In The Populist Corner

It was the battle of the populists. On the right: a firebrand incumbent governor known for his anti-immigrant rhetoric, campaigning against "criminal foreigners" on a law-and-order ticket. On the left: a challenger from the socialist fringe promising goodies for everyone—higher wages, fatter pension checks, bigger unemployment handouts. The contest between Roland Koch, Christian Democratic (CDU) governor of the German state of Hesse, and Social Democratic (SPD) challenger Andrea Ypsilanti, was the most closely watched regional election in years—both for the drama of the campaign itself, and for what it suggests for the future of German politics. The outcome signals a shift in voter sentiment from Koch-style anti-immigrant populism to the left-wing variant, economic populism.

When the results came in on Jan. 27, the SPD had made dramatic gains. Though Koch managed to squeeze ahead of Ypsilanti by a mere 3,000 votes, his share of the vote plummeted from 49 percent in the previous election to just 37 percent. The SPD gained 8 percent over the last election with a candidate who was once considered to be from the left's fringe.

Further evidence of a shift to the left in German politics: last week was also the first time the far-left party Die Linke, successor to the East German communists, won the minimum 5 percent required to enter Parliament in any major western state. Winning a foothold in populous and prosperous Hesse—as well as in Lower Saxony, another big western state that held an election last week—means that the communists have emerged from their status as an eastern regional party and arrived as a national political force.

It's not just the communists who've been successfully rabble-rousing against the evils of the liberal capitalist model—an easy target these days, as capitalism seems to be on the verge of entering one of its periodic crises. The more mainstream SPD has also railed against the free market, gaining popularity as it campaigned against the labor-market and welfare reforms it instituted under its own former chancellor, Gerhard Schröder. At the center of the SPD's new platform is the enormously popular call for a nation-al minimum wage, similar to the €10-per-hour minimum the Bundestag just legislated for Germany's postal sector. Even if that wage destroys thousands of delivery jobs for unskilled workers, it appeals to Germans' deep longing for "social justice."

Oddly, the result of the vote seems to have strengthened center-right CDU Chancellor Angela Merkel. For one, it cut down to size Koch, her strongest intra-party rival. But more than that, her strategy has been to move the CDU toward the center-left. This softer approach seems to have been vindicated last week in the state election in Lower Saxony, where CDU Gov. Christian Wolff ran a Merkel-style campaign—bowing to the left on minimum wages and avoiding Koch-style confrontation—and held on to his majority. Merkel has also been trying to make the CDU more attractive for young people, women, minorities and urbanites, and moved integrating immigrants to the top of Germany's political agenda. That leaves little room for beer-hall rhetoric of the kind Koch specializes in delivering.

German business leaders and economists have responded to the sharp left turn by arguing that this kind of economic demagoguery is dangerous and destructive. But so far, the left has been unable to translate its gains into real power. Although the left-leaning parties have a clear majority in Hesse, mutual animosities among the Social Democrats, Greens and communists have stopped them from joining in a coalition to govern. (That's reminiscent of France in the 1980s, when left-wing parties together had a clear majority but their internecine hatreds kept them out of the Elysée.) Ypsilanti has vowed not to join with the communists, and if she keeps her word the most likely outcome in Hesse seems to be a grand coalition, much like Merkel's in Berlin. That would probably keep Koch in power, leaving the Parliament in Hesse gridlocked like the Bundestag.

Perhaps that's not all bad. If the new economic populism keeps gaining ground, then any legislative movement is likely only to roll back necessary reforms, not push Germany forward. So gridlock may be an odd blessing for now.