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April 23, 2017

The demise of the AfD has accelerated dramatically

It remains the consensus among German political commentators that the AfD will beat the 5% threshold necessary for representation in the Bundestag. But this is becoming less certain, given the deep division of the party that came out into the open over the weekend. We already reported on the decision by Frauke Petry, the party leader, not to enter the forthcoming election campaign as the top candidate - Spitzenkandidat as it is known. At the party congress over the weekend Petry lost five battles, most notably a suggestion that the party should have no candidates, and that it should position itself to be able to enter into a coalition in 2021. The party not only rejected her proposals: they voted not even to put them up for discussion. By the end of the Congress she looked utterly devastated and isolated. 

The congress instead decided to nominate two other politicians, Alexander Gauland and Alice Weidel, as their two joint candidates. But neither is a match to Petry. Petry is hardly a centrist herself, but the party is now moving further to the right and is now led by candidates who are effectively condoning the membership of neo-Nazis within the party, which has been one of the sources of the conflict. 

Petry is still nominally the party leader. Some people expected her to resign over the weekend. We think her game plan is let her opponents run into a wall and pick up the rubble afterwards. But it is not clear to us that the party will survive such a clash. 

Jasper von Altenbockum made an important point in his commentary about the demise of this party. German conservatives had great hopes that the AfD would ultimately emerge as Germany’s conservative/liberal party, a bit like the Tories in the UK, or the Republicans in the US. He notes that the economic section of the manifesto contains virtually no liberal policies. The AfD is instead following in the footsteps of other populists parties in Europe, with its emphasis on anti-establishment politics and a criticism of the excesses of liberal society. The party has reduced itself to an anti-immigration movement. Petry tried to open a pathway to conservative-liberal forces of German society, but this path is now blocked.

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April 23, 2017

On how France will need to confront Germany

In his FT column - written before the French election results became known - Wolfgang Munchau focuses on what he considers the single most important task confronting the next French president: to find an economic and institutional answer to the eurozone’s internal imbalances, and in particular Germany’s current surplus. This is an issue of common interest between France and the US, which may be on verge of classifying Germany as a currency manipulator. Munchau argues the problem is not trade: Germany does not unfairly subsidise its exporters, nor does it manipulate its exchange rate. The problem is a structural savings surplus exacerbated by bad economic policies. The surplus, which was 8.6% in 2016, will come down to under 8% this year. But no fundamental rebalancing is likely to occur in the absence of policy change - which will have to involve changes in fiscal policy and the opening up of German services industries to foreign competition. Munchau concludes that the new French president would set himself or herself up for failure if they failed to addressed this issue. And the smart strategy for Donald Trump is not to go for unilateral action against Germany, but to align himself with France on the issue.

Our sense from the weekend meetings in Washington is that the US has not shifted its position on the bilateral trade deficit with Germany, which is currently under investigation by the US Department of Commerce. A report, due by the end of June, will look at the impact of policy on the bilateral trade balance, and make recommendations to the president. We don’t expect Germany to be labelled a currency manipulator, but we think it is plausible that the US might levy punitive tariffs on selected goods.

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