Germany rocked as ghosts of Nazism haunt Merkel

The German election has gone much as expected but is still shocking markets, via the BBC

German Chancellor Angela Merkel has been re-elected for a fourth term while nationalists have made a historic breakthrough in federal elections, exit polls suggest.

Support for her conservative CDU/CSU alliance has dwindled but the bloc will remain the largest in the parliament.

Its current coalition partner, the social democratic SPD, says it will go into opposition following big losses.

The nationalist AfD is on track to become the third party.

The performance, better than forecast in opinion polls, means the right-wing, anti-Islam party will have seats in the Bundestag for the first time.

Dozens of protesters have gathered outside the party’s headquarters in Berlin, some with placards saying “Refugees are welcome”.

The problem is that Merkel’s CDU will need to form a coalition with the SPD to rule and that will leave the  AfD as the official Opposition:

The question whether or not the AfD is a Nazi party is moot but one parallel that we can see is that this is rather similar to how the Nazi’s gained power in the Reichstag in 1928 then 1930. They then blocked supply and blamed the Weimer parties for successive crises of government. Thankfully Germany’s parliamentary system is more stable today.  Via Reuters:

The first far-right party set to enter Germany’s parliament for more than a half a century says it will press for Chancellor Angela Merkel to be “severely punished” for opening the door to refugees and migrants.

The Alternative for Germany (AfD), which has also called for Germany’s immigration minister to be “disposed of” in Turkey where her parents come from, could become the third largest party with up to 12 percent of the vote on Sept. 24, polls show.

That is far less than similar movements in other European countries – in France far-right leader Marine Le Pen won 34 percent of the vote in May and in the Netherlands far-rightist Geert Wilders scored 13 percent in a March election.

But the prospect of a party that the foreign minister has compared with the Nazis entering the heart of German democracy is unnerving the other parties. They all refuse to work with the AfD and no one wants to sit next to them in parliament.

Leading AfD candidate Alexander Gauland denies they are Nazis, saying others only use the term because of the party’s popularity. It has won support with calls for Germany to shut its borders immediately, introduce a minimum quota for deportations and stop refugees bringing their families here.

“We’re gradually becoming foreigners in our own country,” Gauland told an election rally in the Polish border city of Frankfurt an der Oder.

A song with the lyrics “we’ll bring happiness back to your homeland” blared out of a blue campaign bus and the 76-year-old lawyer said Germany belonged to the Germans, Islam had no place here and the migrant influx would make everyone worse off.

Gauland provoked outrage for saying at another event that Germans should no longer be reproached with the Nazi past and they should take pride in what their soldiers achieved during World War One and Two.

Anyway, the immediate reaction in markets is EUR down sharply on a sudden and rather unpleasant splinter of political risk appearing at the heart of Germany.  USD is up accordingly:

The Aussie has dropped 15 pips as well at the open.

Longer term, the results are not all bad for Europe. The SPD is very pro-Europe so its inclusion in a unity Merkel government will push fiscal integration forward, perhaps even culminating in Eurobonds and greater Eurozone fiscal spending. I humbly suggest that now is the time to do it given the rise of the far-Right.

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