Germany’s extreme right profited from economic decline. Keir Starmer should take note

Germany is the latest European country to shift to the right.   

As predicted, the centre-right Christian Democrats won the most seats in the Bundestag with 28% of the vote. Friedrich Merz – who left politics after a power-struggle with Angela Merkel and reputedly made millions in the finance sector – will become chancellor.   

The far-right, Alternative for Deutschland (AfD), made history by coming second and doubling their seats in parliament. Endorsed by Elon Musk, the party is classed as “in parts definitely right-wing extremist” by German intelligence services. With 20% of the popular vote, this was by far AfD’s highest ever polling.   

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During the election campaign Merz’ Christian Democrats (CDU) sparked outrage when they broke the post-war cordon sanitaire and collaborated with the AfD to push through a non-binding motion on migration. This prompted millions to take to the streets to demonstrate ‘gegen Rechtsextremismus’ (against right-wing extremism) ahead of election day. However, after his victory Merz categorically stated he would not cooperate with the far-right.  

This means Merz now needs to negotiate a coalition agreement with the third-placed centre-left, Social Democrats (16%). The Social Democrats (SPD) look set to stay in power despite achieving their worst result for more than 100 years. Germany is looking at a ‘GroKo’ – a Grand Coalition – of the CDU and SPD for the years ahead.   

The previous ‘traffic light’ coalition of the Social Democrats, Greens and Liberals collapsed due to splits on economic policy. Specifically the smallest coalition partner, the Liberals (FDP) wanted to cut social spending and support for Ukraine. Over three years in power the last government failed to inject any sense of economic optimism. Some more forward-looking policies – like a massive roll-out of heat pumps to replace gas in domestic heating – were poorly communicated.  

It’s notable that in the snap election the hardline anti-debt FDP did not reach the 5% threshold and are now out of the parliament altogether. Their demise should be a warning to the incoming coalition against sticking rigidly to arbitrary debt rules.   

The task now of an incoming CDU-SPD government is to instill stability and optimism via a programme for economic renewal. By any measure, Germany’s economy has been at a standstill. Once the powerhouse of Europe, decaying infrastructure, skilled worker shortages, lagging innovation and political division over debt and investments have contributed to two years of technical recession. 

Studies show economic decline is the primary factor driving the rise of far-right populism. The AfD gained everywhere, but especially in poorer regions.   

What people in these so-called ‘left behind’ places – like East Germany where AfD topped the polls – lack is future prospects. They need politicians to demonstrate that there are plans in place to halt the decline in living standards. Fail to do so and far-right populists will continue to capitalise on economic decline and disillusionment right across Europe.   

The CDU and SPD need to form a coalition based on a forward-looking vision for the economy. They must take the chance to leave the past – and the far-right – behind, with a positive programme that sets the course for an inclusive renewed economy.   

It is time to reform Germany’s outdated ‘debt brake’. This is the limit set in the constitution on debt as a proportion of GDP. Lifting the debt brake requires a two-thirds majority which should be possible with the support of the Greens and the Left from opposition. This would enable necessary and overdue investments, and is one of the things that can improve people’s day-to-day lived experience.  

Investments should go into industrial modernisation. Germany is still clinging to its traditional heavy industries and needs to replace old, polluting technologies with high-tech green ones. This industrial renewal can provide decent, secure long-term jobs. It will require large public and private investment and this must be carefully targeted in the sectors of the future and in forward-looking companies that are really on board with the transition. Blanket tax cuts to get the economy moving in the short-term would be a mistake.  

The new government must take a fresh look at the labour market. Again, a long-term approach is needed to make sure training and skills match the decent, secure jobs of the future.   

Germany is by no means an isolated case. The same populist playbook of exploiting people’s hardships and insecurities is playing out around Europe, including in the UK with the rise of Reform.  

Where governments fail to offer credible, long-term economic visions, voters turn to parties that make them feel heard and offer simplistic answers and scapegoats. Same-old economics are a gift to the extreme right. To leave the past and the populists behind, the new German government must embark on economic renewal towards the thriving, inclusive, low-carbon economies of the future.  

Jakob Hafele is the founder and managing director at the ZOE Institute for Future-Fit Economies.

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