The Alternative für Deutschland (AfD) is Germany's far-right political party, which won a major political victory in the former East German state of Saxony-Anhalt this weekend, possibly giving it a chance to govern. If that happens, this will be the first far-right government in Germany since the fall of the Nazis in 1945, which, in itself, is a reasonable cause for concern.
The questions to be asked are why has this happened, and why is the far right in Germany so much more extreme in its views than many of that persuasion found in Italy and the UK, for example, not that those in either of those places hold views that I could ever embrace or accept as a basis for government?
Whilst some of the causes are similar to those that have given rise to far-right populism in countries from the USA onwards, others are peculiarly German, and none more so, apart from the process of assimilation of the former East Germany into the greater Germany we have witnessed for more than 30 years now, than Germany's constitutionalised austerity.
This form of austerity, which is called the Schuldenbremse, or debt brake, was written into Germany's Basic Law, or constitution, in 2009 under Angela Merkel's first government. Under the original rule, the federal government was constitutionally limited to a structural deficit of 0.35 per cent of GDP, while the sixteen Länder were prohibited from structural borrowing altogether. Changing this constitutional rule required a two-thirds majority in both chambers of parliament, which has proved almost impossible ever since.
Since then, Germany has, in effect, made the neoliberal belief that government borrowing is inherently dangerous and should be minimised a core feature of its constitution, placing it largely beyond ordinary democratic choice whatever politicians might wish to propose.
The rule itself reflected the peculiar German ordoliberal political culture, in which fiscal restraint, monetary stability and rules constraining discretionary government action have acquired an almost moral status.
In one narrow sense, it worked. German public debt fell, as the rule demanded, from around 80 per cent of GDP after the financial crisis to approximately 60 per cent before the pandemic. The Schwarze Null, or the “black zero”, as it has become known, became a symbol of German fiscal virtue.
There was, however, another side to this supposed success. It represented institutionalised austerity, and the consequence was that Germany, inevitably, chronically underinvested. Almost all aspects of the physical infrastructure on which a modern economy depends were allowed to decay. The same trend was also seen in German business, as the declining fortunes of the VW Group appear to symbolise. The books balanced, but at an enormous cost in terms of opportunities lost within people's everyday lives.
The impact has been seen right across Germany, but most especially in the regions that previously formed East Germany, which had suffered an extraordinary economic shock after reunification. There, industries disappeared, unemployment soared, and productive assets passed into western German and foreign ownership. People suffered both political transformation and economic dislocation.
The hope that investment might eventually close the gap between east and west was disrupted and then blocked by the “black zero” policy. The gap never disappeared as a result, while population decline, weaker economic opportunities and the departure of large numbers of younger people in pursuit of opportunities elsewhere compounded the problems in the former eastern states, such as Saxony-Anhalt.
This is not the sole reason for the rise of the far-right AfD in Germany, but that party's popularity in the former East German states is much higher than in those previously part of West Germany. Other factors, such as hostility to immigration, have played a part, but the debt brake that has fuelled austerity has led to distrust of government, institutions, reunification and political elites by creating the economic insecurity in which those sentiments can flourish. When mainstream politics abandons people to their fates, as the neoliberal debt brake did, they have no reason left to invest in the political consensus.
The AfD has exploited that. It has been all too easy. Democracy depends upon the possibility that elections can produce meaningfully different outcomes, but German voters have seen that this is not possible by voting for the formerly mainstream parties in their country. Even if those voters wanted better public services, improved infrastructure, more housing, or investment in the climate transition, the constitution said the government could not use its fiscal capacity to deliver them, meaning political choice was constrained before any election took place.
That is the fundamental problem with Germany's debt brake. Like independent central banks, it was presented as a protection against irresponsible politicians, but in the process it protected a corrosive economic ideology from democratic challenge.
By 2023, the contradictions had become impossible to ignore. Germany's economy was stagnating, infrastructure investment was desperately needed, and the energy shock following Russia's invasion of Ukraine had exposed weaknesses in its industrial model, but the FDP, a coalition partner in the German government, insisted that the debt brake should still apply.
Then, in 2024, Germany's Constitutional Court ruled that a plan to use €60 billion of funding previously thought to be available was illegal, and Germany's government, as a result, lacked the ability to face the economic crises the country faced. Its coalition government collapsed in November 2024 and, in the election that followed in February 2025, the AfD won 20.8 per cent of the vote, roughly doubling its previous share and becoming Germany's second-largest political party.
