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What Merkel’s setback means for Europe


What Merkel’s setback means


By Ilan Jacobs, Government Affairs - Europe, Middle East and Africa

April 4, 2016Posted InInvestments

In one of the biggest population shifts in modern Europe, more than 1.1 million refugees have entered Germany in the past year. German voters recently had their first opportunity to pass electoral judgment on Chancellor Angela Merkel’s accommodating refugee policy. Their response was not favourable:  Merkel’s Christian Democratic Union (CDU) lost support in all three German States that held elections on 13 March, and only narrowly managed to hold on to control of one of them, Saxony-Anhalt, in the East of the country.

By contrast, the big success story of the elections was the rise of the anti-immigrant Alternative for Germany (AfD) party. AfD rode a wave of public protest against the Chancellor’s refugee policy, entering all three regional Parliaments. It came second with almost a quarter of the vote in Saxony-Anhalt, and gained double-digit shares in the other two states, Baden-Württemberg and Rheinland-Pfalz.

AfD is a product of the growing populism in Western politics, evidenced by the rise of Donald Trump in the US and Marine Le Pen in France. Like Trump, AfD leaders have attacked the media and called for stronger border control, “using firearms if necessary”. It was originally focused on campaigning against the Euro and bailouts, but adopted an anti-immigrant message after the migration crisis developed, gathering votes from Germans disillusioned with the governing elites.

The election results have significant implications for Germany and the European Union (EU) as a whole. Since the beginning of 2015, Germany has registered nearly 1.2 million refugees, and the sheer scale of the influx, combined with the reports of attacks on women in Cologne, has increased political pressure on  Merkel, who has so far maintained her open-door policy, although toughening up laws on asylum seekers.

With her party and coalition partner directly feeling the voters’ anger, her electoral setback will further ratchet up the pressure on her. Citi Research believes that in order to contain the rise of AfD, Germany’s migrant policies are likely to toughen further. Moreover, if tighter controls and  Merkel’s attempt to reach a deal over EU membership with Turkey does not succeed in averting another influx of migrants this summer, the risk will grow that that the CDU may not nominate  Merkel as their candidate for chancellorship in 2017 at the party convention in December.

At the same time, the poor electoral performance of the Social Democrats (SPD),  Merkel’s coalition partner, is likely to create tensions and impair decision-making in the Grand Coalition that governs Germany. This could weaken Chancellor Merkel within the EU, making it harder to strike much-needed deals. The EU’s stability and progress has relied significantly in recent years on a strong Germany and the undisputed leadership of  Merkel. The threat of a weaker Germany, turning away from its leadership role in Europe, may increase instability and policy stasis at what is an already challenging time for the EU.

Further afield, external actors such as Russia’s President Putin may benefit from a vacuum in EU leadership that could result from a weakened  Merkel. The EU will in June decide whether to roll over its sectoral sanctions on Russia. Thus far,  Merkel has pushed hard for the EU to maintain these sanctions, in the face of resistance by Italy and others. Another leading EU force to keep the pressure on Russia has been the UK – which will itself become increasingly preoccupied with its 23 June referendum on EU membership. A weakened Germany and a distracted UK could increase the chances that EU sanctions are eased, widening the gap between the US and the EU on Russia.