The AfD bandwagon rolls on - what are the implications?

Germany's anti-euro AfD party has hit a rich vein of electoral form building on its success in Saxony two weeks ago (where it scored 9.7% and won its first seats in one of Germany's 16 regional parliaments) to win 12.2% in Brandenburg and 10.6% in Thuringia; a considerable improvement on pre-election polls.

As the graphic below shows, AfD won votes across the political spectrum, In net terms, its success came at the expense of the left - Die Linke in Brandenburg and the SPD in Thuringia - although in gross terms it also won a lot of votes from the CDU and FDP.

Where did the AfD's votes come from in Brandenburg and Thuringia?

This reflects the nature of the AfD campaign in these areas which combined an explicit pitch to Die Linke voters emphasising Ostalgie (nostalgia for East Germany), AfD's opposition to TTIP and to the sanctions on Russia with more traditional 'small c' conservative messages on crime and immigration (for example, AfD wants to re-impose border checks). On the whole, the question of Europe and the euro barely featured.

While AfD's recent successes should not be over-interpreted, inflated as they are by higher rates of disaffected voters in East Germany and low turnouts, it does nonetheless pose difficult questions for the established parties. This is particularly true for the CDU/CSU for whom, as we've noted, AfD is too big to ignore, yet too controversial to team up with. In the longer term however this might change if it becomes evident that the AfD is the only alternative to permanent 'grand coalitions' at the regional and federal level, a scenario which would arguably strengthen AfD even more.

We expect that this will be hot debate within the CDU in the coming months and years. Meanwhile, the AfD itself faces a big test; 12 months on from narrowly missed out on winning Bundestag seats the party has performed well in European and regional elections, however, with next year's Hamburg regional elections the only significant entry in the electoral calendar over the next year and a half, can the party sustain its recent momentum? If it stalls, could we see deeper splits between the economic liberals and protectionists/social conservatives who make up the party's uneasy internal coalition?

German Elections: The European Reaction

Mixed Reaction in the Med

Spanish daily El Mundo runs with the headline “Merkel, Merkel über alles”, while an article in the paper argues that a Grand Coalition (composed of Merkel's CDU/CSU and the centre-left SPD) “would lead, to a certain extent, to a relaxation of the austerity Merkel imposes on Europe.”

Meanwhile, Spanish Foreign Minister José-Manuel García Margallo went even further with his hopes that new German government would relax the pace of austerity in the eurozone's Southern periphery, telling Cinco Dias that “Eurobonds will come.”  (We disagree with this assessment, read our German election briefing to find out why.)

An editorial in El Pais suggests that the result “validates [Merkel’s] European theses”. Les Echos agrees, arguing that it is “illusory” to expect a Grand Coalition to “fundamentally” shift Berlin’s approach to the eurozone.

In France Les Dernieres Nouvelles D'Alsace argues that the election outcome is "unlucky for France, whose voice does not count anymore, and will only be heard again when the French economy improves". Meanwhile, Le Figaro splashes a beaming Merkel on its front page with the headline, "The Triumph of Merkel," pointing out that a victory like this has not been seen in over half a century.

From Greece - less congratulatory tones. An article in Greek daily Ta Nea carries the headline, “Europe becomes Merkeland after the triumph of the Queen of austerity.”

 Northern Europe congratulates victorious Merkel - but warns of the challenges ahead

A leader in Dutch daily Trouw argues that Merkel was re-elected because of the German public's "reluctance to engage in big adventures." However, it adds that "for Europe, Merkel's victory is good news...Merkel believes in political and monetary entrenchment of her country in Europe - and without Germany the euro is a lost project."

Meanwhile, De Volkskrant quotes an unnamed EU ambassador of a eurozone country saying that the member states are "27 poodles on the leash of Angela Merkel". The newspaper adds: "the Empress herself stresses that she is in favour of a European Germany, and that is undoubtedly true". The paper goes on to criticise Dutch PM Mark Rutte, saying, "Mark wants what empress Angela wants. The German voter has on Sunday decided the European agenda of Mark Rutte".

Belgian centre-left daily Le Soir  takes a consiliatory tone, arguing: "Certainly the Greeks don't like [Merkel]. But what would Greece and the euro today be if she hadn't insisted that the Greeks must tighten the belt before receiving European funds? Who else in the European Council would have managed to keep heads cool when having to listen to the cries on the streets of "Merkel, Hitler"?"

Meanwhile, Politiken from Copenhagen congratulates Merkel, while urging her to take action, saying,“The key is that the German government creates stability and firmly stands behind its support of EU and the euro... It is necessary that the new German government puts itself at the forefront of a European recovery"

Austria's Der Standard reports on Merkel's "middle-direction, mediocrity, " which "gives the Germans soundness and stability." Separately, a piece in the Telegraph argues Merkel's re-election should not lull the Germans into complacency, which could prevent it from making the necessary reforms to fix the underlying structural weaknesses in its economy.

