In the recent state elections in Thuringia and Saxony, Germany, the far-right Alternative for Germany (AfD) party made historic gains, signaling a profound shift in the nation’s political landscape. In Thuringia, the AfD secured an unprecedented victory with approximately 32.8% of the vote, marking the first time since World War II that a far-right party had won a state election. In Saxony, the AfD finished a close second, with nearly 31% of the vote, just behind the Christian Democratic Union (CDU). This surge in support reflects a growing trend of disillusionment with mainstream parties, particularly in eastern Germany, where economic stagnation, social grievances, and opposition to the federal coalition government have fueled the rise of populist movements. As traditional centrist parties like the Social Democrats (SPD), Greens, and Free Democrats (FDP) lose voter confidence, the AfD’s success highlights broader anti-establishment sentiment sweeping across the region. Despite their electoral gains, the AfD remains politically isolated, with no major party willing to form a coalition with them, complicating the governance structure at the state level and illustrating the deepening fractures within Germany's political order.
datasource: FRED
The geopolitical shift toward right-wing populism in Europe can be explained by a series of interconnected factors that have created a fertile ground for such political movements. A major driver is economic discontent, particularly in regions facing stagnation and industrial decline. Many voters, feeling left behind by globalization, have turned to right-wing parties that promise protectionism and economic nationalism, framing themselves as defenders of ordinary citizens against global elites. The backlash against immigration and the influx of refugees in 2015 further fueled this shift, as right-wing parties like the AfD capitalized on fears about cultural identity and national security. The erosion of trust in traditional political institutions has deepened this trend, with populist parties positioning themselves as anti-establishment forces challenging the status quo. These dynamics, coupled with security concerns arising from the war in Ukraine and the ongoing energy crisis, have intensified the appeal of right-wing populism. By leveraging social media platforms, far-right movements have bypassed mainstream media, amplifying their messages and further fragmenting the political landscape across Europe.
Internal Factor: Rigid Governance Structure
The rise of right-wing populism in Europe can be traced to structural rigidity within many of the continent's political systems. European countries, especially those like Germany, France, and Spain, operate within parliamentary frameworks that often resemble the Westminster model. This structure tends to favor established political parties and slow, incremental changes, rather than rapid reforms. Such inertia can, over time, build political frustration, particularly when mainstream parties fail to address evolving voter concerns. This accumulation of dissatisfaction creates fertile ground for populist movements to thrive, as they offer themselves as alternatives to an establishment perceived as stagnant and unresponsive.
In Germany, the political system's entrenchment is particularly evident in its strict adherence to the Schuldenbremse (debt brake), which limits fiscal flexibility and curtails the government’s ability to respond to economic shocks, such as those caused by the COVID-19 pandemic and the energy crisis spurred by the war in Ukraine. As the government prioritizes fiscal conservatism, voters increasingly feel that their concerns, particularly over rising costs and stagnating wages, are not being adequately addressed. This perceived disconnect between the political elite and ordinary citizens has been a key factor in driving support toward parties like the AfD. The structure of European political systems, designed to promote stability and incremental progress, may inadvertently fuel the very populist discontent they aim to prevent, creating a gradual but powerful shift toward right-wing alternatives.
External Factor: Geopolitical Contest
External geopolitical pressures have significantly contributed to the rise of right-wing populism across Europe, particularly in Germany. The ongoing war in Ukraine has had a profound impact on European economies, exacerbating pre-existing vulnerabilities and creating new ones. The sanctions imposed on Russia and the disruption of energy supplies have led to soaring energy prices, which in turn have fueled inflation and increased the cost of living across the continent. This has disproportionately affected lower-income households, fostering resentment against the political establishment. Right-wing populist parties, like the AfD, have capitalized on these hardships by framing the economic crisis as a result of misguided geopolitical decisions, particularly those made by the European Union and NATO, which they argue prioritize international interests over domestic well-being.
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Moreover, many Europeans, particularly in Western Europe, view the Ukraine conflict as a distant issue, disconnected from their immediate concerns. While policymakers emphasize the need to support Ukraine to uphold European security and democratic values, voters often perceive this support as a drain on resources that could otherwise be used to address pressing domestic challenges. Right-wing parties exploit this disconnect by advocating for a nationalist agenda that prioritizes domestic economic security over foreign interventions. This has led to growing skepticism about international alliances like NATO and the EU, with calls for a more isolationist approach to foreign policy, echoing traditional nationalist rhetoric.
