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Anti-euro party's success in German vote spotlights dilemma for Merkel in handling new rival

The head of the Alternative fuer Deutschland , AfD, party, Bernd Lucke, celebrates after the first exit polls for the Saxony State election , in Berlin, Sunday Aug. 31, 2014. Exit polls say the party that wants Germany to ditch the euro currency will be elected to a state assembly for the first time. The polls indicate that the party, Alternative for Germany, won 10 percent of the vote in Sunday's elections for the Saxony state parliament. (AP Photo/dpa, Daniel Naupold)

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The head of the Alternative fuer Deutschland , AfD, party, Bernd Lucke, celebrates after the first exit polls for the Saxony State election , in Berlin, Sunday Aug. 31, 2014. Exit polls say the party that wants Germany to ditch the euro currency will be elected to a state assembly for the first time. The polls indicate that the party, Alternative for Germany, won 10 percent of the vote in Sunday's elections for the Saxony state parliament. (AP Photo/dpa, Daniel Naupold)

BERLIN - The success of a new anti-euro party in a German state election intensifies a dilemma for Chancellor Angela Merkel: how to handle a rival whose rise could make it more difficult for her party to form coalition governments around the country.

Alternative for Germany, or AfD, won 9.7 per cent support in Saxony on Sunday and took its first seats in a regional legislature. It is the latest success for a party that has already won representation to the European Parliament after narrowly missing the 5 per cent threshold needed to enter Germany's parliament last fall.

AfD leader Bernd Lucke told Deutschlandfunk radio Monday that his party has "visibly arrived in the German party spectrum" and that it is "growing from election to election." The party hopes to repeat its success in two more eastern states in elections Sept. 14.

The main economic policy of Lucke's party is to scrap the euro in its current form, at least reducing the number of countries that use it. Though Germany's economy remains Europe' powerhouse 15 years on from the launch of the euro currency, AfD taps into concerns that the country holds the primary responsibility in bailing out weaker economies in the single currency zone, such as Greece and Portugal.

AfD's view on the euro isn't the only difference with Merkel's Christian Democrats. AfD's socially conservative image contrasts with her party's increasingly centrist approach and it also talks tough on immigration.

Merkel said AfD's showing reflected "protest to a large extent." She noted issues such as crime near Saxony's Czech and Polish borders and concerns over Ukraine among matters that need to be resolved.

"My aim is for it (AfD) to play a smaller role as soon as possible," Merkel said after the Saxony result. "So my aim is to talk about what issues we haven't yet resolved sufficiently that people are satisfied."

AfD has drained support from the conservatives' traditional junior partners, the pro-business Free Democrats. They lost their seats in Germany's parliament last year as well as on Sunday in Saxony — where they also lost their last jobs in any state government.

Though Merkel's party won handily, regional governor Stanislaw Tillich faces the choice the chancellor had last fall: reaching across the aisle for a coalition with the left-leaning Social Democrats or the Greens.

Merkel now runs Germany with the Social Democrats. She's tried to ignore AfD and made clear she doesn't see it as a potential partner.

Her parliamentary caucus leader, Volker Kauder, pointed to very low turnout Sunday and noted that other parties have come and gone.

The far-right National Democratic Party, which has thrived in Saxony for the past decade, lost its seats Sunday.

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