Central Europe: Move forward the debate

Lidové Noviny from Prague takes a more critical view of Merkel's re-election, saying that she has "brought no solutions, and the eurozone remains a risk for the lasting prosperity of Europe." The paper writes that, "It is indeed sad that the euro-sceptic party Alternative für Deutschland has narrowly failed to reach the Bundestag. This would have opened the political debate in Germany. But next year will see elections for the European Parliament and then the AfD could get a breakthrough."

Polish daily Rzeczpospolita says that "a miracle is expected from Merkel: reform the EU to make it attractive for future generations. The new government has to show that it is possible in crisis-torn Europe to combine sound economic policies with growth incentives. The young generation needs a signal that it is not eternally damned to live worse than their fathers and grandfathers."

Varied reactions then as expected. However, there does seem to be a consensus that, for better or worse, Merkel will continue to set the tone and agenda for Europe for some time to come.

Open Europe predictions for the German election

Despite presenting a ubiquitous front on our blog, our team does often have varying views on the issues we cover. As on twitter, there has been a debate going on within the office about the ins and outs of the German elections - everything from "Veggie Day" to whether the anti-euro AfD will make it into the Bundestag. And, of course, what type of coalition will be formed.

We all agree it will be a close run thing. But below we lay out each of our analysts predictions. Feel free to stick your own in the comments! (Click to enlarge)

Interestingly, it's five to four thinking the AfD will just fall short of the threshold, reflecting what we agree can be a case of AfD being underestimated in the polls. But six to three in terms of backing for a 'Grand Coalition' - which, in aggregate, must be considered a bit of a revision in favour of a grand coalition from what we laid out in our pre-election briefing. There's also one rogue analyst predicting FDP won't get in at all...

No fundamental change in eurozone policy after the German elections

Today we released an in-depth briefing on the German elections, and their implications on the eurozone. The top line: don’t expect any fundamental change in Germany’s eurozone policy after the elections.

Of the nine proposals being floated to pull the eurozone out of crisis, we expect clear movement in only one or two areas, including the most important but most unclear one: the proposal for a single eurozone resolution authority for banks.

Moreover, Germany is unlikely to depart from its emphasis on ‘sparkpolitik’ or austerity. Any change here will be largely superficial: a continuation of same policies wrapped up differently. This is based on Germany desire to ‘lead by example,’ and the broad support for austerity enjoyed among the German public.

The German insistence on structural reforms, and strong controls on taxation and spending of other eurozone states won’t change either. A government lead by Angela Merkel, could, however, push for a formalised “competitiveness pact” where by struggling eurozone countries commit to reforms  in return for aid.

The question of debt pooling will remain a contentious one  –  with the recent Open Europe/ Open Europe Berlin poll, conducted by YouGov Deutschland, showing that 64% of Germans are opposed to such a step. A debt redemption fund, as has been proposed by the influential Council of Economic Experts that advises the government, may be a possibility – however, this won’t be without opposition.

See our table below (click to enlarge) which breaks down and analyses the key eurozone policy areas on a party-by-party basis, detailing if we can expect to see movement after the elections:

The UKIP factor and German politics: All eyes on Alternative für Deutschland

Germany's new anti-euro Alternative für Deutschland party is still in its infancy but it has already generated huge interest at home and abroad. While we are not expecting it to cross the 5% threshold in September's federal elections - not even close - with polls between the CDU/CSU and FDP vs the SPD and Greens as tight as they are (see here for latest figures), AfD's electoral result could have a huge bearing on the nature of any coalition government that emerges from the elections, a point also made by Thorsten Junghold in today's Welt. He cites the recent regional election in Lower Saxony, where the CDU incumbent David McAllister came up short by 335 votes while the Free Voters (a separate euro-critical movement) scored 39,000.

As such the AfD could mirror the UKIP factor in the UK (though note that AfD is a very different beast to UKIP), where a party unlikely to enter parliament can still have a decisive effect on the election by tipping vote shares one way or another (ironic given the different voting systems in both countries), and consequently being able to enjoy a disproportionate impact on the national debate and media agenda.  For this reason it is very interesting to see where AfD's votes could come from - and this weekend saw the first (to our knowledge) breakdown of AfD's potential support measured at 24% of all voters:

Source: Infratest dipmap for Die Welt

So clearly the biggest share of AfD's potential support comes from the economically liberal FDP (46%) followed by the 'old left' and former communist Die Linke (29%), the SPD (21%), Angela Merkel's CDU/CSU (19%) and finally the Greens (14%).

