This is a result of the new security settings within Mountain Lion.
Apple Menu > System Preferences … > Security & Privacy > Privacy Tab > Select "Contacts" in the left column
On the right pane > "Allow the apps below to access your contacts"
Put a check beside Pages. It will automatically quit Pages to update this setting.
Quit System Preferences
Open your Pages Mail Merge document
Edit Menu > Mail Merge > Select: Address or Group from Address book.
You can also work with Mail Merge in the inspector
Inspector ( Pages menu bar top right ) > link inspector > Merge Tab
I have suggested to Apple that ether a reference to this Security & Privacy setting be mentioned in the Mail merge dialog, or better, that a Check Box to enable access to the Address Book be included in the Pages Mail Merge Dialog.
For those that have not created a mail merge document before.
Pages > Insert > Merge… > Select the merge field you would like placed at the current insertion point.
I hope this resolves your issue.
You don't know how many hours of agrivation this has caused me. I seriously almost lost my sanity over this. Not sure how it took me so long to find this discussion. I was initially only serching for things that talked about merge being broken and didn't even realize there was a message anywhere that said "address book is empty".
Apple is quickly becoming more trouble than it is worth.