Europe’s political centre is almost out of time

Europe’s political centre is fracturing as economic stagnation fuels the far right, threatening Germany, the rules-based order and South Africa.

Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.

Only a few months ago, it looked as if the tide might be turning. When Viktor Orbán was toppled in Hungary in April, many – including this columnist – concluded that European voters had finally seen through the deal that ethno-nationalist populists were offering … cultural grievance with immigration concealing industrial-scale cronyism behind.

Conservatism on immigration and social policy would endure and had shifted to the centre, but the radicalisation, Euro-scepticism and hate speech of the far right had peaked.

Germany has just delivered a sharp rebuke to this narrative. In Mecklenberg-Western Pomerania on Sunday, Chancellor Friedrich Merz’s Christian Democrats (CDU) took a drubbing, obtaining a mere 4.9% of the vote, according to preliminary polling results – short of the 5% threshold required to enter the state parliament.

The far right Alternative for Germany won with 38%, narrowly ahead of the Social Democrats on 35.5%. In Berlin, the CDU lost to The Left party. Furthermore, these grim results for the centre-right came only a fortnight after the AfD beat the CDU in Saxony-Anhalt, a result which raises the possibility that the extreme right will be able to form a government in that state, and that Germany will have its first far-right state government since Hitler.

Merz did not sugarcoat things. He immediately called the results a disaster on election night, breaking with the convention that chancellors wait until the following day to comment, and summoned senior party leaders to CDU headquarters to test their loyalty. Eight CDU state premiers had already declared their allegiance to Merz after Saxony-Anhalt. Few in Germany, however, believe that settles the matter.

Sixteen months into his term as Chancellor, Merz is by most measures the least popular chancellor of the postwar era and talk of replacing him has moved from gossiping in Berlin bars into the open.

Yet the pattern matters more than mere personalities. A far-right victory in two states and a far-left one in another is part of a broader trend of German and European politics since the financial crisis: a general splintering and fragmentation of the centre.

Years of economic stagnation helped fracture the political establishment; now this fracturing will make the stagnation harder to escape. Fragmented electorates produce weaker, less cohesive governments, and weaker governments are less likely to push through the tough economic reforms which might restore growth. Is this the death spiral of the post-war European political centre?

Merz’ case for survival rests on precisely those reforms. His coalition is due to adopt changes to pensions, unemployment benefits and labour rules in the coming months; a moderately ambitious package that he hopes will lift business confidence and, eventually, growth.