The AfD’s Victory In Saxony-Anhalt And The Outlook For German Politics, Trade And Economic Policy

The populist right-wing Alternative for Germany (AfD) party won regional elections in Saxony-Anhalt on September 6, reverberating across Germany’s national politics and, by extension, across the EU’s politics. The Christian Democratic Union (CDU)-led government in Berlin has sustained a blow to its position, and the parties in the federal coalition will have to work to shore up their domestic political strength. This could lead to greater political instability in Berlin as the coalition parties are less willing to compromise their positions. This in turn could spill over into EU policymaking, undermining Berlin’s leadership role and increasing uncertainty at the EU level during a critical period for the bloc’s trade and industrial policy agendas. 

The Results of Saxony-Anhalt Regional Elections, Explained

The elections in Saxony-Anhalt delivered a historic victory for the AfD and a severe defeat for the CDU, which currently leads both Saxony-Anhalt’s regional government and the federal government in Berlin. The AfD — a populist right-wing party that is designated by Germany’s internal security service as a “verified right-wing extremist organization” — doubled its 2021 vote share from 21% to almost 44%, on the cusp of a majority. The CDU came in second but saw its vote share fall almost 20%. 

Post-election data shows the extent of the AfD’s victory. The party mobilized 170,000 new voters in an election with 1.3 million voters, and it also took 83,000 voters from the CDU. The party achieved the best result with every single age group of voters and was seen as more competent in every relevant policy area than the CDU. 

It is unlikely that the AfD will lead the state’s next government, however. The AfD is three seats short of an absolute majority in the regional parliament, and every other major political party has repeatedly ruled out cooperation. The AfD could theoretically govern with the support of the Alliance Sahra Wagenknecht (BSW), a populist left-wing party with 5 seats that barely achieved the 5% threshold to be admitted to parliament. However, the AfD has rejected working with BSW, since the latter would gain disproportionate co-governing leverage and the two do not agree on regional issues (such as education).

This leaves Saxony-Anhalt in a difficult political situation with no clear path to a stable regional government. The next most likely option is a minority government led by the CDU, Social Democrats (SPD), and the Greens, with support from the post-communist “The Left” (die Linke) — an awkward coalition that would struggle to agree on shared policy. There is no required timeline for electing a Minister President, so Saxony-Anhalt could enter a prolonged purgatory while the parties negotiate amongst themselves, with the current government acting in a caretaker capacity. Another possibility is the appointment of a technocratic government with backing from rotating majorities. 

Saxony-Anhalt’s Impact on Berlin

The AfD’s defeat of the CDU will increase pressure on Germany’s governing coalition, particularly on Chancellor Friedrich Merz (CDU). Merz is the most unpopular chancellor in Germany’s post-1949 history, and his personal popularity is widely perceived as dragging down the CDU across the country. Merz has also struggled with resistance within his party, such as the government’s debacle over electing new constitutional court judges. The Saxony-Anhalt results will almost certainly exacerbate dissatisfaction with Merz in the CDU. The election will also increase calls within the party for Merz to step aside. However, there are numerous hurdles to such a shift in leadership. Namely, there is no clear successor, and Merz has already made clear he has no intention of vacating the Chancellor’s office, which is the only feasible procedure to replace him. 

The SPD, the junior coalition partner in the federal government, escaped relatively unscathed from the Saxony-Anhalt elections, but also faces significant challenges. The state of Mecklenburg-Vorpommern will conduct elections on September 20, and polling shows the SPD falling 10% and coming in second to the AfD. Like with the CDU, this would add fuel to already existing internal dissatisfaction with the SPD’s leadership and will increase pressure on the party to turn its falling election results around. After the Saxony-Anhalt elections, SPD leader Lars Klingbeil stated that Berlin may have to reflect on the government’s reform agenda — signaling a potential walk-back from the government’s current prioritization of raising the retirement age to 67, reducing taxes on middle-class families, and cutting bureaucratic red tape. The SPD may reassert its fiscal policy ideas, like a wealth tax on the very rich.

