Merkel's party faces an historic threat
This is the first time that the Christian Democratic Union (CDU) have ever faced a serious threat from a right-wing party.
While the Free Democrats, a pro-free market party, used to be able to scrape into the national parliament, they provided a useful coalition partner rather than posing a threat.
The hard right Alternative for Germany (AfD) party are quite different. Their populist, xenophobic brand makes them impossible coalition partners for Merkel's party.
But they are becoming too big to ignore. They have now won at least ten percent of the vote in five of Germany's 16 state parliaments. In Saxony-Anhalt on Sunday they won an astonishing 24.2 percent of the vote.
It now seems inevitable they will enter the national parliament in next year's election and squeeze the CDU's ability to build a right-wing government.
A poster for the AfD read 'politics for our own people'. Photo: DPA
Are Merkel's days numbered?
Merkel will have to decide by the summer whether she wants to stand as the Spitzenkandidat (top candidate) for the CDU and its Bavarian sister party, the CSU, in the 2017 national elections.
She has been party leader for 15 years, and her success has always been based on a pragmatism and ‘let's take it as it comes' attitude which appeals to the ideologically averse conservative mainstream.
Only once before, when she announced the immediate closure of Germany's nuclear energy programme after the Fukushima disaster, was she seen to have acted out of character.
A huge number of people on the right believe she put the cart before the horse in welcoming over a million refugees into the country without the requisite infrastructure already being in place.
Conservatives, like elephants, have long memories. The CDU - and Merkel herself - may now believe it is time for a fresh start in 2017.
Politics as we know it is crumbling in Germany
The CDU weren't the only Volkspartei (national party) that got thumped in the elections. The Social Democrats (SPD) also took a hefty beating.
For decades these two parties dominated German politics, fighting between themselves for control of state and national parliaments.
But this hasn't been the case for a decade now. Since Gerhard Schröder lost power in 2005, the SPD have no longer posed a threat to the CDU on the national level.
And the results from Sunday show just how bad things have become. They came in at a measly fourth place in two of the states and lost an incredible ten percent of their share of the votes in Saxony-Anhalt.
The SPD also have to fear losing their voters to the AfD. As one voter told the Süddeustche Zeitung, he always voted SPD but now the AfD "are the only party that listen to his concerns".
The rise of the small parties
Something even more historic than the rise of the AfD happened in Baden-Württemberg. The Green Party became the biggest single party in the state, winning 30.3 percent of the vote.
The environmentalist party had previously controlled the state parliament, despite having a smaller vote share than the CDU. Now they are the undisputed top dogs.
This was the first time in post-1945 Germany that a party outside the big two took the largest amount of votes at a state election.
Whereas in 1972 the CDU and SPD took a combined total of 90.5 percent of votes in Baden-Württemberg, on Sunday they only won 39.7 percent combined - not even enough to build a coalition.
And Baden-Württemberg also isn't the only state where the traditional big beasts have lost control. In 2014, the SPD suffered the humiliation of becoming junior partners to the left-wing Die Linke party.
Voters are no longer tribally attached to the two main parties and will switch from one party to the next based on current political issues or their attachment to specific politicians, the Süddeustche Zeitung argues.
Reading the results as a vote against refugees is too simple
Malu Dreyer celebrated winning in Rhineland-Palatinate. Photo: DPA
Yes, the CDU got a battering. And yes the anti-immigration AfD were the big winners coming from zero to score between 12.6 and 22.4 percent of the vote.
But candidates from the Social Democrats and Greens who are strong supporters of Merkel's refugee policy won in two states, increasing their share of the vote in the process.
The Green Party's Winfried Kretschmann and Social Democrats Malu Dreyer strengthened their holds on state parliaments in Baden-Württemberg and Rhineland-Palatinate.
Their CDU rivals openly defied Merkel's refugee stance, publishing an open letter calling for a limit to the number allowed into the country. Both flopped.
This could be the crest of the AfD wave
Despite the spectacular success of the AfD, this result also needs to be kept in proportion. They are essentially a protest party to which voters fled because none of the major parties reflected their fears about immigration.
But in the last week, the number of asylum seekers entering Germany has dropped to a trickle. Whereas in November, 10,000 refugees were crossing the border every day, last Thursday it was less than 100.
Several factors have led to this, including the closure of the so-called Balkan route. Germany is working hard to build a deal with Turkey which would lead to a more long-term solution to the refugee issue.
Opinion polls show German attitudes to the refugee crisis have fluctuated greatly over the past nine months.
It's clear that many people still sympathize with the plights of Syrians and others, but that they want a refugee policy which alleviates the burden on Germany and better controls who is coming to the country.