If I was a cow being led to an abattoir and the boss offered me a stake in the business, the first question I would ask is: are you going to stop killing us? Sadly, this was not the first question the leader of Germany’s Social Democratic Party (SPD), Martin Schulz, asked after Frank-Walter Steinmeier, the president of Germany, made a “dramatic appeal” for the centre-left party to join Angela Merkel’s Christian Democrats in a grand Coalition. Instead, the answer was: “Let me consult my colleagues.”

If, as is likely, the SPD’s membership tells Schulz to rejoin Merkel to stabilise Germany, the only prediction one can make is that the price they demand to save her bacon will not be high.

At the core of the crisis are the 94 MPs elected to the Bundestag from the far-right Alternative für Deutschland (AfD) – which has come from nowhere to be the third largest party. So far, they have used their platform to demand Syrian refugees be sent home, and to ostentatiously show support for the German military, which, for historically obvious reasons, is kept out of parliamentary politics. The Bundestag platform, from which extreme language has been absent since the Federal Republic’s foundation, is now a megaphone for the AfD’s racism and Islamophobia.

If coalition talks go nowhere and Merkel has to go for new elections, it would be enough for the AfD to deliver the same result again to cement its position as the revolutionary force in German politics. It would also confirm something no friend of Germany wants to say, but which has to be said: that disconcertingly large numbers of Germans are prone to the modern equivalent of fascism.

A system designed after 1945 to guarantee a two-party centrist consensus has failed to do so. While both the Greens and the radical left Die Linke were successfully absorbed into the parliamentary system, stabilising at between 6% and 10%, the AfD burst through at the first opportunity to score 14% – and this in a country boasting record low unemployment and high levels of social welfare. And many believe the AfD would do even better in new elections.

In the east-central state of Thuringia, where the AfD scored up to 27% in some districts, the leftists and social democrats I met last month were worried. It is not just, or even mainly, the poverty of the old East Germany that has driven people there towards the right: it is resistance to change. The AfD’s base here is middle-class, driven by resistance to migration, to modernisation, to the gradual encroachment of global brands on to suburban Germany’s folksy high streets, and, above all, to further European integration.

The AfD is not classically fascist – and does not need to be. Hitler needed his stormtroopers to take on and defeat the most organised labour movement, and biggest communist party, in Europe – and he did so amid double-digit unemployment. But to construct the essential alliance between the “elite and the mob” – as Hannah Arendt described it – the AfD just needs to go on normalising hate-speech, recruiting well-heeled people from business and the military, and disrupting the status quo.

The centrist Germany of the university campus, the gentrified suburb and the technocratic workplace veers between complacency and fear. Most people I talk to start out saying: “It will all be OK,” and, after a few beers, admit the stomach-clenching possibility that it will not. Berlin, above all, is a city where every old building resonates, if you Google diligently enough, with bad historical vibes; where enough of the past survives to know that in these rooms and on the stairways of now-trendified blocks of flats, the most unspeakable crimes of the 20th century were perpetrated.

So, what should Schulz do? As the price for a new grand coalition, he must demand that Merkel’s party commits to a programme of deficit-led growth, a huge investment programme, an end to the offshoring of industrial jobs to eastern Europe and re-engagement with Emmanuel Macron’s plan for European integration. Germany should end its rearguard actions against expansionary monetary policy in Europe and coordinate a fiscal stimulus to the eurozone periphery on the scale of a Marshall plan. That would be worth propping up Merkel for, but nothing else.

One of the biggest problems with the rest of the G7’s engagement with Germany has been the refusal to acknowledge a problem with the elites that is well known to the German left: their attachment to a rules-based idea of freedom combined with a tendency to make romantic gestures when the rules don’t work. Merkel’s response to the refugee crisis of 2015, and indeed her attempt to expel Greece from the eurozone in the same year, both exemplify a level of unpredictability that the rest of Europe has been too polite to mention.

Although the last time Germany failed to form a government was in the Weimar republic, the parallels here are not with the 1920s. Instead, they are with Austria in 2017. Austrian voters handed victory to a rightwing nationalist conservative demagogue, who is trying to patch up a coalition with the far right. If the German socialists can’t get Merkel to engage with their policy, they should stay out of coalition with her party. If Merkel can envisage forming a minority government, so could the SPD, with the support of the Greens and the radical left. In all three parties, those with imagination should be laying the basis now for a red-red-green coalition that ends neoliberal economics in Germany.

The German electorate needs more cards on the table than continuity versus rightwing revolution. The only thing that’s going to bury the AfD is an alternative for the people, for internationalism, for the active embrace of multicultural values and refugee support – and for social justice.