Chapter 1 · July 2026
Germany, early July 2026: new government, stalled economy, rising AfD
Government and coalition
Chancellor Friedrich Merz (CDU/CSU) governs in a 'black-red' coalition with the SPD, formed after the February 2025 election, and has been rolling out tax, labour and pension reforms aimed at reviving activity.
The economy
Germany ended 2025 with roughly 0.2% growth and forecasts near 0.8% for 2026, with leaders calling the industrial climate the toughest since reunification amid high energy costs, Chinese competition and US tariffs.
Berlin approved a large special fund for defence and infrastructure to try to break the stagnation.Migration
The coalition tightened asylum and border rules, and applications fell by about half year-on-year, alongside a temporary pause on some family reunification and a longer path to naturalisation.
The AfD
The Alternative for Germany has climbed to around 27–28% in national polling and is the second-largest bloc in the Bundestag, far stronger in the east, yet every other party maintains a firewall against governing with it.
The open questions
Loosen the debt brake to fund more stimulus, or hold the line?