More than 60 years after their last official appearance, Nazi banners returned to the Bayreuth stage on Friday in the middle of the Wagner festival’s new Parsifal. After a moment of shock you could sense the first-night audience (led by German Chancellor Angela Merkel) breathing a collective sigh of relief.

In the late 1930s and early 1940s swastikas bedecked the Festspielhaus. Getting into bed with Hitler was Bayreuth’s darkest hour – something it has hitherto refused to acknowledge, partly for fear of jeopardising its commercial success, partly because the Wagner family’s support for Hitler is a can of worms.

The sense of atonement on Friday, in an opera about redemption, was palpable. At last the festival could talk openly about what had for so long been taboo.

You may well wonder what swastikas were doing in an opera dripping with Christian symbolism. Until now the underbelly of Wagner’s “festival stage consecration play” was thought to have been its purification rituals, linking Wagner with the Holocaust. But Norwegian director Stefan Herheim sidesteps that for a less judgmental interpretation. His thesis is that the transformations intrinsic to Parsifal – transformations of character, physique and ideology that are part of any historical process – are an analogy of the changes Wagner’s ideas have undergone in the context of German history.

The show unfolds on a set of the composer’s townhouse, Wahnfried, with his grave front-of-stage (it actually lies in Wahnfried’s garden). The house symbolises not just Wagner’s dreams but the ideals of the 19th-century fledgling German state. Herheim turns it into a projection-screen on which are traced the parallel transformations of Wagner’s legacy and the German experience.

Act One starts as a fascinating pantomime of birth and death – the past and present uniting in Parsifal’s eyes – while the knights of the Grail metamorphose from an angelic bourgeoisie into a nation bent on expansion. The original 1882 Temple of the Holy Grail, calcified by Wagner’s followers, provides a backdrop for first world war footage.

Act Two portrays the “perversions” of Weimar Germany – Klingsor as a transvestite, the Flowermaidens as showgirls/nurses copulating with wounded soldiers – before the arrival of Wehrmacht troops and Nazi banners, the most powerful ammunition Kundry can throw at Parsifal’s purity. Act Three unfolds against a bomb-shattered Wahnfried and the ban on political discussion at the first postwar festival. The knights are Bonn politicians debating Germany’s frustrated quest for wholeness. The finale turns a gaze on the audience: only by coming to terms with our past can we make something of the present.

As a portrait of a nation that has repeatedly sold its soul to figures promising redemption, it’s an interpretation of enormous daring. You can’t help being impressed by its technical finish: the designs by Heike Scheele, Gesine Völlm, Ulrich Niepel and video company fettfilm draw on all sorts of 19th- and 20th-century cultural iconography. Sceptics should be reassured by Herheim’s ultra-musical direction of his cast, led by Christopher Ventris’s boy-like Parsifal, Mihoko Fujimura’s intense Kundry, Diogenes Randes’s noble Amfortas, Kwangchul Youn’s Gurnemanz and Thomas Jesatko’s Klingsor. Daniele Gatti conducts a wonderfully flexible reading, distinguished by long cantilenas.

Herheim may occasionally overload, but everything is thought through and the swastikas are onstage only long enough to make their point. The performance works on so many levels that you emerge challenged and stimulated: Bayreuth at its best.

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