Friedrich Merz, who became Chancellor after the CDU/CSU victory in the 2025 federal election, faces mounting pressure on his coalition government due to historic lows in personal approval ratings and significant CDU losses in multiple state elections held in September and early October 2026. A key junior coalition minister resigned on October 12, further straining parliamentary support and highlighting internal divisions over policy priorities. Merz has responded with public commitments to pension and labor reforms, increased defense and AI investments, and economic revival measures announced at the October Invest in Germany Summit. Traders are monitoring upcoming state-level votes, federal budget negotiations, and any signals of coalition fracture or no-confidence motions that could trigger early elections or a leadership change before scheduled federal voting.