Merz bets a slim parliamentary majority can carry Germany through its hardest reform decade since reunification

On 4 July 2026, Friedrich Merz stepped to a Bundestag lectern and told his coalition that the next decade of German policy would be set, in his words, by the willingness to act now rather than inherit a crisis later. The speech landed with the chamber already in its post-recess rhythm, but the political weather outside was anything but settled: a wafer-thin governing majority, a Bundesrat stacked against him, and a country staring at a reform stack that has grown heavier with every postponement since reunification.

What Merz is asking Germans to accept is a simple, unflattering proposition. The federal republic can no longer afford to run its welfare state, its labour market, and its defence build-up on the revenue base of the late 1990s. The choices now on the cabinet table, pension reform, a more aggressive industrial strategy around steel and chemicals, a fiscal rule rewrite to free up defence and infrastructure spending, were each supposed to have been made years ago. They were not. They are landing on a chancellor whose parliamentary arithmetic gives him almost no margin for dissent inside his own coalition, let alone for the kind of cross-bench deals his predecessors took for granted.

The room to manoeuvre is genuinely narrow. Merz's CDU/CSU bloc and the Social Democrats together command a Bundestag majority that is technically workable but operationally fragile, and the Upper House remains a problem the coalition has not been able to legislate its way around. Any bill that touches the Länder, which in Germany means most of the bills that matter, must clear the Bundesrat, where the opposition currently holds the levers. The political science of this is brutal: a chancellor who wants to modernise the country has to do it against two veto points, one within his coalition, one above it. That is the structural fact behind every line of Merz's 4 July pitch, and it is also the reason his speech read more like a sales document than a state-of-the-nation.

He is not the first chancellor to make this sales pitch. Schröder tried it with Agenda 2010 and paid for it at the ballot box. Merkel ducked most of it for sixteen years and left her successor a structural bill that compounds quietly in the background. Now the compound interest is showing up in numbers that even the government's own forecasters can no longer soften. Merz's wager is that the German public, having watched the country's relative weight in Europe shrink and its industrial base come under sustained pressure from cheaper Chinese imports, can be persuaded to accept reforms that earlier chancellors lost their jobs attempting. The bet is not obviously winnable. But the alternative, leaving the bill for the next government and the decade after that, is the one Merz has explicitly said he will not pass on.

The early signals from outside Berlin are mixed. Berlin's foreign-policy profile is rising in directions that require domestic follow-through. Just two days later, on 6 July, Canada announced that it would award Germany a contract for up to 12 submarines, the largest such deal in Canadian history, after Berlin pushed hard for the order and Ottawa cast about for stronger European industrial ties. The contract is good news for German shipyards and for the broader case that Europe's industrial and defence supply chains are integrating faster than the politics. It is also a reminder that the hardware side of the Merz agenda, defence procurement, energy infrastructure, the modernisation of the Bundeswehr, is moving faster than the welfare-state reform agenda inside the Bundestag. The submarines will be built. The pension reform has not yet been drafted.

What to watch next is concrete and dated. The cabinet's pension-reform draft bill is the first verifiable milestone, and it will land in the weeks following the speech; the Bundesrat's response, and whether Merz can assemble the two-thirds majorities needed for the most consequential fiscal-rule changes, is the second. If either fails, the speech becomes a relic of a chancellor who promised reform and could not deliver it. If both pass, the harder question surfaces immediately: a German economy growing faster than the eurozone average, defence investment on a sustained upward path, and a welfare state calibrated to the next thirty years rather than the last three. That is the Merz bet. The country has not seen one this large in a generation, and it has not, in a generation, been placed by a government this thin.