Over the weekend, two regional elections in Germany saw a surge in support for the far-right AfD party, marking the first win for a party of this ideology since World War II. In Thuringia, AfD is on track to win 32.8% of the vote, while in Saxony they garnered 30.6%. This shift in political landscape has raised concerns of political gridlock in Germany, similar to what is being witnessed in France.
Notably, the CDU/CSU, traditionally a centrist party, secured 23.6% and 31.9% of the votes in Thuringia and Saxony respectively. On the left, the new far-left party BSW also made significant gains, winning 15.8% in Thuringia and 11.8% in Saxony.
Implications for Germany and the Euro-Zone
With AfD unlikely to form a coalition due to opposition from other parties, the CDU/CSU may need to consider alternative alliances, potentially with the far-left BSW party. This political uncertainty could lead to a period of gridlock, impacting the country’s ability to form a stable government.
The economic backdrop in Germany is also concerning, with weak GDP growth and a lackluster recovery post-pandemic. This, coupled with geopolitical risks and falling commodity prices, paints a cautious outlook for the future. Analysts suggest that the US dollar may not weaken as much as initially anticipated, given these factors.
Analysis and Outlook
The recent regional elections in Germany have highlighted a shift towards more extreme political ideologies, leading to concerns of gridlock and instability. This could have far-reaching implications for the country and the euro-zone as a whole. Investors and individuals should closely monitor the political situation in Germany and its impact on the economy to make informed financial decisions.