Merkel down—but not out—in Germany

German Chancellor Angela Merkel suffered one of her largest political setbacks at the weekend after her Christian Democratic Union (CDU) party saw sharp losses in regional elections with many conservative voters punishing Merkel for her refugee policy.

Exit polls from broadcaster Deutsche Welle following the Sunday vote showed that the CDU lost ground in the Baden-Wuerttemberg, Rhineland Palatinate, and Saxony-Anhalt regions where elections were held.

The party came second in two out of the three states having suffered strong losses in Rhineland Palatinate (where the center-left Social Democratic Party won) and Baden-Wurttemberg (where the Green party won) and only retaining its lead in Saxony-Anhalt.

Speaking on Monday, Merkel said the election results marked a "difficult day" for the CDU and that the refugee policy was a "dominant issue" in the election, Dow Jones reported. However, she said the number of migrants had decreased in the region but that she was convinced that a European-wide solution was still needed.

The party's losses come amid the dramatic rise in support for the anti-immigrant Alternative for Germany (AfD) party which claimed 24.3 percent of the vote in Saxony-Anhalt and, surprisingly for a three-year old party, saw a dramatic rise in support in the other regions.

Angela Merkel
Fabrizio Bensch | Reuters
Angela Merkel

The results have been seen as a damning indictment of Merkel's open-door migrant policy which has allowed more than an estimated 1 million refugees and migrants to enter Germany in 2015. Many of those migrants have fled civil war in Syria and the Middle East but the amount of people deemed as "economic migrants", rather than asylum seekers, is uncertain.

Merkel safe, for now

However, political analysts say that while the vote is a blow for Merkel, the German leader, who is seen as one of the most decisive leaders in the euro zone having helped steer the region through the financial crisis, is not defeated yet. Parties that did well – such as the Greens – also support Merkel's stance on refugees.

Andreas Kluth, Berlin bureau chief of The Economist, told CNBC on Monday that "Angela Merkel and her refugee policy per se did not lose."

"Because even in the state of Saxony-Anhalt where the AfD won the most votes (it won 24.3 percent compared to the CDU's 30 percent) that means about 76 percent of people voted for parties that, one way or another, support Angela Merkel's policy," he said.

"In the two western states (Baden-Wurttemberg and Rhineland-Palatinate) you saw the big winners were not the CDU but parties that still had showed a clear support of Merkel's refugee policy in their campaigns. So it's simply not true that the policy has lost the support of the German population."

Rather, Kluth said the polls had shown an "extreme uptick in polarization, the way you already have it in other European countries and even in the U.S. with Donald Trump." He expected that fragmentation of Germany's political scene to continue, leading to more centrist coalitions, voter boredom and a rise in support for more extremist parties.

The rise of populism

Merkel's refugee policy has attracted both praise and criticism in Germany, from those sympathetic to the migrant's plight and those questioning the lack of restrictions placed on the number of immigrants granted entry and asylum. The migrant crisis has hit Europe, and Germany, at a time of continued economic uncertainty too, making voters and politicians nervous. Many countries in Europe have seen political parties at the fringes gain support as voters turn away from the old political establishment.

Carsten Brzeski, Chief Economist at ING-DiBa, said that the latest vote in Germany showed "a general trend towards protest votes against the established parties."

While Merkel's position was safe, he thought, she faced two other "big challenges" stemming from yesterday's elections: "a politically embattled junior coalition partner (the CSU) and a more general trend in German politics, the rise of populism."

"The rise of the AfD will give spin doctors and masterminds the biggest headache. The rise could eventually make coalition building after the 2017-election very complicated. It is a rise, which also shows that Germany has caught up with all other European countries: it has finally lost its immunity against populist parties," Brzeski warned.

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