In response, in March 2025, Germany finally amended its constitution, but only to exempt defence and security spending above one per cent of GDP from the normal debt-brake calculation. At the same time, a €500 billion infrastructure fund was created, and individual states were given additional borrowing capacity.
However, the message was clear. Defence appeared more important than meeting need, and the challenges this created were apparent. If Germany could find the fiscal capacity for defence, why could it not do so for railways, bridges, housing, public services and the climate transition? The question answered itself. It was not that Germany lacked money. The constraint was very obviously political, and unacceptable to many people.
The AfD has exploited this dissatisfaction. This is not to say that the rise of the German far right is all the result of this fiscal policy, but it is hard to avoid the suspicion that the debt brake helped create the conditions in which the far right could prosper. It constrained investment, weakened public infrastructure, limited the choices available to democratic governments and encouraged voters to believe that changing governments did not necessarily mean changing outcomes.
There is in all this the most massive warning.
German fascism is, in no small part, a reaction to neoliberal austerity.
It is also a reaction to arbitrary and unjust fiscal rules.
And it might just as much be a reaction to inappropriate monetary policy as well, imposed by central banks that are out of touch with need.
All of these policies are sold as protection against irresponsible politicians. In reality, they became protection for an economic ideology that undermined democracy itself by undermining the entire economic infrastructure it was claimed it was meant to protect.
Germany constitutionalised austerity, and it is now discovering the political price of doing so.
So might many other countries, very soon, the UK included: its independent central bank could create similar outcomes.
No wonder I am saying now is the time for a revolution that requires government to turn around and stop facing neoliberal market rules, and instead face the people it is meant to serve. Unless it does that, the price might be very high indeed.
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I visited Dresden with my then girlfriend twice in the years immediately after reunification to enjoy the heady combination of coal fired paddle steamers and narrow gauge railways – Richard you must go!
My girlfriends comment was that she saw the ‘Wessi’s’ coming in to run the place and the ‘Ossi’s’ not benefiting from the situation.
Now we are seeing the political consequences
That’s a good post having, to borrow a phrase, much to agree with. The black zero is a terrible idea that inhibits the wellbeing of Germans. However, given that Germany is part of the Eurozone, it is merely reflecting the policy of the EU as a whole.
I do wonder if black zero, bad as it is, is really the main problem. The wealth Gini index in Germany is about 0.75 with 10% of the population, presumably mostly in West Germany, owning 60% of the wealth, while the bottom 50% own only about 2% to 4%. This compares with a wealth Gini index in the US, one of the highest in the world, of 0.77, and in the EU as a whole (and UK) of about 0.6.
Whilst a black zero deficit limit restricts the German government it could be overcome by taxing the wealthy (not a wealth tax) to reduce inequality. Whilst not increasing the amount of money in the economy this would likely increase the velocity of money and thereby boost the economy as well as directly reducing inequality. Increasing the deficit, by contrast, might boost GDP, but much of this would likely go to the already wealthy and actually increase inequality.
If I try to see the situation from the perspective of the bottom 50% of the German population, I see ever growing inequality as inherited wealth is passed down the generations. And, from their perspective, I see immigration as providing cheap labour for the wealthy whilst competing with the less wealthy. This gives an opportunity for far right politicians to leverage inequality via demonizing immigrants.
So, perhaps, inequality is the real issue not restricted government “borrowing”.
How do you reduce inequality without spending? Wasn’t that the issue I was pointing out?
I think we are fundamentally very much in agreement. 🙂
Yes, you do need spending. This spending can come from “borrowing” or money creation (thought obviously not in Germany or elsewhere in the Eurozone). When this happens it typically finds it’s way to the already wealthy (QE). Sure, this need not happen but it would require a raft of other changes to avoid it.
The alternative, which seems viable (at least for the medium term) is to redistribute wealth directly through progressive taxation. The government can spend without borrowing. It might also include your ideas about government bonds for public spending. So I’m saying you don’t have to have austerity even if you have restricted deficit spending. Or, at least, that is so whilst you are able to unwind the financial inequality in society through progressive taxation.
But my key point is that it is the inequality, leading to discontent, leading to political instability, and then the election of far right candidates, that is the more immediate problem than lack of deficit spending.
Tim
Borrowing does not fund spending.
And MMT applies in Germany fur all practical purposes.
And givernmemt ALWAYS borrows to spend. All money is debt. It cannot be created in any other way.
