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Angela Merkel party beaten to third place by anti-immigrant party AfD
by Anton Troianovski

Germany’s upstart anti-immigrant party beat Chancellor Angela Merkel’s centre-right Christian Democrats on Sunday for the first time in a state election, while the centre-left Social Democrats held on to win the vote in Mecklenburg-West Pomerania, exit polling and initial results showed.

The three-year-old Alternative for Germany, or AfD, was set to receive 21.4% of the vote, projections from pollster Infratest Dimap said after the polls closed in the northeastern German state. The Christian Democrats, by contrast, were to receive 19% — the party’s worst-ever result in Mecklenburg-West Pomerania, a sparsely populated, economically challenged state in the former East that also happens to be home to Ms. Merkel.

Sunday’s election was for the legislature in a single state with a population of about 1.6 million. And overall, the centre-left Social Democrats won the vote, with 30.3%, according to projections — setting the stage for that party’s leader in the state, Erwin Sellering, to be able to continue his tenure as the state’s premier.

But the results — in particular the AfD’s performance — reflected a wave of public discontent with Ms. Merkel’s refugee policy, which dominated the regional campaign. The AfD has now won seats in nine of Germany’s 16 powerful state parliaments and is building momentum ahead of next year’s national elections that could spell trouble for the chancellor.

“This is a proud result that we couldn’t have dreamed of some time ago,” Leif-Erik Holm, the AfD’s top candidate in Mecklenburg-West Pomerania, said after the first results came in. “Hopefully this is today, finally, the beginning of the end of the chancellorship of Angela Merkel.”

In a sign of how much the AfD’s rise has shaken up German politics, the party, led by 40-year-old Fruke Petry, drew voters from all political camps as well as many supporters who didn’t vote in the previous election, exit polling showed.

Among the casualties: the ultranationalist National Democratic Party, which appeared set to come in below the 5% threshold for seats in parliament and thus lose its last presence in a state legislature.

Under pressure from the AfD, Ms. Merkel has unveiled a range of new initiatives to stop the flow of migrants and to convince Germans she is keeping them safe. While the influx of people seeking asylum has dropped markedly from last year, two Islamist terror attacks by asylum seekers in July further unsettled the public about the security implications of the migrant tide. Ms. Merkel’s approval rating has sunk to 45%, the lowest level in five years.

Sunday’s results “are bitter for everyone in our party,” said the Christian Democrats’ Secretary General, Peter Tauber. “Among a recognisable portion (of the voters,) there was an explicit desire to register discontent and protest, and one could notice this especially in the discussion about refugees.”

Two-thirds of AfD voters cast their ballot for the upstart party because they were disappointed by the other parties, the Infratest Dimap exit poll found. About half of AfD voters said that the refugee issue was decisive in their voting choice. Nearly all of them said they feared that the influence of Islam was becoming too strong and that crime would rise.

Ms. Merkel was in China on Sunday for the Group of 20 meeting of economic powers and wasn’t expected to comment on the vote results. She has yet to announce whether or not she will run for a fourth term in next September’s national election.

The Wall St Journal

What Will Happen To Germany If Merkel Loses The National Elections?
by Toby Nwazor

Last week, Chancellor Angela Merkel’s political party, the CDU, lost local elections in her home state to the populist right-wing party AFD and the Social Democrats. Not only was this the first time that a right-wing party has overtaken the center-right party CDU at an election, but it has served as a warning sign to Chancellor Merkel that her refugee-friendly ‘open-door’ policy might cost her next year’s national elections.

Merkel has been under fire for her refugee-friendly policies by right wing opposition parties since the immigration influx from Syria started last year. However, she has always stood firm and stuck to her policies despite criticism.

Judging by the results of her home state Mecklenburg-Vorpommern, her immigration-friendly stance is not shared by many of Germany’s voting population. While the elections were won by the Social Democrats, which received 31% of the votes, the right-wing party ‘Alternative für Deutschland’ received 21% of the votes, ahead of Merkel’s Christian Democrats who only won 19%. These results have even prompted rumors that Merkel might step down as Chancellor ahead of the national elections in 2017.

What if Merkel loses the national elections?

This begs several questions. What will happen if Merkel is no longer in power? Who will lead Germany next? What will the new Chancellor’s stance be on Germany’s place in the EU? Would a less EU-friendly German Chancellor lead to a break up of the EU? While we won’t know the answers of any of these questions before next year’s national elections, we should consider the possible scenarios and what effects they would have on the financial markets.

Merkel has always been a pro-EU politician and a driving force behind building and maintaining a strong united Europe. However, should she and her party lose at the national elections and should Germany’s new Chancellor have less of a EU-friendly attitude, this could rattle not only the Euro but also European stocks and other risky assets with exposure to the European market.

