Merz says Germany's future is on the line, heralds major reforms

German Chancellor Friedrich Merz on Wednesday asked citizens to brace themselves for far-reaching reforms in the coming months, as the government is gearing up to tackle the mountain of challenges facing Europe's largest economy.

One of the toughest tasks for Merz and his ministers will be to find ways to return to economic growth after two consecutive years of recession.

Businesses continue to struggle with high energy prices, diminished demand and new US tariffs, with many continuing to slash their forecasts and jobs in response.

Merz, who was addressing parliament during budget week, acknowledged the gravity of the situation.

"The decisions that lie ahead of us are not about details, but about very fundamental issues," he said.

"It is about nothing less than the future of our country – how we live, how we live together, how we work, how we do business, and whether our values will continue to endure."

Merz attacked from the far right

Politically, Merz's conservatives are under pressure from a rise in support for the anti-immigrant Alternative for Germany (AfD), as far-right parties in Europe continue to gain traction.

A trend that is being watched with particular concern in Germany for historical reasons, the AfD came in second in February's snap election, making it the biggest opposition force in parliament. On Wednesday, the party came first in a national YouGov poll for the first time.

As co-leader of the biggest opposition party, the AfD's Alice Weidel - an ardent supporter of US President Donald Trump - was eligible to open Wednesday's debate, an opportunity she used to sharply attack Merz.

Weidel accused the chancellor of breaking campaign promises and "warmongering" in Ukraine, where Germany has become the biggest supplier of military aid.

She also criticized the measures taken by the new government to curb migration, another issue that dominated February's vote, saying they were not going far enough.

Right after taking office in May, the Merz administration ordered police officers to reject asylum seekers at the border, a move that has been criticized as violating EU law.

Tough budget talks ahead

Weidel reiterated the AfD's demands for stricter border controls, restrictions on family reunification for migrants, a return to nuclear power and funding cuts to climate protection measure.

Some of those policies, particularly regarding immigration, have already been implemented by the new government.

Meanwhile, the AfD leader slammed the administration over the 2025 budget, which lawmakers are set to vote on at the end of the week, describing it as "a cobbled-together, irresponsible budget without measure or purpose, which solves not a single problem but further exacerbates the crisis."

Failure to agree on how to plug a multibillion-euro hole in the budget brought down the previous administration of chancellor Olaf Scholz in November last year.

Subsequent early elections in February meant this year's budget had to wait until a new government was in place.

Thanks to the delay, the 2025 budget is only set to be in effect for three months if lawmakers approve the plans at the end of the week - which has made it comparatively easy for Finance Minister Lars Klingbeil to come up with a draft.

Regardless, opposition lawmakers including from the AfD have accused the government of relying too heavily on borrowing after the coalition moved to exempt spending on defence and infrastructure from the country's strict debt rules.

Next steps still unclear

While Merz did ask citizens for their understanding in light of the needed reforms, he did not specify what those would look like, including much-discussed changes to the country's welfare system.

The issue has caused rumblings in the coalition, comprised of Merz's centre-right Christian Democrats (CDU), the Bavaria-only Christian Social Union, and the centre-left Social Democrats (SPD).

In light of looming multi-billion-euro shortcomings in future budgets, the conservatives are pressing for deep cuts to a key unemployment benefit, while the SPD has been advocating to tax high incomes more heavily.

SPD parliamentary leader Matthias Miersch reiterated the demand, vowing that his party would defend the welfare state.

"We need reforms," Miersch acknowledged, saying the efficiency of the welfare system must be improved, and it must be better targeted.

But the welfare state is the foundation of social cohesion and a strong economy, he added. "We will defend this, dear colleagues."

Heidi Reichinnek, parliamentary of The Left, a far-left party that saw a massive increase in support in February's election, warned against deep cuts to social benefits.

She accused the administration of working on an "autumn of social cruelty."

"We will not accept that," she said.