German Chancellor Friedrich Merz spent Sunday fearmongering on public broadcaster ARD, warning that a potential victory for Alternative for Germany in next Sunday's Saxony-Anhalt election could inflict economic damage on the region.
Merz's assessment conflicts with Nomura's political analysis, which suggests investors no longer reflexively fear right-wing victories. Instead, markets are increasingly focused on the economic consequences of left-wing policies, particularly deindustrialization, elevated energy costs, and uncontrolled mass migration, all of which have been nothing short of nation-killing.
"If things turn out the way the polls suggest, this federal state will face significant problems," Merz told broadcaster ARD. He questioned whether international companies would invest or build factories in a state governed by an AfD premier.
Polls show the AfD attracting more than 40% support, potentially double the roughly 20% backing for Merz's Christian Democratic Union. The center-right party has governed Saxony-Anhalt for more than two decades.
"The state will suffer considerable damage if the scenario we currently fear comes to pass," Merz said during the interview.
An AfD victory this coming weekend could produce Germany's first state government led by the right-wing party.
Merz's fearmongering comes as his approval ratings are the lowest recorded for any postwar German chancellor. Economic troubles have rocked Europe's largest economy, while voters have grown increasingly frustrated with Berlin.
Andrzej Szczepaniak, a senior European economist and executive director at Nomura, wrote last week about "the seeds of political change" and noted that "politics in Europe is lurching towards more populism."
Szczepaniak said, "Five years ago, financial markets would not have seemed so at ease with such a prospect. But then again, these populist right-wing political parties were previously not as fiscally prudent as they are perceived to be today. Indeed, Italy's Giorgia Meloni is the standard-bearer for financial markets of how a populist right-wing political party can govern: fiscally prudent enough to show investors that the party can govern responsibly while focusing heavily on social issues, including immigration and culture wars, to keep grassroots supporters happy."
He added, "Financial markets are much more concerned about populist left-wing parties being elected due to their desire to increase spending, often paid for through higher borrowing or higher taxes, which are likely to shut the engine off of already stuttering economies."
Looking ahead, Szczepaniak noted that right-wing parties are positioned to make significant gains across Germany, France, Spain, Switzerland, and the UK over the next 18 months.
