---
title: "Germany Races to Overhaul Its Economy as the Far Right Gains"
description: "Chancellor Friedrich Merz's German government is pushing a package of pension, tax and labor changes to revive a stagnant economy — an effort shadowed by the steady rise of the far-right Alternative for Germany, which has climbed to the top of the polls amid public frustration."
category: "World"
category_url: https://herald.la/category/world
author: "Camila Reyes"
published: 2026-07-02T10:13:23.000Z
updated: 2026-07-02T10:13:23.000Z
canonical: https://herald.la/article/germany-races-to-overhaul-its-economy-as-the-far-right-gains
tags: ["Germany", "AfD", "economy", "Friedrich Merz", "world"]
---
# Germany Races to Overhaul Its Economy as the Far Right Gains

Chancellor Friedrich Merz's German government is pushing a package of pension, tax and labor changes to revive a stagnant economy — an effort shadowed by the steady rise of the far-right Alternative for Germany, which has climbed to the top of the polls amid public frustration.

Germany, long the engine of the European economy, is trying to restart itself. Chancellor Friedrich Merz's government is moving on an ambitious set of economic changes — to pensions, taxes and the labor market — after years of stagnation, and it is doing so under mounting political pressure from a resurgent far right.

## An economy stuck in low gear

Europe's largest economy has barely grown in recent years, weighed down by high energy costs, weak industry and demographic strain, and forecasts for 2026 remain feeble. That torpor has become the central problem of German politics: voters are frustrated, and mainstream parties are paying the price.

## The reform push

At the center is a plan to shore up Germany's strained pension system as the population ages and fewer workers support more retirees. Merz has vowed to enact a reform commission's recommendations quickly and in full, declaring that "failure is not an option," [the Washington Post reported](https://www.washingtonpost.com/business/2026/06/23/germany-economy-pension-reform-merz/); the proposals include gradually raising the retirement age in step with rising life expectancy and adding a funded, investment-based element to the system, [Fortune reported](https://fortune.com/2026/06/23/germany-pension-reform-retirement-age-merz-demographics/). Alongside the pension overhaul, the government is weighing a large income-tax cut — on the order of €20 billion — plus measures to lower business costs and spur investment, [Bloomberg reported](https://www.bloomberg.com/news/articles/2026-06-26/germany-weighs-20-billion-tax-cut-as-merz-seizes-momentum). Coalition talks were set for early July, before parliament's summer break, and Merz's governing partners are not fully aligned on how to pay for it all.

## The far-right shadow

The urgency is political as much as economic. The Alternative for Germany, or AfD, a nationalist, anti-immigration party that domestic intelligence has scrutinized over extremism concerns, has risen to the top of national polls — running ahead of Merz's Christian Democrats in a range of surveys — and polls especially strongly in the country's east. Analysts and officials widely read the reform drive as an attempt to deliver tangible economic improvement and stem the flow of disaffected voters toward the AfD; the party's support is strongest among those who feel worst off economically, according to the reporting on recent polling.

## The gamble

The bet, in essence, is that visible progress on growth and household finances can rebuild trust in the political mainstream. The risk is the opposite: that painful measures — a higher retirement age, changes that raise costs for some workers and employers — deepen resentment before any benefits are felt, handing the far right more ammunition. With a thin governing majority and a compressed timetable, Merz is trying to move fast. Whether Germany's economy can be jolted back to life quickly enough to matter politically is the question hanging over Berlin this summer.

## Sources

- [Germany's leader pledges to reform a creaking pension system: 'failure is not an option'](https://www.washingtonpost.com/business/2026/06/23/germany-economy-pension-reform-merz/)
- [Germany weighs a €20 billion tax cut as Merz seizes momentum](https://www.bloomberg.com/news/articles/2026-06-26/germany-weighs-20-billion-tax-cut-as-merz-seizes-momentum)
- [Germany's government says 'failure is not an option' on raising the retirement age](https://fortune.com/2026/06/23/germany-pension-reform-retirement-age-merz-demographics/)