Voters in eastern Saxony state will be the first to vote in regional legislative elections since Merkel's triumphant return for a third stint at the helm of Europe's top economy in last September's general election.
Her conservative Christian Democrats (CDU) have been in power in Saxony since Germany's 1990 reunification and are expected to remain dominant, but the party will likely need a new coalition partner.
The emergence of the Alternative for Germany (AfD), which has found a stronghold in Saxony since the eurosceptic party's formation in early 2013, could help muddy the alliance-building waters.
Buoyed by its leap into the European Parliament in May, the AfD has been polling at around seven percent in Saxony -- the state where it got its best result in the federal election but narrowly missed out on entering the German parliament.
The AfD, set up by economics professor Bernd Lucke, a former CDU member, wants the orderly dissolution of the euro, an end to EU bailouts and for Germany to return to its once beloved Deutschmark.
"Its challenge is to make this Europe and federal political approach somehow relevant at the state political level," said Werner Patzelt of the Dresden Institute for Political Science.
Merkel positioned herself as the single currency's champion during the eurozone debt crisis when Germany financed the lion's share of bailouts for stricken nations, demanding strict austerity measures in exchange.
'Taboo issues'
The economy of Saxony, which borders both Poland and the Czech Republic, is one of the most dynamic of Germany's ex-communist states, hosting big car producers and earning the nickname "Silicon Saxony" as a microchip centre.
As Germany approaches the 25th anniversary of the fall of the Berlin Wall, the Saxony ballot is the first of three former eastern state votes in quick succession, followed by neighbouring Thuringia and Brandenburg on September 14.
AfD lead candidate Frauke Petry, 39, a trained chemist and mother of four, has focused her campaign on family issues, calling for couples to have more children and for a tightening of the abortion laws, as Germany's population is rapidly ageing.
The party has also called for a referendum on the building of mosques with minarets in Saxony.
Petry firmly rejects claims the AfD has flirted with the far-right, insisting in an interview with AFP at a Dresden rally last week that the party "simply addresses many taboo issues" from which other parties shy away.
"We have never been far-right," she said.
'Nobody asked us'
Saxony is one of two regional parliaments to include members of the far-right, anti-immigrant National Democratic Party of Germany, but polls suggest its re-entry after Sunday could be a close call.
While the CDU is set to win just over 40 percent of the vote, according to a Politbarometer poll for ZDF television Friday, its current allies, the pro-business Free Democrats, are not expected to win enough votes to stay in the state parliament.
Saxony's CDU state premier Stanislaw Tillich has so far kept all options open and avoided ruling out any possible tie-up with the AfD, but such an alliance seems unlikely as it would flout the party line.
Merkel twice in the past week said the AfD, as a coalition partner, was out of the question for her conservatives.
Closest to the CDU in the latest poll was the far-left Linke party, which has roots in East German communism, with 20 percent, followed by the centre-left Social Democratic Party with whom Merkel governs nationally in a "grand coalition".
Henning Richter, 58, traditionally a CDU voter, who attended Petry's rally, seemed impressed with the AfD's support for Swiss-style referenda.
"You know, for years I've been wondering how is it possible that the money from our taxes goes abroad for bailouts, for banks, for I don't know what reason, for which nobody ever asked us our opinion," he said.
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