This summer will bring little respite for Friedrich Merz.

The German Chancellor, in office for over a year, has disappointed his supporters, industry, small and medium-sized businesses and young people.

His coalition of Christian Democrats and Social Democrats has been locked in disagreements over immigration, health, pension and tax reforms.

Merz, an ambitious Christian Democrat politician, always wanted to lead Europe’s largest economy. After his election in May 2025, he promised less bureaucracy, tax reforms, a radical overhaul of the pension system and modernisation of the economy.

Little of this has been delivered. According to the German Federal Statistics Office, for example, red tape is costing the economy €146 billion a year.

Demography is another headache. By 2035, more than a quarter of Germany’s population of 83.6 million will be aged 67 or older. The rising cost of elderly care, combined with falling birth rates, are no secret.

These issues are connected to immigration. More than 1.45 million people entered Germany after Russia’s second invasion of Ukraine in 2022.

Before that, Angela Merkel’s coalition opened its doors in 2015 to one million Syrian refugees. Studies show the majority have been integrated. Ukrainians, like Syrians, have often been critical in filling gaps in healthcare and other services.

Yet Merz recently suggested that 80 percent of Syrians living in Germany should return to their country. Businesses facing labour shortages were astonished by the proposal.

Merz, however, was looking over his shoulder at the consistent rise of the far-right, anti-immigration Alternative for Germany (AfD) party.

The latest opinion polls show the AfD is now ahead of Merz’s Christian Democrats, the former at 27 percent and the latter at 24 percent. In September, voters in the eastern German state of Saxony-Anhalt will cast their ballots and, barring a major upset, the AfD could, for the first time, lead a regional government.

What a signal for other similar parties in the European Union this would be. What a signal for Merz’s centre-left coalition.

The AfD could upend Germany’s post-1945 political establishment because, despite corruption scandals and internal bickering, AfD is maintaining support.

Its pro-Russian, anti-Ukraine, anti-NATO positions and socially conservative policies are well known. Its criticism of US President Donald Trump’s war against Iran won lots of support. With the luxury of being in the opposition, the AfD has capitalised on Merz’s inability to deliver reforms.

At the best of times, reforms are painful to introduce, as Britain’s Prime Minister Keir Starmer and France’s Emmanual Macron well know. Even though neither has introduced major structural changes, the polls are punishing them.

Merz is also being punished to the detriment of Germany and the EU. Gerhard Schröder, a former Social Democrat Chancellor, paid for his radical labour reforms. He was defeated in 2005 by Angela Merkel. His successors reaped the benefits of his reforms but did not build on them. Merz promised to do so. He failed to deliver.

What matters in Germany affects the EU which needs an economically buoyant Germany—one that will hold the political centre and push for more economic, financial and political integration.

This is needed now more than ever, given Europe’s precarious position vis-à-vis the United States, China and Russia. Europe cannot afford to muddle through. Germany has to lead. Blaming Trump’s tariff policies, or the way in which his war against Iran is pushing up inflation and energy costs, is too easy an excuse.

Merz had a honeymoon period during which he could have introduced reforms. He missed this opportunity. He has promised a ‘reset’ before the summer recess. His supporters are waiting.

*Disclaimer: The views expressed in this column, published in the June/July 2026 issue of Accountancy Ireland, are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.

JUDY DEMPSEY IS A NON-RESIDENT SENIOR FELLOW AT CARNEGIE EUROPE