Soft sanction includes lifting of Merkel's refusal (7)
I believe the answer is:
lenient
'soft' is the definition.
(synonyms)
'sanction includes lifting of merkel's refusal' is the wordplay.
'sanction' becomes 'let' (I've seen this in other clues).
'includes' indicates putting letters inside.
'lifting of' is a reversal indicator.
'merkel's refusal' becomes 'nein' ('no' in German - Angela Merkel is German).
'nein' in reverse letter order is 'nien'.
'let' placed around 'nien' is 'LENIENT'.
(Other definitions for lenient that I've seen before include "Not severe in punishing" , "Merciful or easygoing" , "Forgiving, gentle" , "Light" , "Soft-hearted" .)