At the G-20 summit in China at the weekend, President Barack Obama had a ringside seat at the latest reshuffling of European political power structures. Preparing for a graceful exit himself in a few months, Obama has had the chance to watch unfold — thanks to a regional German election taking place 5,600 miles — the gradual unraveling of Europe’s pivotal leader.

The anti-immigration, anti-euro Alternative for Germany (AfD) on Sunday forced German Chancellor Merkel’s ruling center-right Christian Democratic Union into third place in elections in the small and relatively impoverished eastern state of Mecklenburg Vorpommern. Merkel’s ebbing power further complicates the European Central Bank’s growth policies. And it may end up strengthening Britain’s negotiating leverage in a matter of great interest to the U.S. — the psychological and economic battle over the U.K.’s European Union withdrawal.

Merkel’s humiliation in her electoral home region, especially the rejection of her liberal policy on refugees from the Middle East and North Africa, gave victory to the Social Democrats, the chancellor’s Berlin coalition partner, gearing up to oppose her in next autumn’s general election.

Her rebuff provides Theresa May, the British prime minister promoted by the U.K.’s June anti-EU referendum, with a chance to warn European leaders they will be similarly swept away by voter unrest unless they bring in EU reforms, including immigration curbs.

Wolfgang Schäuble, Germany’s acerbic finance minister, in remarks made public in April, pinned half of the blame for AfD’s rise on ECB chief Mario Draghi’s loose money policies. This strong German anti-ECB feeling, running through all sections of society, overshadows the next ECB governing council meeting on Thursday, which will review its drawn-out policies on negative interest rates and large-scale bond-buying.

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Some on the council would like to extend the bank’s quantitative-easing bond purchases beyond the March 2017 cutoff. But the AfD’s rampant performance supports the stance of creditor country central banks, led by Germany, the Netherlands, Austria and the Baltic states, in opposing any new action.

With Merkel under pressure, May’s pragmatic line on “Brexit”, elaborated at and around the weekend G20 summit in China, may find ready support in Berlin, a significant boost for the U.K.’s negotiating tactics. May appears to be putting forward the prospect of settling for a mixed package that could include two-way access to the U.K. and European markets, upper limits on immigration, some continued U.K. payments to the European budget and maintained U.K. share in some areas of European decision-making, particularly in fields like defense and security.

May’s desire to maintain European single-market access will have been bolstered by U.S. and Japanese G20 statements on the importance of U.K.-EU trade openness. A watered-down version of U.K. withdrawal — or Brexit-lite, as it has been called — could be unpopular with Brexiteer hardliners. But it could help build a bridge with the various factions in Berlin and particularly with Merkel herself who needs signs that she can compromise on a deal with Britain that doesn't unduly disrupt the EU and also rebuilds her reputation with German voters worried about migrants.

The AfD took 20.8% of the vote in Mecklenburg Vorpommern against 19% for the CDU, whose score was down from 23% in 2011. The SPD recorded a better-than-forecast 30.6%, down from 35.6% five years ago.

Leif-Erik Holm, the AfD’s lead candidate in Mecklenburg Vorpommern, termed the result “the beginning of the end of the chancellorship of Angela Merkel”.

“ The growing likelihood that the AfD will win seats in the Bundestag, the national parliament, next autumn would massively split the right-wing vote. ”

Merkel’s losses in the east constrain her maneuvering room in the run-up to the 2017 general elections. In Germany’s decentralized, proportional representation-based political system, her reverses give further power to two groups which are nominally her allies in the Berlin coalition but are actually rivals and opponents.

The Christian Democrats’ right-wing partners in the conservative southern state of Bavaria, the Christian Social Union, can now force restrictions on Germany’s unpopular immigration policies as a condition for backing Merkel as candidate in the 2017 poll.

The growing likelihood that the AfD will win seats in the Bundestag, the national parliament, next autumn would massively split the right-wing vote. This may give Sigmar Gabriel, the SPD leader who has conspicuously opposed Merkel on both trade and immigration, a chance of edging into the chancellorship next autumn at the helm of a left-wing coalition.

Merkel’s defeat could be welcome in many European countries seeking relaxation of German-led economy discipline widely blamed for impeding growth across the continent.

One result of the poll will indeed be to weaken further the resolve of Germany and other creditor countries to impose budgetary targets on recalcitrant economically pressed states including France, Italy and Spain.

This is in line with a gathering retreat for German-inspired fiscal orthodoxy across the euro area and beyond. Jack Lew, the U.S. Treasury secretary, said before the G-20 summit that the world’s leading economies were now collectively backing a longstanding American campaign to give priority for fiscal stimulus over austerity.

Yet a strong reason for the rise of the AfD — widely scorned as irrelevant when it was formed 3½ years ago, yet with seats now in nine of Germany’s 16 regional parliaments — has been voter distaste for euro policies, especially the ECB’s easy money stance. So Germany’s far-right renaissance hinders rather than assists longer-term structural effort to overcome Europe’s economic imbalances through greater policy cohesion, debt restructuring and transfers to help indebted southern states.