AMNA NAWAZ: Germany's far right AfD, or Alternative for Germany party, yesterday won a major parliamentary election victory in the Eastern state of Saxony-Anhalt.

The blow -- the win, rather, is a blow to chancellor Friedrich Merz, mired with record low approval ratings.

And it marks a growing divide in German politics.

The AfD party is anti-immigration.

It's been labeled as xenophobic and as extremist by German intelligence.

Liz Landers reports.

LIZ LANDERS: In Germany, a dawn of a more divisive era of domestic politics.

Germany's far right Alternative for Germany Party, or AfD, won 44 percent of seats yesterday, just three seats short of a majority in the Eastern state of Saxony-Anhalt.

The party has vowed to crack down on immigration and broaden its power to the national level.

ALICE WEIDEL, Leader, AfD Party (through translator): And if we assume responsibility for government in Germany at the national level, we will close the borders, and only those who have a legal right to reside in Germany will be allowed to come here.

We will deport those who commit crimes here and those who are residing in this country illegally.

LIZ LANDERS: And if it is able to successfully form a parliamentary coalition with other parties in order to govern, it would have extensive control over the state's domestic immigration, education, and other policies.

AfD's anti-immigration stance has bled into its leaders' statements, which have been accused of being Islamophobic, antisemitic, and antidemocratic.

Last year, the German intelligence agency labeled AfD extremist.

AfD's win in the state is a turn in the state's politics.

Saxony-Anhalt, once part of East Germany prior to reunification, voted for the ruling Christian Democratic Union, or CDU, in its last parliamentary election.

Yesterday's win also a reflection of Chancellor Friedrich Merz's plunging approval ratings, with an 87 percent disapproval rating in Saxony-Anhalt and just 16 percent approval nationwide as of July.

He faces stiff competition.

Today, he acknowledged his party's loss.

FRIEDRICH MERZ, German Chancellor (through translator): We are all deeply shocked.

We did not expect this to happen in this way.

Yesterday marked a turning point, not only in Saxony-Anhalt, but throughout Germany.

I must admit, this is the most serious election defeat that the CDU has had for years, for decades.

LIZ LANDERS: Germany's political system is positioned that each state is largely autonomous, much more reliant on the state's Parliament than the federal level in Berlin.

The far right party's win also renewed concerns internationally.

Spanish Prime Minister Pedro Sanchez today decried the win as an indicator of Europe's destabilization.

PEDRO SANCHEZ, Spanish Prime Minister (through translator): What we saw yesterday in Saxony is a warning and also a confirmation, a warning that the far right threat, thanks in large part to the surrender of the traditional right, is gaining ground in Europe and in the world.

LIZ LANDERS: Meanwhile, in the United States, President Donald Trump shared the news of the AfD's victory in a social media post.

Last year, Vice President J.D.

Vance shocked many when he appeared alongside AfD's leadership and chastised the German government's decades-old position of refusing to work with parties labeled extremist.

For perspective on the outcome of the election in Germany, we turn to Liana Fix, senior fellow at the Council on Foreign Relations and author of "Germany Rearmed: The Return of War and the End of Illusions."

Liana, thank you for joining the "News Hour."

LIANA FIX, Council on Foreign Relations: Absolutely.

Thank you for the invitation.

LIZ LANDERS: How do you explain why the AfD did so well in the election?

LIANA FIX: So one popular explanation is that in East Germany and East Germans, in particular since unification, have felt economically deprived, that they are not on the same living standards as their West German compatriots.

But that explanation really only goes so far.

It is primarily about the self-perception, about the feeling of being left behind, because East Germany really has caught up in the economic situation.

And at the same time, it is mixed with a profound sense that immigration policies have gone too far in Germany, and a general shock about all the change that is happening in Germany these days, both the Russia shock, also the A.I.

shock, the China shock to Germany's industry.

It's a challenging time to be a chancellor of Germany.

LIZ LANDERS: What are some of the policies that AfD advocates for?

LIANA FIX: So, the federal level, the AfD in general is very anti-immigration.

They want to deport both refugees, but also asylum seekers from other parts of Europe and the world.

They are very much in favor of a very strict rule of law, but they also, especially in education, for example, in Saxony-Anhalt, the AfD has proposed to focus more on the centuries before the Nazi era, and not to place too much emphasis on the Nazi era.

They also have some ideas about kicking out public broadcasters from Saxony-Anhalt.

Overall, it is a very disruptive agenda.

And, at foreign policy, they do want closer ties with Russia and China.

LIZ LANDERS: This news, of course, over the weekend, I think has shocked some people around the world.

But how likely is it that the AfD will actually come to power?

LIANA FIX: So this is Saxony-Anhalt.

It is a small East German state, but it is relevant because, for the first time, the firewall the German parties have built against the AfD, no one should work or enter into a coalition with the AfD, is really crumbling, because in this case you would need all the other five parties, from conservatives to very left-wing parties, to build a coalition only to prevent the AfD getting into power.

So that's why this election is so powerful.

It's such a danger to Chancellor Friedrich Merz, because it is about the future direction of the Conservative Party in Europe and partly also about his own future.

On the federal level, this -- the AfD is polling as the strongest party ahead of Friedrich Merz's Conservative Party, and quite comfortably ahead.

But it's very unlikely that this would translate in the next election into a government responsibility for the AfD.

However, 10 years down the road, that picture might look different.

LIZ LANDERS: Speaking of 10 years down the road, is this election seen as a bellwether and signal for how future elections are likely to go in Germany?

LIANA FIX: It absolutely is.

And the next elections are already coming up at the end of September in two weeks' time.

There will be two more elections in the state of Berlin, but also in another East German region.

They are not as dramatic as in Saxony-Anhalt.

So the AfD is not as far ahead as it has been in this election.

But, still, further setbacks for Friedrich Merz, for Chancellor Friedrich Merz, in these elections might actually raise the leadership question in Germany, and that at a time when Russian hybrid warfare campaigns are escalating against Germany.

So it is really very much a twin threat that Chancellor Merz is facing here.

LIZ LANDERS: The AfD is pro-Russian.

Will this election result have an impact on Germany's support for Ukraine and its efforts to shield itself from these Russian hybrid attacks?

LIANA FIX: No, they will not directly, because foreign policy, security policy are obviously a federal issue that cannot be disrupted by Saxony-Anhalt.

But there are some concerns, for example, that, if the AfD gets into power, Saxony-Anhalt should not be included in sensitive intelligence sharing anymore because of the concern that intelligence might be leaked to extremists or to Russia.

There are also concerns that, what if the AfD gets in power on Saxony-Anhalt and tries to prevent any mobilization efforts of the German army, of the Bundeswehr in that country?

So these are actual considerations.

And then, of course, Germany's European neighbors, from Poland to France, are very concerned.

They welcome Germany's rearmament, Germany's historic rearmament, that it is going through now.

But, as I argue in my book, of course, they don't want to see that military power in the hands of the AfD.

Even if that is only a possibility like 10 years or 15 years down the line, it is still a very scary thought for Germany's neighbors.

LIZ LANDERS: Liana Fix, thank you for your expertise.

LIANA FIX: Thank you.