Political weakness in the heart of Europe – MUFG

As is the case in France, with the left and right extremes of the political spectrum taking a larger share of the vote in parliamentary elections, this weekend saw a similar pattern in two regional elections in Germany yesterday. The AfD is on course to win 32.8 percent in the state of Thuringia, marking the first victory for a far-right party since World War II. The CDU/CSU was second with 23.6% of the votes. It was the other way around in Saxony, with the AfD coming up short with 30.6% of the vote, while the CDU/CSU won a slightly larger share with 31.9%. The SPD won abysmally with just 6.1% in Thuringia, its worst result in post-war Germany, while both the Greens and the FDP fell short of the 5% threshold needed to be represented in the state parliament, analysts note MUFG FX.

A political deadlock is coming to Germany

“Evidence of disaffection was also highlighted by the rise in popularity on the left, with a new far-left party BSW winning 15.8% of the vote in Thuringia and 11.8% in Saxony. Given the performance of the two extreme parties, it is clear that Germany is slowly moving towards the same political outcome as in France – political deadlock. The AfD will not be able to govern in Thuringia as all other parties have said they will not enter into a coalition with the AfD, meaning the CDU/CSU would have to consider governing with other parties, including with the extreme left party BSW. BSW is more supportive of Russia and calls for a change in policy on Ukraine.”

“The next general election is scheduled for autumn 2025 and based on these results it seems difficult to see a strong government emerge. The political environment in the Eurozone has never been as bad since the single currency came into existence. Weak GDP growth in Germany for a sustained period is at the heart of voter anger. Five of the last ten quarters for GDP growth saw a contraction. Incredibly, Germany’s economy is only 0.2% larger than in Q4 2019, before the covid pandemic. In the US, real GDP is 9.4% higher over the same period.”

“We will release the monthly currency outlook this afternoon and show a forecast profile for the weaker US dollar, but the mixed global economic backdrop – commodity prices down 10% since May, elevated geopolitical risks and complete political gridlock from the Heart the euro zone indicates every reason to remain cautious about the extent to which the dollar will weaken in the future.”