Published by Global Banking & Finance Review®
Posted on February 24, 2025
5 min readLast updated: February 27, 2026
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Friedrich Merz's conservatives face coalition challenges after winning the German election, with SPD talks and AfD surge complicating the path to government.
By Madeline Chambers and Miranda Murray
BERLIN (Reuters) - German conservatives under Friedrich Merz vowed on Monday to quickly form a government after winning a national election but face tricky coalition talks and the prospect of an obstructive parliament after far-right and far-left parties surged.
Time is pressing for Europe's ailing largest economy, with Germans divided over migration, its security caught between a confrontational U.S. and an assertive Russia and China, and businesses demanding help to remain globally competitive.
Merz's conservative bloc wants to ally with Olaf Scholz's Social Democrats (SPD), who came in third, after the far-right Alternative for Germany (AfD) surged to a historic second place.
But Merz's bid for an alliance with the SPD comes after a bruising campaign that highlighted deep policy divisions, in particular over migration. The SPD, smarting from its worst post-war result, may set a high price for any deal.
The AfD and the radical Left Party jointly secured one third of seats in the new parliament, enough to block constitutional changes needed to loosen state borrowing limits - changes that some economists say are crucial to revive the flagging economy.
Merz said on Monday he was in talks with other parties to reform the debt brake that restricts borrowing. He would also sound out allies about creating another special off-budget fund to raise defence spending.
Hitherto known as an Atlanticist, Merz again questioned the reliability of the United States as an ally, following similar comments on Sunday evening.
"And what we also see with the greatest concern, of course, is the attempt (by U.S. President Donald Trump) to make a deal with Russia on Ukraine over the heads of the Europeans, over the heads of Ukraine," he told reporters.
"It will come as no surprise to you when I say that this is unacceptable both for Ukraine and for Europe," Merz said, adding it would be difficult if those who put "America First" actually made their motto "America Alone".
'FIVE MINUTES TO MIDNIGHT'
Europeans must now act together swiftly to organise their own defence capability and not just rely on Washington, he said.
"... This really is five minutes to midnight for Europe."
On Sunday Merz had criticised what he called "outrageous" comments from Washington during the election campaign, comparing them to hostile interventions from Moscow.
He also warned Washington not to create divisions by offering preferential tariffs to some European Union members.
In another bold move on Monday, Merz invited Benjamin Netanyahu to visit Germany in defiance of an arrest warrant for the Israeli prime minister issued by the International Criminal Court over alleged war crimes in Gaza.
Merz's conservative CDU/CSU bloc took first place in Sunday's election with 28.5% - their second worst result of the postwar era - while the AfD won 20.8%, its best ever result, according to provisional results.
Mainstream parties, however, rule out working with the AfD, a party which is monitored by German security services on suspicion of extremism but has been endorsed by U.S. figures including billionaire Elon Musk.
A resurgent Left party and the AfD may wield a blocking minority in parliament that could stymie any increase in defence spending needed to shore up European security.
The Left said on Monday it wants more borrowing but its support will hinge on the cash not being used for rearmament. Both the AfD and the Left oppose military aid to Ukraine.
"Friedrich Merz must brace himself now," said Left co-leader Jan van Aken, warning that his party would fight every attempt to reduce welfare spending.
One spanner in the works could be a challenge to the election result by the BSW, a leftist splinter party led by Sahra Wagenknecht which narrowly missed the 5% vote threshold to enter parliament. That would leave Merz needing a third party - likely the Greens - to form a government.
TOUGH TALKS AHEAD
Merz, who has no previous experience in office, aims to have a government by Easter, though the SPD warned its support was not a given.
In the election campaign, Merz promised a radical crackdown on immigration, saying he would not compromise on the issue. He drew sharp SPD criticism for pushing a parliamentary resolution on migration last month with support from the AfD.
The move was seen by critics as an unforgivable breach of a political quarantine to keep the AfD out of power. SPD politicians said they could no longer trust Merz as a result.
Analysts say the pressure is on for the next coalition to come together quickly to hold its own against the Trump administration, and to fend off the AfD by showing that mainstream parties can address voters' concerns.
If it does not, then the 12-year-old AfD, which is set to be the largest opposition party in the Bundestag, could be a frontrunner for the next elections set for 2029.
Musk reaffirmed his support for the party on Monday, predicting on X that the AfD "will be the majority party by the next election".
(Writing by Sarah Marsh, Matthias Williams, Madeline Chambers; Reporting by Kirsti Knolle, Maria Martinez, Madeline Chambers, Sarah Marsh, Andreas Rinke, Miranda Murray in Berlin, Ludwig Burger in Frankfurt, Barbara Erling in Warsaw; Editing by Michael Perry and Gareth Jones)
Friedrich Merz leads the German conservatives, having won the national election and is now tasked with forming a government amid challenging coalition talks.
Merz faces tricky coalition talks, particularly with the SPD, due to deep policy divisions, especially regarding migration and defense spending.
The AfD surged to a historic second place, winning 20.8% of the vote, which poses a significant challenge for mainstream parties like the CDU/CSU.
The Left Party, alongside the AfD, holds a blocking minority in parliament, which could hinder any attempts to increase defense spending or reform borrowing limits.
Merz has expressed concerns about the reliability of the U.S. as an ally and emphasized the need for Europe to organize its own defense capabilities.
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