German Chancellor Friedrich Merz on Monday doubled down on his drive to push unpopular reforms through Europe's largest economy, after the far-right Alternative for Germany surged to a landslide victory in a regional election — with a strong chance of forming the first far-right state government since the Nazi era.

Merz said his center-right Christian Democratic Union was "deeply shocked" by what he called "the most serious election defeat that the CDU has had for years, for decades." But he made clear he intends to remain at the helm, declaring that "giving up is not an option for me."

The anti-migration, Russia-friendly AfD fell just short of an outright majority in Sunday's vote in Saxony-Anhalt, a small eastern state that had drawn outsized attention as the party eyed power there. Its regional branch is one of several AfD organizations classified as a proven right-wing extremist group by Germany's domestic intelligence agency. The vote in Saxony-Anhalt — home to about 2.2 million people and a state the AfD had already led in polls for years — followed earlier AfD wins in Thuringia and Saxony in 2024, where the party also finished first but was kept out of government by the traditional parties.

The result presents a major distraction for Germany and Merz at a moment when Europe is contending with multiple challenges, including Russia's continued aggression against Ukraine, a suspected sabotage campaign targeting NATO countries, and difficult dealings with U.S. President Donald Trump. It also hands ammunition to far-right and Russia-friendly voices abroad just as European governments debate continued military and financial support for Kyiv.

Merz Seeks to Reassure Allies

Merz said he wanted to assure Germany's allies that "our institutions are resilient and stable" and that the country will stand by its values and constitution following the AfD win. "We know that Germany carries special responsibility because of its history," he said.

He vowed not to "budge one millimeter from my fundamental conviction that we must defend our freedom against Russia now." Germany is one of Ukraine's biggest supporters in its war against Russia.

Because of Germany's Nazi past, far-right movements have always faced strong scrutiny. Mainstream parties have long refused to cooperate with the AfD under a practice known as the "firewall". Unlike many European countries, modern Germany has never had a far-right or right-wing populist party leading a national, state, or major-city government.

Merz had vowed to weaken the AfD before coming to power last year, but instead has watched its support grow.

An Unpopular Government Pushing Painful Reforms

The governing coalition of his Union bloc and the center-left Social Democrats has developed a reputation for squabbling and has become deeply unpopular — as has Merz himself. The government has struggled to convince voters it can revive the country's chronically sluggish economy through potentially painful reforms, including to the pension system. Germany's economy, long Europe's growth engine, has contracted in recent years amid an energy-price shock, weak manufacturing demand, and pressure on its export-oriented auto industry.

Still, Merz insisted Monday that "we need fundamental reforms in Germany." He framed the stakes as "nothing less than the future of our country and the opportunities of our children and grandchildren, and we must not squander those. That is why my determination to continue the reform course is unbroken."

He acknowledged the need to "justify them, not just rationally but also emotionally."

Germany faces two more regional elections on Sept. 20 — in Berlin and in the eastern state of Mecklenburg-Western Pomerania, where the AfD is also strong. Those votes will offer the next test of whether the AfD's surge in Saxony-Anhalt marks a peak or a further step toward power in the east.

AfD's Path to Power in Saxony-Anhalt

While Merz battles resistance to his agenda, the AfD — whose victory was cheered by far-right parties across Europe — faces potentially tricky maneuvering to install its candidate for governor in Saxony-Anhalt, Ulrich Siegmund.

Siegmund had pushed for an absolute majority in the state legislature that would allow the AfD to sidestep mainstream parties' shunning of it. After the vote, he signaled the party still is not willing to make compromises, insisting that "we don't want to become like the parties that were punished" for breaking pre-election promises. He also rejected the idea of a minority government.

But he said the party has "a very clear mandate to form the government" and would reach out to other groups in the legislature and even to individual lawmakers. "Our goal now is to build precisely this stable majority in the coming days and weeks," he said.

The AfD is three seats short of a majority. It could turn to the hard-left BSW party, which won five seats. The two parties share a Russia-friendly outlook and oppose immigration, though they disagree on some other issues.

The BSW has criticized the "firewall" against the AfD and signaled again on Monday that it could allow Siegmund to become governor by abstaining in a potential third round of voting in the state legislature, in which a simple majority would suffice.

Another possibility: newly elected lawmakers from other parties could defect to the AfD, which would need only three to break ranks.

Forming a government that excludes the AfD would be possible only if all other parties in the legislature worked together. However, any such alliance is considered improbable and would likely be prone to instability.

International Reactions

Billionaire Elon Musk congratulated the party on its election victory with a "Well done!" on his platform X. Siegmund immediately thanked him for his support.

Trump posted a screenshot of the election projection on his Truth Social platform without comment.

Russian presidential envoy Kirill Dmitriev described the outcome on X as a "historic win for the pragmatic AfD that will put migration under control." He added that "AfD will restore Germany and Europe by leading the common-sense approach that migrant-friendly, warmongering Biden-think EU politicians tried to eradicate."

The leaders of right-wing populist parties in Spain and Portugal also congratulated the AfD.

Polish Prime Minister Donald Tusk was critical. "In Poland, only idiots or traitors could rejoice the AfD triumph in Germany," he wrote on X.

French Foreign Minister Jean-Noel Barrot — whose country faces a presidential election next year in which the far right is a leading contender — said that "AfD's platform is a betrayal of the European spirit" and that "our first responsibility is to resist the normalization of far-right ideas."

Among voters who did not back the AfD, the reaction was one of deep dismay. Horst Walter Boerner, an 86-year-old from Magdeburg born during World War II, expressed shock. "It's terrible for us," he said, calling the election "fear-driven." He said the AfD's victory was foreseeable given the crowds it drew during the campaign, but added that "this should have never happened."

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Associated Press journalists Claudia Ciobanu in Warsaw, Poland, and Kerstin Sopke in Magdeburg, Germany, contributed to this report. This story was originally featured on Fortune.com.