Europe’s political centre is almost out of time

Europe's political centre is in a critical state as the aftermath of economic stagnation fuels the rise of far-right parties, posing a threat to Germany, the rules-based order, and South Africa. Natale Labia, a partner and chief economist of a global investment firm, sheds light on the economy and finance from his personal perspective.

He notes that only a few months ago, it seemed like the tide might turn for the centre when Viktor Orbán was removed from power in Hungary. However, the far-right's radicalisation, Euro-scepticism, and hate speech had peaked by then.

Germany recently delivered a blow to this narrative. In Mecklenberg-Western Pomerania, Chancellor Friedrich Merz's Christian Democrats (CDU) performed poorly, garnering only 4.9% of the vote, below the necessary 5% threshold to enter the state parliament. The far-right Alternative for Germany (AfD) won 38% of the vote, narrowly edging out the Social Democrats at 35.5%.

In Berlin, the CDU lost to The Left party. These dismal results for the centre-right came just two weeks after the AfD outperformed the CDU in Saxony-Anhalt, raising concerns that the extreme right could form a government in the state and potentially become Germany's first far-right state government since Hitler.

Chancellor Merz did not mince words, calling the results a disaster on election night and immediately convening senior party leaders to test their loyalty. Eight state premiers had already pledged their allegiance to Merz following Saxony-Anhalt. However, many believe this does not settle the matter. Merz's popularity has plummeted, making the possibility of his replacement a growing topic in Berlin.

The current situation is a manifestation of a broader trend in German and European politics since the financial crisis: the fragmentation and splintering of the centre. Economic stagnation has fractured the political establishment, and a fragmented electorate produces weaker, less cohesive governments. These governments are less likely to implement the necessary tough economic reforms that could reignite growth, potentially leading to a 'death spiral' of the post-war European political centre.

Merz's path to survival hinges on pursuing economic reforms, including changes to pensions, unemployment benefits, and labour rules. His coalition is set to implement these reforms to boost business confidence and, eventually, growth. While removing Merz now could destabilise the coalition and derail this programme, it remains an unanswered question whether his approach can rescue his political career.

Comparatively, Hungary offers a glimpse into what might work against the far right. Péter Magyar, a former Fidesz insider, ran on a conservative platform combined with economic pragmatism and a constructive approach to Europe and Ukraine. His approach effectively took the populist right's strongest issues off the table while highlighting its weakest. However, he also brought a positive charisma and persuasiveness that Merz lacks. Whether a change of face can save the European political centre remains to be seen.