Germany embraces the far right: what does it mean for the economy?

The far right’s breakthrough in Germany promises political gridlock at a time when pro-market leadership is needed.

Bjoern Hoecke (L), lead candidate of the far-right Alternative for Germany (AfD)
(Image credit: Jens Schlueter/Getty Images)

In Germany’s regional elections last week, the far right AfD party scored a major breakthrough in the east of the country. It capitalised on a failing economy and a revolt against mass immigration to come first in Thuringia and second in Saxony. The coalition of the Social Democrats, Liberals and Greens led by chancellor Olaf Scholz now looks certain to lose power next year, and may well struggle to last that long. 

When that happens, the country will face a political stalemate, with none of the major parties willing to work with the AfD, nor able to govern without them. The result will be a political mess, against the backdrop of a slow-motion economic crisis. The latest data at the end of August showed the economy shrinking yet again, with output falling by 0.1% in the past quarter. Investment in Germany fell sharply, as did consumer spending. It was only rising government spending that limited the decline. Germany is the slowest-growing economy in the G7, and another recession by the end of the year looks certain.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.