The unexpectedly strong rise of a far right, anti-immigrant, anti-euro party in Germany’s election on Sunday could exert a widely damaging impact on Europe’s economy, analysts told CNBC.
The European Union is pursuing reforms aimed at expanding economic and monetary integration and strengthening defense, in an effort led by French President Emmanuel Macron. German Chancellor Angela Merkel was widely viewed as partnering his efforts.
However, the two leaders’ plans have been handed a blow by Merkel’s unconvincing win at Sunday’s election, according to Mark McFarland, chief Asia economist at Union Bancaire Privée, a Swiss private bank.
“I think what you’ve got now as a result of the election is the likelihood [Merkel] doesn’t survive four years,” McFarland told CNBC’s “Capital Connection” on Tuesday, referring to the chancellor’s election term.
Furthermore, Merkel will find it increasingly difficult to implement consistent policies as “she is ultimately answering to a broader coalition of political opinion, and she has the opposition harking at her in the Bundestag on a regular basis,” he added.
Ultimately, those factors would undermine Germany and France’s vision for the euro zone project, McFarland said.
Sunday’s election saw a surge in voter support for the Alternative for Germany party , which openly opposes immigration and participation in the euro zone. Votes for the AfD increased 7.9 percentage points from the previous election in 2013 to reach 13.3 percent of the total — the largest rise among all of the country’s political parties.
The strong showing means that a populist, far-right party will enter Germany’s parliament for the first time in around 70 years.
But Merkel’s poor showing may not be the only factor threatening euro zone reforms.
Macron’s centrist party also suffered a hit in France’s Senate elections Sunday, which were dominated by the country’s conservative Republican party, which many said could reflect the president’s declining popularity.
The result will likely ruin some of the president’s ambitions for extensive euro zone reforms, according to Fredrik Erixon, director of the European Centre for International Political Economy.
It revealed that we have yet to reach the “point of figuring out what type of events that France actually can stomach,” Erixon told CNBC’s “Capital Connection” on Monday.
“Germany and France are at loggerheads in terms of how far they’re going to go,” he added.
However, not all are voicing concern for the future of the EU following the weekend elections in France and Germany.
Chief Investment Officer of Credit Suisse global bank, Michael Strobaek, said he remained bullish on European markets because of their strong fundamentals in growth, earnings and valuations.
“Populism may be a force, but it’s unlikely to be a solution to the problems in Europe, and therefore it’s not really something to be played at,” Strobaek told CNBC’s “Squawk Box” on Tuesday.
“It’s very usual for a politician so long in the seat to see a little bit of loss on votes. But for Europe, Mrs. Merkel is a source of stability, she’s a force of integration,” he added.
And with the re-election of the German chancellor, both Merkel and Macron have a “golden opportunity” to build up the EU as global force of economic stability, Strobaek said.