Your comments are very confused
Richard
Even without the “black zero” the German government’s deficit would still be restricted by the Maastricht Treaty, which limits deficits to 3% of GDP and overall debt to 60%. This was further entrenched by the adoption of the Stability and Growth Pact. Of course the restrictions were partially suspended when the banks needed bailing out in 2008, and also for COVID, but the lessons there have been ignored, as usual. Neoliberalism is a religion with dogma that is resistant to any evidence rather than an academic body of theory.
Agreed.
But Germany went further.
I know nothing of European politics. The people running this country would have been impressionable teenagers and young adults when Margaret Thatcher was in power? Wasn’t she the one who said “there is no such thing as society”. If you raise on a nation on that, then that is what is going to be perpetuated long after she has gone. I know the problem is incredibly complex and you can’t point to one thing and say, ahh that is where the issue started, I don’t want to take a sledgehammer to a nail. But it appears since then, there has been a decline in the fabric of the country. We no longer see each other as fellow humans, with complex needs, a country of collectivism, values, morals and standards. It has become “business-fied”. And it appears to have seeped into every aspect of life, culture, values and morals. Everyone see’s themselves as an individual, an island of one, having to look out for themselves, compete, fight, sell themselves, standout, be more productive, work harder. Everyone is now a number on a spreadsheet, targets rule, money has become religion. No wonder the far-right have a monopoly, they have won. If we want to move past this, a level of human spirt has to be focused on, move away from money, to values, emotions, morals, care. We are humans, not a business to be managed.
The right has not won. They are still a minority.
They do, admittedly, have the money.
I’m sure that I am not the only one thinking that this is a ‘Wake up call’ for the eurozone. It wasn’t long ago that Germany cannibalized the budget for its railway system under Merkel (well done Angela) to pay for other stuff (the railway system efficiency suffered, and accident rates went up).
I get really angry when confronted by fascists. They’re just inhuman to me because they’re thoughtless. The results of their thoughtlessness stains human history.
However, the best thing to kill off fascism is by using kindness and care – pointed out here very often. We knew that once and we need to relearn it and right quick.
Agreed
I think it’s fair to say that the far right is now becoming the new normal, thanks to the factors you’ve outlined. Here’s a list of the extent of at least some of the far right control around the world. We can also see at home that the far right agenda is significantly changing the policies of what were once considered to be moderate governing political parties. So what can we look forward to next? Warlords?
1. Dominant Executive Control (Heads of Government / Absolute Power)
United States
Hungary
Italy
Argentina
El Salvador
Poland (Divided Control)
2. Power via Coalition (Governments and Junior Partners)
The Netherlands
Finland
Slovakia
Czech Republic
Croatia
3. Power via Supply-and-Confidence Pacts
Sweden
I think you are overstating your case. I am wary of the right. But Italy is not in the same group as the USA.
Meloni is constrained by economic issues and the need for a close relationship with the EU. But she will be pushed to the right by more extreme elements in Italy on immigration and “welfare”. If fascism is the fire, Neoliberalism is the accelerant.
“neoliberal market rules” = make the rich richer whilst stamping on the faces of the poor (& make the middle classes poor as well).
I was not shocked at all about what happened here in Germany yesterday.
It was completely clear for me that this “Alternative” had not to worry about an Alternative, there simply wasn’t / isn’t one.
And from the interviews afterwards,…. the politicians of the loser parties NEVER questioned what they did.
They obviously did nothing wrong at all and only questioned if they should & could have communicated it better.
No insight whatsoever.
If the AfD would have, in a different world, lost massively, what would have happened?
The other parties would have patted each others back, kept talking about it for at best 2 more days and then…. would’ve forgotten where Saxony-Anhalt actually is.
As you say, if one looks at a map with the most current polls, the whole lot of Eastern Germany is blue (the color of the AfD) but there is, at least at the moment, no blue land in Western Germany (they’re still strong obviously there as well).
It’s like having the wall back.
You summed up the whole history that lead to this very well.
And I also think that the financial system is the biggest issue for that result.
Thanks to you I’m at least able to think of an alternative and I’m writing about it where I can.
I think at the moment the soil is a bit more fertile, and if nothing else it at least gives consolation to despairing people that think this will be the 1930s / 40s all over again.
Thinking of this the Weimar Republic was doing devastating austerity as well before the 3rd Reich came to power.
So, difficult to say they’re completely wrong.
Thank you
Very timely Richard – to characterise the ‘baked in austerity, ‘ embedded in the constitution<p>
Apparently AfD have promised lots of new spending but say they will stick to the basic law on government debt. Total contradiction.<p>
The proto fascist economic narrative continued this morning on Radio 4 – quoting Rogoff ex IMF saying UK was the most vulnerable western country because of government debt. Government treasury secretary saying ‘we will balance the books ‘ – ‘we will cut spending to pay for defence etc.’ The interviewer had to push her time and again to say that – and once she said it you could sense the sigh of satisfaction by the BBC interviewer<p>
Thank you, Richard.
