The Socialist Party, currently junior coalition partner of Merkel's CDU, has chosen Martin Schulz to challenge Merkel's leadership. The former President of the European Parliament is seen by analysts as a "real alternative" to Merkel, who has dominated German politics for the last 12 years.
"With Martin Schulz, the party now tries to present a real alternative to Angela Merkel. His personal background, being a former alcoholic, speaking six languages and having no high school diploma, already distinguishes him from many other national politicians," Carsten Brzeski, chief Economist ING said in a note.
"Even more important, in the German public opinion, Schulz has become the embodiment of Europe," he added, saying that this should force Merkel to be clearer about her vision for Europe.
One of the most critical European issues for the German election is the refugee policy. Merkel has adopted an "open-arms" approach, which has backfired. The increasingly unpopular policy has impacted Merkel's poll rating and boosted support for the far-right party Alternative for Germany (AfD).
"Opposition from the far-right alternative for Germany will force the chancellor to put up a fight; Schulz's nomination means that on top of this, she will face a center-left contender with the capacity for emotional messaging and no history in domestic German politics – the advantage of a fresh face in times of anti-establishment politics," Carsten Nickel, deputy director of research at Teneo Intelligence said in a note.
Schulz's return to Germany may give the Socialist party further chances of decreasing its gap to Merkel and her party but it is questionable to what extent.
"According to latest opinion polls, Merkel's CDU stands at 37 percent with the SPD trailing far behind with 20 percent. With Schulz, the SPD could be able to close this gap somewhat. However, it would need a significant closing of this gap before a coalition without the CDU as biggest party would become a feasible option," Brzeski added.
Schulz has only eight months to convince the German electorate, he lacks experience in non-European issues, such as welfare and pensions – a critical issue for German voters, and will head a party with structural problems.
"Schulz's popularity will make him a stronger contender (than the current Socialist leader), but given the SPD's limited coalition options, another Merkel-led grand coalition remains the most likely outcome," Nickel of Teneo said.
"A left-of-center coalition against Merkel is not becoming any more likely with Schulz…The biggest obstacle to a Schulz-led government with the Greens and the post-communist Left is that if the AfD enters the Bundestag, the resulting fragmentation will make a left-wing coalition impossible numerically," Nickel added.
The socialist party wasn't available for comment at the time of writing.