Friedrich Merz’s position as German chancellor faces strain from his coalition’s recent setbacks and internal frictions. The CDU suffered sharp losses in September 2026 state elections in Saxony-Anhalt and Mecklenburg-Vorpommern, where the AfD performed strongly, contributing to Merz’s record-low approval ratings and renewed speculation about a leadership change within the Union. Coalition tensions intensified after SPD co-leader and Labor Minister Bärbel Bas resigned on October 12, citing personal reasons and public attacks from the CDU side, complicating ongoing welfare and pension reforms. Merz has publicly ruled out stepping down and continues to advance fiscal measures, including debt-brake adjustments and Ukraine support, while the SPD prepares for a leadership conference by early 2027. Traders weigh these pressures against the structural barriers to an early exit before the next federal election.