Let’s not forget some LibDems have called for Blighty to adopt the debt brake and even other bits of monetary union. That’s one reason to not vote LibDem. Plus they killed Rinka.
I worked for Deutsche Bank from 2016 – 21, but was often in Germany on EU regulatory policy matters the decade before. It was mad to observe the sado-monetarism infect the political and business elite as the infrastructure crumbled.
A former colleague used to work for the agency that privatised the former East German government assets, often abroad. “Buy one factory, get one free.” That was the English slogan. He explained how corrupt the system was (and is). Readers may be interested in Treuhandanstalt – Wikipedia.
Readers may not be aware that US investors are now the largest group in Germany. This facilitated not just by the big NYC banks, but the law firms and private equity firms that form the Wall Street eco-system. US investors are often micro-managers. For example, former colleagues report how their compliance and legal advice is sometimes challenged by US law firms. “Too cautious or conservative.”
I noted how, when China began to invest in and for the vehicles of the future, i.e. electric, and hire Europe’s best engineers in automotive and telecom, German manufacturers preferred to pay big dividends, often at the behest of aggressive US investors, and continue with ICE rather than go electric or even hybrid. Real engineering beats financial engineering, but ordinary people pay the price.
I don’t see a good ending for Germany. Merz is BlackRock. Weidel is Goldman Sachs. Pick your poison.
You don’t mention the catastrophic effect the NATO war of expansion has had on the German economy due to sanctions on gas (primarily) and oil and the Ukrainian sabotage of the Nordstream pipelines ( two Ukrainians due to stand trial beginning Oct 17th). The AFD want to stop further military aid to Ukraine , negotiate a peace deal based on Ukrainian neutrality , normalise relations with Russia and construct a new security architecture for Europe which includes Russia. Maybe this also has something to do with their success.
If you want to post pro-fascist comments here, you will be banned.
I have my doubts about Ukraine, but there is a line to be drawn, and you have, well, truly crossed it. You are now banned.
“the NATO war of expansion” fascinating. I construe that the attack by Russia on Ukraine was to prevent NATO expansion. The result was: Sweden & Finland … joining NATO. & given it was Russia attacking Ukraine, how was this a “war of NATO expansion” – given that Ukraine in 2010 had jettisoned the ambition to join NATO.
Or perhaps you are confusing NATO & the EU? The former has lots of weapons and military, the latter is a customs union and is focused on trade & which Ukraine hoped to join. Perhaps that is what upset Putin?
If this commentator is just an AfD apologist then no doubt he should be banned<p>
But Richard Sakwa’s book the Lost Peace – argues that the West expansion of Nato in the 1990’s possibly having promised Gorbachev not to , and looting Russians state assets – City of London colluding with oligarchs, and causing widespread death and starvation helped to create the likes of Putin.<p>
In the early days of the G8, Putin was joking about Russia joining NATO but clearly NATO and the pentagon would always need an enemy – so would never happen.<p>
Non of this excuses Putin’s invasion – but may go some way to explaining it.
I will consider this.
I note in the Guardian today
Ulrich Siegmund, the AfD’s lead candidate, thanked Musk on X “for your support and for your clear and highly important perspective on the political developments of our time”, adding: “I would very much welcome the opportunity for strong and constructive cooperation”.
We are facing a connection of extreme and damaging concentration of wealth with the cultivated bigotry of mainly poorer people.
Agreed
sorry for another post but when in charge of DOGE Musk slashed US aid.
That increased poverty in parts of the developing world and reduced programs designed to give people a more secure future.
Boris reduced our aid from 0.7% of GDP to 0.5% ( look good in the Daily Mail ) and Starmer raided it for defence.
The wars of Trump, Netanyahu and Putin have all stalled.
These are all push factors creating more people to seek refuge outside their home states. Musk et al contribute to creating the problem they claim to be against. Illogical and immoral.
Agreed
An excellent analysis of what’s happening here in Germany. The acceptance of the need for the debt brake by the populous in Germany is pretty much the equivalent of the British acceptance of the household analogy. It’s a very deep cultural aspect of the German psyche. Especially, as I’m sure many fellow followers of this blog know, the German word for debt is schulden, which translated means debt/guilt/blame.
[…] Germany, as I explained yesterday, the constitutional debt brake is one of the biggest contributing factors to the rise of the […]