CAS not Marx
The AfD is often perceived as a monolithic far-right party, but in reality, it operates more like a complex-adaptive system (CAS), characterized by internal contestations and evolving factions. Unlike a rigid Marxist interpretation that would view the AfD as a static representation of class-based interests, the party’s dynamics are far more fluid and adaptive to the changing political landscape. This internal complexity manifests in regional differences, generational shifts, and ideological divisions, all of which contribute to its ability to attract a diverse voter base, from young social media-savvy individuals to older, more traditional voters.
Within the AfD, there are several factions competing for influence, each with different strategic goals. Figures like Björn Höcke, a prominent hardliner, represent the more radical, nationalist wing, calling for cultural revolution and more extreme positions on immigration and national identity. Meanwhile, other factions within the AfD seek a more pragmatic approach, aiming to position the party as a viable governing partner for conservative forces, particularly in the economically liberal West. These internal tensions reflect the AfD’s broader challenge: balancing its radical elements with the political realities of operating within Germany’s parliamentary system, where coalition-building is key to governance.
The rise of the AfD among younger voters, particularly in Eastern Germany, further complicates its internal dynamics. As recent commentary from NZZ noted, many young voters see the AfD not as an extremist party but as a centrist option that directly addresses their concerns about immigration and economic hardship. The party’s success in using social media to bypass traditional media channels has allowed it to communicate effectively with this demographic, shaping political discourse in a way that transcends conventional left-right divides. This fluidity of identity and strategy within the AfD is emblematic of a CAS, where adaptability and internal diversity enable the party to respond to shifting external conditions and voter sentiments.
Similar Rift in France
Similar to the AfD, France's far-right Rassemblement National (RN), led by Marine Le Pen, has undergone significant internal transformations and strategic shifts, seeking to broaden its appeal beyond its traditional voter base. Both parties, while maintaining their roots in nationalist and anti-immigration rhetoric, have attempted to present themselves as more centrist and pragmatic to gain political legitimacy and expand their influence.
In the case of the RN, Marine Le Pen has pursued a strategy of "de-demonization" (dédiabolisation), which involves distancing the party from its earlier, more extremist image under her father, Jean-Marie Le Pen. This process has included softening the party's stance on controversial issues such as Euroscepticism and immigration. By toning down the radical rhetoric and focusing on broader economic and social issues, such as unemployment and the rising cost of living, the RN has sought to position itself as a protector of the working class and a viable alternative to the mainstream parties, which are often seen as disconnected from ordinary citizens' concerns.
This mirrors the AfD's efforts in Germany, particularly among younger voters, who see the party as a centrist force capable of addressing issues like migration and economic insecurity in a straightforward and relatable manner. Both the AfD and RN have successfully used social media to engage with these new voter bases, portraying themselves as anti-elite, anti-globalist movements that prioritize national sovereignty and protect domestic interests against what they frame as the failures of the EU and the political establishment.
However, these attempts to appear more centrist are not without internal tensions. In both the AfD and RN, there remain factions that favor a return to more radical, nationalist positions. In the RN, this tension is exemplified by figures who oppose Marine Le Pen's moderation strategy, arguing that the party risks losing its core identity. Similarly, in the AfD, the more radical nationalist wing led by Björn Höcke resists any attempts to soften the party's stance, believing that its success lies in maintaining a clear, uncompromising message on issues like immigration and national identity.
Bloc dans le Bloc: Eastern Europe's Rise within the EU
The Financial Times (FT) analysis of the AfD highlights a broader tension within the far-right movements across Europe, particularly regarding their approach to governance and integration within the EU. The internal debates within the AfD—whether to maintain a radical, anti-establishment stance or moderate their positions to gain political power—reflect a larger question about the future of the EU itself. The rise of far-right populism, as seen in parties like the AfD, the Brothers of Italy (FdI), and the RN in France, is challenging the EU’s traditional structure, pushing for a shift away from deeper integration toward a more intergovernmental approach that emphasizes national sovereignty.
