Germany's neo-Nazi, National Democratic Party made sweeping gains in key elections in the eastern state of Saxony yesterday in a shock protest vote that reflected the widespread unpopularity of Chancellor Gerhard Schroeder's economic reform programme.
In the conservative-controlled state, the, National Democrats (NPD) won seats in a regional state parliament for the first time in 36 years after first exit poll results showed that party had won nine per cent of the vote.
The extreme right Deutsche Volks Union also retained seats in Brandenburg state elections.
However, Mr Schroeder's Social Democrats remained the strongest party in the state despite substantial gains by the reform communist, Party for Democratic Socialism (PDS.)
In Saxony, Mr Schroeder's party suffered humiliating losses and emerged only half a percentage point ahead of the neo-Nazi NPD with 9.5 per cent of the vote.
The state's conservative party lost its absolute majority and was expected to form a coalition with the liberal Free Democrats.
The NPD, which last entered a German state parliament in 1968, campaigned on a "German money for German interests" platform, which included vigorous opposition to EU enlargement, foreign immigration, and government plans to cut benefits for the long-term unemployed.
Both far-right parties and the communist PDS have played a prominent role in nationwide protests against the Schroeder government's Agenda 2010 programme that aims to reform the German economy through cuts to welfare and unemployment benefits.
The far-right gains followed warnings by Chancellor Schroeder and business leaders that they would deter investment in eastern Germany where unemployment is currently at 20 per cent.
"The rise of the far-right will also damage Germany's image abroad," Mr Schroeder said.
The German government attempted to impose a constitutional ban on the NPD last year because of the party's links to violent skinhead organisations that have been responsible for the deaths of more than 100 foreign immigrants since German unification in 1990.
However, judges rejected the move after declaring that the government-backed intelligence services had used agents provocateurs to gather incriminating evidence against the NPD.
Ottto Schily, the German Interior Minister, provoked a row at the weekend after he blamed constitutional court judges for failing to outlaw the party.
He claimed that the far-right would not have made political gains if the ban had been imposed.