Anthony Di Maggio, Research Analyst at SternOptions, stated, “The last thing that the European investors need now is for Merkel to lose next year’s national elections. This could potentially create massive uncertainty about the future of the European Union and its single monetary union. As we know, investors don’t like uncertainty and such a result at the elections could rattle both the Euro and European risky assets.”

The ‘Merkel-Effect’ on the EU

Merkel has been a key advocate of the EU and a leading figure in its shaping during and after the European debt crisis, which was sparked in late 2009 by Greece’s solvency issues. Merkel has always been adamant that she wants a strong and united European Union, and that the preservation of the EU and the Euro will be defended at all costs.

Should she fail to be re-elected as the German Chancellor, this could potentially have a very negative affect the future of the European Union, if the new Chancellor is not as EU-friendly as Mrs. Merkel or doesn’t build the same strong relationships as she has with other pro-EU leaders.

Should uncertainty over the future of Germany’s leading role in a united Europe be in doubt, financial markets will most likely react violently, and both the Euro and European stocks will take a substantial hit, while periphery government bond yields would also shoot up.

How would a post-Merkel German economy fair?

It is extremely hard to predict how a country’s economy will perform after upcoming elections. Having said that, should the new chancellor have a less EU-friendly approach and potentially suggest a German EU exit, the Euro would take a severe hit, German business confidence would tank and investment into Germany would decrease. This, in turn, would weaken the German economy.

Business and investors want certainty and any deterring from the current plan for Germany and the EU would have negative effects on the financial markets and businesses.

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Britain is completely lost after Brexit and will beg for a deal, Brussels believes
by Peter Foster

Britain has become “completely lost” post Brexit and can eventually be expected to “plead” for a deal when it realises the weakness of its position at the negotiating table, senior European Commission officials now believe.

While officially pressing for Britain to invoke Article 50 and begin divorce talks, officials in Brussels are taking growing satisfaction in what they believe is paralysis and disarray in Theresa May’s new government, according to internal discussions seen by The Telegraph.

The spectacle of Mrs May rebuking David Davis, the Brexit minister, at Prime Minister's Questions for prematurely revealing the government’s hand was taken as further evidence in Brussels that Downing Street does not have a coherent strategy for Brexit, according to one Commission insider.

Officials are also jubilant that the United States, Japan and India all gave the UK what one EU diplomat described as “the cold shoulder” at the recent G20 Summit in Hangzhou, heeding the demand by Brussels that Britain cannot begin independent trade negotiations before Brexit.

The revelations come as Europe attempts to stage a post-Brexit display of unity this week, when Jean-Claude Juncker, the European Commission president, delivers his "State of the Union" address on Wednesday followed by a meeting of all 27 EU leaders in Bratislava on Friday.

Mrs May has pledged not to trigger Article 50 until at least 2017, but is likely to face rising pressure from European capitals if she does not act soon after the new year.

The Prime Minister stuck to her guns this week during a visit to London by Donald Tusk, the European Council president, who hinted at rising impatience in EU capitals, saying that Britain should trigger talks “as soon as possible”.

UK officials concede privately that the Whitehall bureaucracy is still “miles and miles” from being ready to conduct detailed negotiations as it comes to terms with a new departmental structure created by Mrs May, however officials contend that Europe is equally in disarray.

British negotiators are determined that the European Commission, with its more “theological” approach to issues like Free Movement, must not be allowed to dominate the Brexit negotiations but wants them controlled by EU leaders who, Britain feels, may take a more pragmatic approach.

However the Commission hopes that divisions among the remaining 27 member states will enable the Brussels bureaucracy, with its mastery of the legal details, to insert itself more forcefully into the coming talks – a strategy that some analysts warned could backfire.

“Member states aren't on the same page following Brexit, and the Commission clearly sees this space and wants to exploit it for its own ends, to push its agenda,” said Mujtaba Rahman, managing director for Europe at the Eurasia Group risk consultancy. “It's a high risk strategy, and is likely to fail, further alienating Juncker from the member states.”

1. Jean-Claude Juncker
President of the European Commission, the EU’s executive arm. Former Prime Minister of Luxembourg for 18 years. Federalist and bon viveur

2. Donald Tusk
President of the European Council, the summit of 28 member states. Tough former Polish Prime Minister, still finding his feet in Brussels

3. Frans Timmermans
First Vice President of the European Commission. Former Dutch foreign minister. Realist who embraces Britain’s desire for greater competitiveness and less ideology

4. Martin Schulz
President of the European Parliament. Veteran German socialist and furious critic of Cameron’s renegotiation

5. Mario Draghi
Powerful Italian president of the European Central Bank and former Goldman Sachs banker. His institution was criticised for pushing Greece to the brink of a euro exit this summer

6. Federica Mogherini
High Representative, the EU’s foreign secretary. Former Italian socialist foreign minister.
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