German businesses worried about far-right gains in the east – DW – 09/02/2024

The AfD emerged as the strongest force in Thuringia and nearly tied with the Christian Democratic Union (CDU) in Saxony, substantiating fears of a political shift to the right in parts of former Communist East Germany.

Following the results, AfD leaders Alice Weidel and Tino Chrupalla demanded a role in the regional governments, claiming a mandate for a center-right coalition including their party and the conservative CDU. The CDU has rejected any collaboration with the AfD though, maintaining a so-called political firewall against the far-right which rules out any ties to that party.

Before the elections, both labor unions and business representatives expressed concerns over the potential economic fallout of an AfD victory. Investors could be deterred, fearing instability and an unwelcoming environment.

Olaf Zachert, an investor specializing in rescuing distressed companies, had warned, for example, that “capital is a shy deer,” and potential investors wouldn’t invest in regions where they don’t feel welcome. He told DW that a rise in AfD support would make many investors think twice before committing to new ventures in Saxony and Thuringia.

Business lobby groups and economists alarmed

A day after the regional polls, the president of the German Employers’ Association (BDA), underscored the link between a thriving economy and stable politics, suggesting that the AfD’s rise reflects “deep public anxiety and a lack of confidence that Germany is currently moving in the right direction.” Partly blaming the current policies of German Chancellor Olaf Scholz for the right-wing shift, he called on Scholz’s three-party coalition to reverse its policies.

“The election results are a clear warning to the coalition government,” he told German news agency dpa, and added that any government must keep jobs and social cohesion always in mind.

Following the elections, some economists expressed the view that an already huge shortage of skilled labor could worsen in eastern Germany, potentially triggering an exodus of companies.

Monika Schnitzer, chairwoman of the German Council of Economic Experts, said Thuringia- and Saxony-based companies could be disadvantaged in the global competition for qualified workers. State institutions and educational facilities are already suffering from staffing shortages, which could escalate, especially given the AfD’s stance against skilled immigration.

Marcel Fratzscher, the president of the German Institute for Economic Research (DIW), echoed these concerns, predicting a loss of jobs and foreign investment. He argued that the AfD’s policies — advocating trade protectionism, reduced immigration, and less openness and diversity — would likely result in a flight of companies and skilled workers. This exodus could lead to more insolvencies and company relocations.

“Younger and more qualified citizens will be leaving the two states heading for regions where they feel more valued,” Fratzscher told Reuters news agency.

Michael Hüther, director of the employer-aligned German Economic Institute (IW), said the rise of the AfD “isn’t a positive sign” because businesses would need “political and institutional stability.” He also argued that more social policies alone would not deter voters from supporting populist parties; instead, a “proactive investment state” is necessary to prevent economic decline.

Important investments on the line?

Ralf Wintergerst, president of the German digital association Bitkom, is also alarmed, stressing that  Germany must remain a “country of openness and innovation” — values not represented by the AfD. “The planned semiconductor factories in Saxony will not operate without foreign talent,” he stressed, highlighting that such experts have the flexibility to choose their work locations.

Research firm Capital Economics (CE) cautioned against extrapolating these state election results to the national level, however, it noted that some AfD positions might influence the programs of mainstream parties. Franziska Palmers, senior Europe economist at Capital Economics, said in a note to investors that Germany is “unlikely to deviate from its strict fiscal policy, both domestically and within the European Union.”

Deutsche Bank Research also downplayed the election results, saying they are “not a preview of the next federal election” next year. The analysts at Germany’s biggest private lender anticipate only “temporary economic risks,” particularly around labor shortages, and do not foresee fundamental shifts in German economic policy.

This article was originally written in German