(Bloomberg) -- Chancellor Olaf Scholz’s ruling coalition was punished in two regional elections in eastern Germany on Sunday, with populist parties on the extreme right and left taking more than 60% of the vote in Thuringia and almost half in Saxony.
The Alternative for Germany is on course for a clear victory in Thuringia on 32.8%, according to projections for public broadcaster ARD. It represents the first triumph for a far-right party in a German state ballot since World War II, even if it’s highly unlikely to be able to form a government as it’s shunned by the other parties represented in parliament.
The three members of Scholz’s alliance — his Social Democrats, the Greens and the Free Democrats — between them got less than 15% in each of the two states. The FDP got nowhere near the 5% threshold for getting into either regional parliament and the Greens fell short in Thuringia. The only mainstream party to do relatively well was the conservative CDU, which is projected to win narrowly in Saxony ahead of the AfD and finish second in Thuringia.
The results deal another bitter blow to Scholz and his deeply unpopular government and highlight the risk it faces ahead of the next national election due in just over a year. The picture looks equally dire for another state ballot in three weeks in Brandenburg — the region that surrounds the capital Berlin and is home to Scholz’s Potsdam constituency.
With Germany’s economy stagnating and migration topping voters’ concerns, nationwide support for the three ruling parties has dwindled to record lows. Backing for the conservative CDU/CSU alliance is on around 32% — roughly the same as the SPD, Greens and FDP combined — and the AfD, which has tapped into concern among some voters about impact of rising numbers of refugees, is in second place on about 18%.
Optimism that Germany would rebound in 2024 from two years of almost zero growth has faded as an anticipated jump in consumer spending failed to materialize and the country’s industrial sector continues to struggle. A lack of investment in basic infrastructure in recent decades has left a legacy that’s increasingly impossible to ignore.
Bickering within the ruling coalition over how to tackle the challenges facing the world’s third-largest economy, apparently without being able to offer effective solutions, has prompted many to reject the three governing parties.
Although not unexpected, the battering for the ruling parties in Saxony and Thuringia could prompt renewed calls for an early general election. It may also fuel debate about whether Scholz is the right man to lead the Social Democrats into the ballot next September.
Lars Klingbeil, a co-leader of the SPD, said Scholz retains the party’s full backing, while Kevin Kuehnert, the SPD general secretary, acknowledged that the results in the two regions also send a message to the national government in Berlin.
“We need to explain and communicate our policies more and much better, this applies not only for Saxony and Thuringia but for Germany as a whole,” Kuehnert said in an interview with ZDF television.
“We must become more self-confident within the ruling coalition and show much clearer to voters what the SPD stands for,” he added.
Despite its victory in Thuringia, the AfD — which authorities have classified as right-wing extremist in both regions that voted Sunday — has no clear path to forming a government.
In Sunday’s voting, a new far-left party, the Buendnis Sahra Wagenknecht, was on 15.5% in Thuringia and 12% in Saxony, according to early projections. Founded only in January after Wagenknecht split from the Left party, it’s likely to play a key role in attempts by mainstream parties to keep the AfD out of power in Thuringia.
All other political groups, including the BSW, have ruled out cooperating with the party — a firewall similar to the one that thwarted Marine Le Pen’s far-right National Rally in France after President Emmanuel Macron called a snap legislative election in June.
That should limit any possible impact on financial markets, which were unsettled by the rise in popularity of French fringe parties. Germany’s DAX index hit a new record last week, topping its previous peak of May 15.
Wagenknecht, whose party’s policies include stopping aid for Ukraine and curbing immigration, again ruled out any cooperation with the AfD in Thuringia. She indicated that she was ready to govern in a coalition with the CDU, which will likely need the Left party to secure a majority of seats.
“I don’t think that we’re seen by voters as an AfD light,” she told ZDF. “We are simply closing a representation gap in the political spectrum.”
Alice Weidel, a co-leader of the AfD, called the party’s performance “historic” and “a requiem” for the coalition in Berlin and said voters clearly want the AfD in government as the strongest party in Thuringia.
Scholz’s coalition “should be asking itself if it can even continue in office,” Weidel told ARD. While it’s unlikely to be able to convince any other party to join it in coalition, with more than a third of the seats in the state parliament it could potentially block major decisions such as judicial appointments.
The CDU’s solid performance Sunday could also impact the process of choosing a conservative chancellor candidate.
As things stand, the leader of the party, Friedrich Merz, seems likely to secure the nomination and can claim some credit for the success in Saxony.
However, a number of other hopefuls can’t yet be ruled out, including North Rhine-Westphalia Premier Hendrik Wuest and Bavaria Premier Markus Soeder, who leads the Christian Social Union, the CDU’s sister party in the southern region.
Merz has said the CDU and CSU will decide on their joint candidate after the Brandenburg vote. The final state election before the next national ballot is at the beginning of March in Hamburg, the port city where Scholz used to be mayor and his SPD rules in coalition with the Greens.
Some 3.3 million people were eligible to vote in Saxony, which borders Poland and the Czech Republic, and about 1.7 million in Thuringia.
(Updates with economic outlook from the fifth paragraph.)
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