The winds of political change sweeping through Europe have hit Germany too. Chancellor Angela Merkel’s Christian Democratic Union suffered a stinging defeat on Sunday in the country’s most populous state of North Rhine-Westphalia, which has been dubbed the party’s worst score since World War II. The results have huge significance not only for Germany but for all of Europe. Merkel is the chief architect of the widely-reproached austerity policy which the European Union has prescribed for its crisis-hit members, mainly Greece. That policy has created huge disappointment and social upheavals as it focuses on repairing economies by adopting austerity measures, which have been accused of piling more misery on an already suffering population and stifling growth when the growth is badly needed. Merkel has refused to budge from her position despite intense opposition from abroad and the election defeat is seen by her detractors abroad as a positive development that will persuade, if not force, her to change her stance.

North Rhine-Westphalia, with almost a quarter of Germany’s 82 million people and an economy bigger than Switzerland’s, is Merkel’s biggest electoral test this year before the federal election in the fall 2013. Despite the Chancellor’s intense campaigning, her party took 26.3 percent, more than 8 percentage points below its score at the last election in May 2010. The Social Democrats won with 39.1 percent, an increase of almost 5 points from 2010, while their Green Party allies took 11.3 percent, giving a majority to Kraft’s SPD-Greens coalition that ruled for two years in a minority government in the state.

Voters across Europe have expressed displeasure with Merkel’s policies, especially in Greece where mainstream parties were punished in recent polls for signing loan agreement with foreign creditors that required deep spending cuts. In neighbouring France, Merkel’s close ally, the incumbent President Nicolas Sarkozy, was defeated by his rival Francois Hollande who rejected the German focus on austerity and advocated more pro-growth policies. Also, the results will embolden the Social Democrats in Germany as they align with French President Hollande in an anti-austerity front pressing for steps to spur economic growth to counter the crisis. It might also persuade Merkel to shed her stubbornness on the austerity pact, by agreeing to incorporate measures which are growth-friendly.

Merkel will have to tread extremely cautiously as she leads the party to the next year’s federal election. She has admitted the defeat was a bitter pill to swallow, but insists it will have no impact on the election next year. She also indicated that her policies will not be changed. “It does not affect the work we have to do in Europe,” she said.

But despite such assertions, she will be forced to adapt to the new realities.