Rather than outright disintegration, a more likely trajectory is a loosening of the EU’s structure, where member states seek greater autonomy in areas like immigration, fiscal policy, and energy. This gradual shift could be driven by far-right parties advocating for the protection of national interests while still maintaining the economic and geopolitical benefits of EU membership. This "ASEAN-style" model, characterized by intergovernmental cooperation with less supranational oversight, could reduce tensions between member states with differing priorities, particularly as Euroscepticism continues to rise in Western Europe.
At the same time, the Eastern European bloc within the EU—comprising countries like Poland, Hungary, and the Baltic states—is likely to become stronger and more cohesive. These nations, often skeptical of EU overreach but supportive of a united stance against Russian aggression, have grown increasingly assertive in shaping the EU’s foreign and security policies. The war in Ukraine has solidified the importance of these countries as key players in the EU’s defense posture, and their alignment on security issues could lead to a more fortified Eastern bloc within the EU. As a result, while the overall EU structure might loosen, with Western states like France and Germany pulling back on integrationist policies, the Eastern bloc could push for stronger collective security and defense mechanisms, ensuring the EU remains a formidable geopolitical force.
The Euro: The Touchstone
The Euro (EUR) could become a crucial focal point in the debate about the future of the European Union (EU), particularly if right-wing populist movements like the Alternative for Germany (AfD) gain more political power. As both an economic mechanism and a symbol of European integration, the Euro binds EU member states together, requiring coordinated fiscal policies and shared monetary control. This makes it a central issue for Eurosceptic parties, which have long criticized the Euro for eroding national sovereignty and limiting economic flexibility. For these movements, especially the AfD, the Euro is deeply intertwined with broader concerns about EU governance, as it represents a significant loss of control over domestic monetary policy.
The Euro, introduced in 1999, was a political as much as an economic project, signaling the deepening of European integration. Member states within the Eurozone must adhere to strict fiscal guidelines under the European Central Bank (ECB), limiting their autonomy over national economic policies such as interest rates and currency management. Right-wing parties, particularly the AfD, have critiqued this arrangement as inherently flawed, especially during crises like the Eurozone debt debacle or the COVID-19 pandemic, which exposed the difficulties of a uniform monetary policy across economically diverse countries. Countries like Italy and Greece face vastly different economic realities than Germany or the Netherlands, and this divergence fuels Eurosceptic arguments that the Euro unfairly penalizes more financially disciplined countries.
Eurosceptic parties, such as the AfD, advocate for reforms or flexibility within the Eurozone structure, arguing that the rigid fiscal constraints imposed by the Euro prevent countries from responding effectively to economic crises. This debate has led to discussions about a possible "looser" EU, akin to a model like ASEAN, where economic cooperation could continue but with greater national control over fiscal policies. Some even suggest that certain countries might opt to leave the Euro or establish parallel currencies, though this would be a complex and potentially destabilizing process. Nonetheless, these discussions reflect growing dissatisfaction with the Euro’s constraints and the desire for reforms that prioritize national sovereignty over deep integration.
One of the central challenges to the Euro’s stability is the economic divergence between member states. While countries in Southern Europe grapple with high debt and stagnant growth, fiscally conservative nations in the North maintain stronger economies and push for stricter budgetary discipline. This has led to tensions within the Eurozone and given rise to populist parties that see the Euro as exacerbating economic inequality between member states. For the Euro to remain viable, it requires political will and a commitment to economic convergence, but the growing influence of Eurosceptic parties threatens this balance.
There are several potential outcomes for the Euro. One possibility is that the Eurozone remains intact but undergoes reforms to address the political and economic grievances of Eurosceptic parties. These reforms could include more flexible fiscal policies or greater fiscal transfers between member states. Alternatively, there could be a partial disintegration of the Eurozone, where countries might choose to exit the currency union while maintaining other forms of EU membership. A third possibility is that the Euro could continue to exist within a looser EU structure, allowing countries to opt out of certain policies while still using the common currency. Each of these outcomes would require significant political negotiation and could fundamentally alter the nature of European integration.
Germany and France, as the two most influential members of the EU, will play a central role in shaping the future of the Euro. If parties like the AfD or other Eurosceptic movements in key countries gain power, it could lead to a fundamental rethinking of the EU’s economic and political architecture. A more flexible Eurozone might emerge, with varying levels of integration depending on each country’s economic priorities and political stance. However, such a shift could also weaken the EU’s ability to project power globally and maintain its influence on the international stage.
