Editorial: Achtung Berlin!

This week, Germany's mainstream conservatives led by Friedrich Merz won the country's national election, which saw a surge in support for a far-right party (AfD) and a stinging defeat for outgoing Chancellor Olaf Scholz. The fiscally conservative party's victory raised expectations for a stable coalition government that could end policy gridlock and tackle the country's burning economic issues. The campaign was dominated by worries about the years-long stagnation of Europe's biggest economy and large-scale migration. A growing number of Germans were thoroughly discouraged by the fact that mainstream parties had failed to manage the influx of refugees and other concerns in recent years, including responses to the pandemic.

Merz, a brash economic liberal who has shifted the conservatives to the right, and is expected to lead the nation, is regarded as the antithesis to Angela Merkel who led Germany for 16 years. He is promising to unite Europe in the face of challenges from both Russia and the US. It's a tricky moment in history as the coalition building could drag on for months, leaving a leadership vacuum at the heart of Europe, even as it seeks to tackle a hyper-confrontational US administration headed by Donald Trump. Going by the rhetoric emerging from Washington, Trump is desirous of disengaging from the region, while mending ties with Russia. He has threatened European nations with a trade war while attempting to fast track a ceasefire deal for Ukraine without Europe, a development that raises questions about the solidity of the western alliance.

As the most populous country in the 27-nation European Union, Germany is a formidable member of NATO and Ukraine's second-biggest weapons supplier, after the US. Merz has said that he is keen on continuing a cordial transatlantic relationship with the US, even as he sought independence from Washington, alluding to the need to establish an independent European defence capability on a war footing. Obviously, for Europe to invest in its own defence, raising European national military budgets, will require truckloads of money. The new financial mechanisms could consider an existing pandemic era framework for bond issuance and a rearmament bank that is modelled on the European Bank for Reconstruction and Development. This could draw in non EU members such as Norway and the UK.

As of now, Germany is struggling with the twin pain points of recession and de-industrialisation, problems compounded by Germany teaming up with western allies to impose sanctions on Russia, which in turn ended up costing Berlin access to cheap gas from Moscow. It's a disadvantage that has been weaponised by Alternative for Germany (AfD), the far right, ultra-nationalist party which came in second during this year's elections. Founded in 2013, AfD's main goals back then included opposing bailouts for struggling countries in the eurozone debt crisis. Now it's dead against the supply of arms to Kyiv, while batting for restoration of friendly relations with Moscow.

The staunch anti-immigrant policy touting AfD is also putting its weight behind a proposal for Germany to abandon the euro, bring back the Deutsche Mark, and possibly exit the EU. Its pitch note for building energy security includes rejecting subsidies for renewable energy, rooting for coal fired power plants and abolishing CO2 pricing. While it appears doubtful that AfD might be part of any coalition government, it might still wield considerable influence in the Bundestag. The rise of the far right in Berlin might turn out to be a spitting image of the emergence of ultra-nationalist parties in France, where Marine Le Pen registered a vote share of 41.5% in the elections held last year. Europe, consider yourselves warned.