a problem that CDU leaders now admit.

“Right now, our platform isn’t appealing to many people,” CDU Education Minister Karin Prien told a German public television interviewer Monday even as she argued there was no way around structural reforms.

No better alternative

On Monday, Merz again moved to quell suggestions he would step aside in a so-called Kanzlertausch — or chancellor swap.

“Neither last night nor this morning did anyone raise any personnel-related questions, let alone engage in a debate on personnel matters. Not a single person,” Merz told reporters in Berlin.

Prien was among the CDU leaders who publicly closed ranks — but, notably, her endorsement of the chancellor was not exactly glowing. Prien suggested Merz would stay on because the party could not agree on who would take the helm.

“Our country is in a truly difficult situation, and I’m weighing our options very carefully,” she told German public television Monday. “I don’t see how replacing a leader would actually bring about change, unless there is another candidate available. I don’t see that either. And in that regard, we must now work together with the chancellor — as a government on the one hand and as a party on the other — to discuss how we can regain greater acceptance and credibility among the public.”

Two CDU officials, granted anonymity to discuss the party’s internal mood, said upcoming meetings of party leaders, including on Tuesday, when Merz is to face his parliamentary group in the Bundestag, are expected to become tense. But they said Merz is safe as long as his critics in the party can’t agree on the best candidate to succeed him.

“It’s always easy to voice criticism,” said one conservative lawmaker. “But after that, you also have to be able to say what comes next — and that’s when things tend to quickly get pretty quiet.”

A closed-door meeting of the CDU leaders is also expected to take place next weekend in Berlin.

For many conservatives, attempting a leadership bid at a time of such profound global instability is just too risky. The effort could inadvertently trigger an election or end up strengthening the AfD — now the most popular party in Germany, according to polls — which would certainly render any new chancellor installed without an election democratically illegitimate.

Even if Merz clings to power in the short term, more electoral challenges loom. With five regional elections set for next year across Germany, the chancellor and his party need to turn things around quickly.

Coalition partner demands its price

That makes the question of how Merz will reshape his reform drive all the more important. But the effort to push through reforms isn’t bound to get easier, especially as Merz’s coalition only has a 12-vote majority in the Bundestag — making it vulnerable to even a small defection.

On Monday, Merz’s coalition partners in the center-left Social Democratic Party (SPD) said they would continue to govern with the chancellor’s conservatives, but suggested they would seek an additional price.

“If the citizens of our country perceive reforms as something that threatens their lives and only leads to deterioration, then it is not only our communication that needs to improve, but also in some areas the substance of the reforms themselves,” SPD Finance Minister Lars Klingbeil said in Berlin on Monday.

At the same time, the AfD is piling on pressure on Merz, using his weakness to attack his agenda as well as his party’s “firewall” policy of refusing to govern with the far right — and depicting themselves as the party of true reform.

“We don’t believe the CDU can continue this way,” AfD national co-leader Alice Weidel said Monday in Berlin. “We’ll see what the next few weeks bring. But Germany urgently needs reforms that aren’t being implemented,” she added. “We stand ready.”

Merz on Monday depicted his efforts as necessary to ward off the rising political extremes in Germany on both sides of the spectrum, saying his success was linked to the survival of ailing mainstream parties.

“It will be a historic task — not only for the current governing coalition here in Berlin, but especially for the party I lead — to ensure that we remain, now and in the future, a united nation and a party that feels firmly anchored in the European Union,” he said. “We must now weather the storms of our time.”

Rasmus Buchsteiner contributed reporting