Empirical Findings
Our economic findings underscore the potential trajectory towards a looser European Union (EU) structure, driven not by the desire for outright disintegration, but by practical considerations arising from divergent national economic performances. The analysis of industrial production indices for Germany, France, Sweden, and Spain reveals a complex picture of how European economies have fared under shared external pressures, such as energy price fluctuations, the European Central Bank (ECB) policies, and the effects of the COVID-19 pandemic. This divergence in economic strategies and outcomes supports the idea that a more flexible, intergovernmental EU structure may be a natural response to these challenges, rather than a path towards fragmentation.
Germany, traditionally an industrial powerhouse within the Eurozone, has faced significant hurdles since 2022, with industrial production declining in the face of rising energy costs and global supply chain disruptions. The country’s conservative fiscal policy, especially its adherence to the Schuldenbremse (debt brake), has limited its ability to engage in aggressive stimulus measures to counteract these economic shocks. This approach, while maintaining fiscal discipline, has left Germany vulnerable to external shocks, creating frustration among its populace and fueling the rise of right-wing populist movements like the AfD, which advocate for protectionist and anti-EU policies. In contrast, France has managed to maintain relatively stable industrial production by relying heavily on government subsidies. This subsidy-driven model has temporarily shielded the French economy, but it raises long-term questions about sustainability, especially in the face of rising debt levels and potential fiscal tightening.
The case of Sweden, which has emerged as a leader in post-COVID economic recovery, demonstrates the effectiveness of innovation-driven growth. By focusing on R&D investment, green technologies, and labor market flexibility, Sweden has managed to not only recover but thrive in key sectors, particularly in high-tech industries. Sweden’s success contrasts sharply with both Germany’s cautious fiscal approach and Spain’s more moderate recovery, which has been bolstered by tourism, renewable energy investments, and labor reforms but has not yet reached the dynamism seen in Sweden. These disparities illustrate the challenges of applying a one-size-fits-all monetary policy within the Eurozone, as countries with different economic strengths and vulnerabilities react to crises in diverse ways.
Given these findings, it becomes clear that the Eurozone’s economic framework—centered around a single currency and uniform fiscal rules—may no longer suit the evolving realities of its member states. The rise of right-wing populism, particularly in Germany, is closely tied to economic discontent, and the continued decline of the country’s industrial sector could lead to further political destabilization if not addressed. The AfD’s Eurosceptic rhetoric, which calls for more national sovereignty and less EU interference, finds fertile ground in this environment. Similarly, in other parts of Europe, particularly in Southern and Eastern Europe, growing frustration with the constraints of the Euro has fueled calls for reforming or even loosening the EU’s economic structure.
At the same time, avoiding a full-scale disintegration of the EU remains crucial to preserving European stability, especially considering the historical conflicts between nations like France and Germany, which were once divided by intense rivalry. The memory of Bismarckian politics and the devastation of two World Wars looms large, serving as a cautionary tale against the risks of abandoning European unity. A completely fragmented EU could potentially reignite old tensions, something that European leaders are keen to avoid. Instead, the push towards a more intergovernmental EU—where countries retain greater autonomy over economic policy but still cooperate on key issues like security and trade—could be a more viable path forward.
In conclusion, our economic analysis supports the notion that the Eurozone and the EU might be heading towards a more flexible, looser structure, one that can accommodate the varying economic realities of its member states while maintaining overall cohesion. This trajectory, while mitigating the risk of full disintegration, allows for greater national sovereignty, addressing the concerns of populist movements without unraveling the European project. The challenge for European policymakers will be to balance these competing demands, ensuring that the EU remains both economically viable and politically stable in the years to come.
In Episode 6 of Geopolitical Insights, we explore the growing wave of right-wing populism sweeping across Europe, with a particular focus on Germany's recent state elections. This episode unpacks how economic struggles, political disillusionment, and social grievances have led to the rise of far-right movements. As these forces challenge the stability of traditional political structures, we delve into the deeper implications for governance and the future of European politics. From the fragility of democratic accountability to the rigidity of governance systems, this episode sheds light on how the balance between stability and change is being tested across the continent. Get ready for a comprehensive exploration of a movement reshaping the geopolitical landscape.
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