This is interesting because it shows that despite AfD's ideological groundings and personnel make-up being more on the centre-right it could attract voters from all parties (also like UKIP). The strong support from Die Linke voters could be explained by the fact that the party has strongly campaigned against the eurozone bailouts, which AfD also opposes (albeit from a different ideological perspective), or even more simply purely as an alternative protest party now that the pirate party appears to have run out of steam.

Definitely a phenomenon we will be keeping a close eye on, meanwhile its worth reading the Sunday Telegraph's interview with party leader Bernd Lucke.

Eurozone bailouts in the dock

Whenever there's a new, big EU-related initative, say a Treaty or a new bailout fund, you know that one thing will follow: a legal challenge at the German Constitutional Court - the Bundesverfassungsgericht, or BVerfG. And when the heavyweight Court rules, Europe holds its breath (see here, here, here, here, here, here, here and here for example). The Court's rulings on the Maastricht Treaty, the Lisbon Treaty and, most recently, the eurozone bailouts have very much set out the parameters for further EU integration.

While taking the German Constitution, or Basic Law (Grundgesetz) extremely seriously, the BVerfG usually opts for the 'here but no further' approach, and have never fully overturned an EU measure, though it did have some strong things to say about the Lisbon Treaty, while also striking down the German law that implemented the EU's Data Retention Directive. Likewise, the Court has made the introduction of Eurobonds, should it ever come to that, far more complicated (see here for background).

As the Bundestag gears up to ratify both the euro's permanent bailout fund, the European Stability Mechanism, and the German driven 'fiscal treaty' on budgetary discipline within the eurozone, get set for another series of launches. Interestingly, today, we learn from Der Spiegel that none other than former German justice minister Herta Däubler-Gmelin - from the Social Democrats - has said she will bring a legal challenge to the Court against both the ESM and the 'fiscal treaty' on behalf of the 'More Democracy' campaign group, on the basis that the budgetary sovereignty of the Bundestag is being threatened. She claims that the EU plans "cross a red line", and that:

"I'm all for Europe, but not for a Europe that is determined only by the governing elites… It can not be that Europe takes away the rights of national parliaments, without strengthening the European Parliament and the participation rights of citizens accordingly. Europe must be democratic."

We hear you Herta.

Less surprisingly, Germany's far-left party, Die Linke, and CSU MP Peter Gauweiler (a regular litigator) are planning legal challenges as well.

Some people seem to have this strange idea that even in a crisis, the rule of law should be upheld (yes, we are being sarcastic).

Is this party over?

Yesterday's elections in the German region of Saarland saw a somewhat unexpected surge for Angela Merkel's CDU party, which won 35.2% of the votes, ahead of the Social Democrats (SPD) on 30.6% and the far-left Die Linke on 16.1%.

As Torsten Krauel comments in Die Welt, despite expectations of an SPD victory, “The CDU held its own. Angela Merkel will appreciate this when it comes to the formulation of further conceivable eurozone rescue packages”.

But perhaps equally significantly, Merkel’s junior coalition partner at the national level, the FDP, won only 1.2% of votes - a massive drop of 8% compared with the previous elections. In fact, the FDP only just beat the neo-Nazi NPD party by 267 votes.

This also means that in all the regional elections that have taken place over the last two years, the FDP has only managed to get re-elected its heartland of Baden-Württemberg, and even then they just about scraped in with 5.3% of the vote. Despite its history as a party of government (it has often played the role of kingmaker for either the SPD or CDU/CSU), it is literally being wiped off the map, having completely failed to re-invent itself.

As the party stares into the abyss, former party leader and one-time golden boy of German politics Guido Westerwelle (in our view increasingly marginalised as Foreign Minister) organises conferences looking at the prospects for fundamentally re-shaping the EU's constitutional architecture after the crisis, which although undeniably important in the longer term, can hardly be deemed to be a priority for voters concerned about the 'here-and-now' of the eurozone crisis and Germany's role in the bailouts.

Meanwhile, Germany’s young and swinging Pirate Party, which has been critical of the bailouts, came fourth with 7.4%, meaning it has secured seats in Saarland’s regional parliament for the first time. It also won seats in last year's regional election in Berlin and looks competitive in polls ahead of the impending elections in Nordrhein-Westfalen, Germany's most populous state. The Pirates are also contributing to a wider cultural change in German politics, for example pushing mainstream politicians to become more social media-savy, e.g. by joining Twitter, which the Pirates have utilised to great effect.

So as the FDP's star wanes (or more accurately comes crashing down to earth), the Pirates are definitely the ones to keep an eye on...