Angela Merkel has passed the zenith of her power

The return to the Reichstag of rightwing extremists is naturally the most shocking news to have emerged from the German elections. But then again, the 12.6 per cent share of the vote achieved by Alternative for Germany is well within the margin of error of the most recent opinion polls.

The AfD will send almost 100 MPs to the Bundestag, a third of whom are believed to be on the extreme right. They are far more dangerous than the Front National in France, and make the UK Independence party look like cuddly British cousins.

Also shocking is the scale of the Social Democrats’ demise. They are paying the price for cuddling up to Angela Merkel for far too long. The SPD has made the biggest error a political party can make: it has made itself superfluous.

But the biggest shock of this election is the astonishing weakness of Ms Merkel’s CDU and its Bavarian sibling, the CSU. Their share of the vote fell from 41.5 per cent in 2013 to 33 per cent this time round. This, more than anything else, will define the near-term future of both German and European politics.

After the SPD on Sunday ruled out another coalition with Ms Merkel, there is now only a single coalition option left: between the CDU/CSU, the liberal FDP, and the Greens. This configuration is known as the “Jamaica coalition” on account of the parties’ colours.

Will it fly? I think it will because Ms Merkel has no alternative if she wants to hang on to power. She will offer the two smaller parties whatever is needed to entice them into a coalition.

She would be in mortal political danger if she allowed the impending coalition talks to fail. There could be new elections, in which she could easily end up losing a further 5 per cent of the vote, at which point her party would revolt against her. The incentives of all the parties, and especially their leaders, are well defined: Ms Merkel wants to govern; the SPD does not want to govern; and the FDP and the Greens want to leverage their good results into power.

They will make formidable demands. The FDP is probably the only Eurosceptic party in Europe that does not recognise itself as Eurosceptic. Its leader, Christian Lindner, keeps on emphasising his party’s pro-European roots. Yet he wants Greece kicked out of the eurozone and favours no further programmes by the European Stability Mechanism, the rescue fund for the eurozone. Indeed, he wants the ESM to be phased out altogether in the long run, and he rejects the proposal of Emmanuel Macron, France’s president, for a common eurozone budget. Mr Lindner said on Sunday that the latter would be his party’s red line in the coalition talks.

During the campaign Mr Lindner insisted the FDP would demand the role of finance minister in a coalition. Ms Merkel is keen to keep her colleague, Wolfgang Schäuble, in the job. It is not clear if she will succeed, but if she does, the FDP will surely extract a heavy price.

The Greens seem more moderate by comparison. They want stricter policies on emission targets, and will insist on an early phasing out of fuel-driven car engines, a demand both the CDU/CSU and FDP might find hard to accept. But the Greens are in a strong position. They are more inclined than others to walk away from the talks, which could make them a formidable force in the negotiations. If they walk out on an issue of principle and force new elections, they could expect to win further support.

Ms Merkel has been a formidable political operator. History has taught us not to underestimate her. But the dramatic decline in the CDU and CSU’s share of the vote is also telling us that she has passed the zenith of her power. She enjoyed stable and loyal coalitions during her first three terms. This time will be different. The coalition talks could collapse. The coalition itself could collapse. And the CDU and the CSU could revolt against her.

Over the next few years, I expect Germany to become more inward looking. This will be a period of serious internal battles within all the large parties, and an era of confrontation with the AfD. I always thought that the notion of German political leadership on the European and world stages was a myth. That myth will now be exposed for what it always was.

The shifts in German politics will also slow down economic reform efforts. Germany is suffering from under-investment. It is lagging behind in the digital economy. And it has no idea what to do with all the migrants Ms Merkel has allowed in. The new government will be more hostile to the car industry, which is probably a good thing. But it will not have a plan B.

In short, difficult years lie ahead. And Ms Merkel has joined the long list of political leaders who missed the ideal moment to depart the stage in good time.

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