The CDU/CSU–SPD grand coalition under Chancellor Friedrich Merz, formed in May 2025, has faced notable strains from the Union’s heavy losses in September 2026 state elections in Saxony-Anhalt, Mecklenburg-Western Pomerania, and Berlin, where the AfD advanced strongly and the CDU fell below viability thresholds in one state for the first time. These results triggered leadership speculation and calls for adjustments to the reform agenda on taxes, pensions, and healthcare, yet Merz and SPD leaders have publicly reaffirmed their commitment to the coalition to maintain stability and limit further AfD gains. With a narrow parliamentary majority and no viable alternative majorities without renegotiation or new elections, both partners have prioritized continuity through the 2027 budget process. Traders appear to view these explicit commitments and institutional incentives as outweighing episodic tensions, supporting the elevated probability that the arrangement holds until at least 2027.