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03/12/2016

German Eurosceptics pose threat to weak eurozone states

Elections

German Eurosceptics pose threat to weak eurozone states

AfD vs the euro. [EurActiv.de]

A surge in popularity for a German Eurosceptic party could hit weaker eurozone countries’ borrowing costs, rating agency Standard & Poor’s said on Tuesday, as a poll put national support for Alternative for Germany (AfD) at a record high.

Founded in 2013 to oppose eurozone bailouts, the AfD fell short of winning enough votes to enter the federal parliament in last year’s election, but has since entered the European Parliament and assemblies in three of Germany’s 16 states.

 

>> Read: Eurosceptic AfD wins double-digits in German regional elections

Chancellor Angela Merkel has so far refused to shift her conservatives to the right to fend off the challenge, but S&P said in a report she may yet toughen her stance and reduce scope for future help for weaker eurozone states to win back voters.

German support has been essential in combating the eurozone debt crisis and has helped maintain the creditworthiness of lower-rated euro area sovereigns, S&P said in a statement.

Any sign of Berlin hardening its stance could hurt investor confidence, said credit analyst Moritz Kraemer.

“Such a change in sentiment could contribute towards less benign sovereign funding conditions for lower-rated euro area sovereigns, compared to the historically low interest rates on sovereign bonds that we observe today,” said Kraemer.

Poll sees AfD gaining support

A Forsa poll on Tuesday showed a 3 percentage point rise in support for the AfD from last week, taking it to 10% for the first time. The centre-left Social Democrats, who share power with Merkel’s conservatives, were down 2 points at 22%, while the conservatives rose 1 point to 42%.

S&P said the AfD’s programme to abolish the euro, reduce government borrowing, and devolve competencies from the EU back to nation states had galvanised opponents to European bailouts, including some German taxpayers, who fear financial risks.

Since 2010, Germany has committed to eurozone bailouts worth hundreds of billions of euros. As Europe’s biggest economy, it stands to lose most with its guarantees, so Merkel is insisting on tough conditions despite calls for more pro-growth policies.

The German government’s criticism of further unconventional monetary measures by the European Central Bank could also become more pronounced, potentially undermining the measures which were intended to have a confidence building effect, said S&P.

Earlier this month, the ECB slashed the cost of borrowing to near zero and flooded banks with cheap credit, a move that AfD leader Bernd Lucke, an economics professor, has criticised.

“The amount of liquidity is sufficient, but there is not enough confidence in the euro zone banking sector,” he said.

Background

The Eurosceptic Alternative for Germany (AfD) secured 7 seats in the European Parliament following the May 2014 EU election.

In Parliament, the AfD entered the European Conservatives and Reformists group (ECR), led by the British Tories.

>> Read: German anti-Euro party joins Tories in EU Parliament

Joining the ECR positions the AfD as a relatively centrist and respectable party, according to German political analysts, who argue this could put Germany's ruling centre-right Christian Democratic Union (CDU) under pressure domestically.

>> Read: Germany's Eurosceptic AfD seeks allies after election success