German Politics Entering Transition Phase, Political Volatility Will Explode

Events are unfolding as explained in This One Chart Explains the Next 10 Years of Political Change.

Der Speigel: The End of German Politics As We Know It

Now, There's No Good Way Out

Regardless what happens now, there are no longer any true prospects for Seehofer, the CSU or its power-sharing agreement with the CDU. The CDU has made clear in rare unanimity that it will not allow itself to be blackmailed by its sister party. And it's highly unlikely Seehofer can expect any substantial concessions from the chancellor. Whether he remains in office or leaves it, he has lost any credibility he had. Since Sunday, the head of the CSU party has joined the ranks of the political undead.

And all that remains of the power-sharing agreement between the CDU and the CSU is a piece of paper. The damage goes so deep that even if Merkel and Seehofer were both to step down, an entirely plausible scenario at the moment, it still couldn't be repaired. The power-sharing model between the two parties, known as the "Union," ensured unprecedented stability in Germany for over 60 years. It is now history. And that's not something to be celebrated, no matter how much one might oppose the CSU's positions.

The fallout from Sunday night's drama will have consequences that go far beyond the power-sharing agreement. It could have dramatic consequences for Germany's entire political party system. The center-left Social Democrats (SPD) have already sunk to below 20 percent in public opinion polls. And the CDU itself is now headed in the same direction.

The party that has emerged as the primary beneficiary from all this is the Alternative for Germany (AfD). There's no better gift the CDU and CSU could give the right-wing populists than to tear each other apart over refugee policy. The CSU's hope of pushing back competition from the right in Bavarian state elections in September has been shattered. The CSU had hoped to become AfD's gravedigger, but there's no chance of that now. Instead, the CSU has become one of the nascent political party's biggest helpers.

Very simply, there are two right-wing parties in Germany: AfD and NDP. The latter is not a serious contender. The Overton Window is moving "right," really a nationalist direction. As it moves right, centrist parties move left by virtue of staying in place. Voters who stay on the left gravitate towards the "real" left: Der Linke. SPD collapses. CDU and CSU collapse. AfD emerges as the new "center-right" party.

Thinks are moving slowly now, but change will accelerate when social mood collapses and the DAX enters a bear market.