While the AfD will likely not take power in Saxony-Anhalt, the national party will see itself as vindicated in its current strategy. In other words, the party almost certainly has no incentive to moderate or pursue compromises and will instead double down on its current hardline approach to key issues like immigration, Russia policy, and Germany’s relationship with the EU. Continuing to work from outside of government allows the party to exploit Germany’s economic troubles and political instability. 

The Risks for Germany on the European Stage

The most direct downside risk is that internal political pressure within both the CDU and SPD could undermine the coalition government. Ministers have managed differences on several policies, such as healthcare and pension reform, the direction of industrial policy, and relations with China. But increased internal pressure within political parties could incentivize CDU and SPD leaders to pander to their respective bases, making compromise — and policymaking writ-large — more difficult. This could result in a feedback loop, where perceived ineffectiveness of the coalition government increases, rewarding parties in the opposition. As with Merz’s pension reform agenda, controversial policy discussions may be increasingly delegated to commissions that are, in the public’s view, non-transparent and unelected. 

A weaker national CDU-SPD government could also lose credibility at the EU level and create conflicting policy signals. Moreover, if disagreements blow up, Berlin may intermittently disengage from what is happening in Brussels, much like the previous “traffic light coalition,” undermining Berlin’s leadership in the bloc. Increased pressure on CDU and SPD leadership could also steer the government toward zero-sum and short-term thinking so as not to increase their unpopularity. For example, Germany will likely take a tougher stance on decreasing the size of the EU budget and oppose further EU-level debt issuance, like for the €90 billion loan to Ukraine in December 2025. Germany could also slow down its advocacy for EU enlargement, to the chagrin of countries like Ukraine and Montenegro. 

The rise of the AfD could also increase distrust from Germany’s neighbors. Polish Foreign Minister Radoslaw Sikorski suggested that the AfD’s election victory could be a “cause for concern” for Germany’s current rearmament, hinting that a “rearmed Germany in the hands of a far-right” party is what led to the Second World War. France, like Poland, may view German power as a risk itself due to the prospect of a nationalist-populist government in Germany. While there are already policy differences between Paris and Berlin on defense issues, the euroskeptic AfD would radically diverge from Paris on defense priorities, spending, and threat perceptions. And although France is a nuclear power, it does not have the fiscal room for the same conventional build-up as Germany, which could intensify an imbalance fueling distrust.

Another downside risk is that Germany’s political turbulence could alter the trajectory of European trade and economic policy. The EU is slated to meet in October to discuss China policy and the bloc’s trade relationship with China, and member states have increasingly called for a more hawkish approach. Berlin has historically acted as a brake on tariffs or quotas on Chinese goods, fearing retaliation on German industrial exports. But under Merz, Germany has inched more hawkish, joining France on a white paper calling upon the European Commission to present trade policy options to rectify a growing trade imbalance. A coalition under additional strain could push Berlin back to its past policy of emphasizing trade with China and minimizing trade conflicts, which could undermine any attempt to develop a more united European policy on China.

A similar unpredictability dynamic is present in the bloc’s approach to industrial policy. This fall, EU lawmakers and members will develop the final text of the Industrial Accelerator Act (IAA), which aims to stimulate the EU’s manufacturing base and overall demand for low-carbon technologies. France and Germany are already split over how far the IAA should go. Berlin prefers less “Made in Europe” procurement rules in order to avoid retaliation from trading partners. France, whose EU Commissioner is responsible for the IAA, embraces those procurement rules and other European industrial policy, like inbound investment screening. Germany’s political instability could create erratic or contradictory policy positions as negotiations occur, creating uncertainty around the EU’s overall direction on industrial policy and trade relationships. This is particularly important since “Made in Europe” has the potential to expand to cover other policy areas, such as defense procurement and technology products like cloud computing.

In sum, the election results from the small state of Saxony-Anhalt have implications far beyond the region. Both the CDU and SPD leadership are increasingly under pressure to reassert their authority within their party and among their voters, intensifying policymaking friction and potential disagreement among the coalition. Businesses will have to contend with the possibility of increased political instability in Berlin and potentially Brussels. 

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