AfD wins Saxony-Anhalt – is Dexit next?

The far-right Alternative for Germany (AfD) won 43.8% of the vote in Saxony-Anhalt on Sunday, according to preliminary official results. That is more than double what the party got in 2021, and over 26 points ahead of the governing Christian Democratic Union of Germany (CDU).

It is the AfD's best result in any German election. But it is not quite a government. The party fell just short of the 42 seats needed for a majority in the 83-seat state parliament.

Under the state constitution, AfD candidate Ulrich Siegmund doesn't need other parties to vote for him — he just needs enough of them to abstain. The far-left BSW has already called for an end to the "firewall," the long-standing agreement among the other parties never to work with the AfD.

The 10-year bund yield was up 1 basis point at 3.348% Monday morning, roughly in line with the rest of Europe. The DAX slipped 0.14%.

Saxony-Anhalt has 2.3 million people and very little weight in the Bundesrat, Germany's upper house. Sunday's result doesn't change German fiscal policy.

I don't think Dexit is the real risk here. Berenberg economist Holger Schmieding has estimated that leaving the EU would cost Germany more than 10% of its output over a decade.

For now the problem is Chancellor Friedrich Merz's. His SPD coalition partner has ruled out working with the AfD, but his own party's lawmakers in the east are split. He can hold the firewall and risk a revolt, or drop it and probably lose his coalition. He has the worst approval ratings of any postwar chancellor, so neither option is comfortable.

The euro was little changed. Markets are still fully pricing a 25 basis point ECB hike next week.