Merkel’s house divided

Divisions within Germany’s ruling coalition over refugees have started to jeopardise Chancellor Angela Merkel’s control of the government. To put down a rebellion launched by her own interior minister, Horst Seehofer of the Bavaria-based Christian Social Union (CSU), Merkel now must secure agreements with other European Union member states to bring order to Europe’s asylum system. And that, in turn, requires German concessions on eurozone reforms.

Germany has always been the foremost beneficiary of the EU’s incoherent economic status quo. In the absence of a joint fiscal policy, the common currency shared by Europe’s poorer south and its more productive north has the effect of artificially boosting German exports. It is little wonder, then, that Merkel-led governments have consistently opposed eurozone reforms, including those proposed by French President Emmanuel Macron last year.

But now, cyclical economic developments and Merkel’s own domestic vulnerability are forcing a change. Not long ago, the German position in eurozone-reform negotiations was to offer the bare minimum: redesigning the European Stability Mechanism to turn it into something resembling a European Monetary Fund. Yet during a recent summit with Macron at the German chancellor’s residence in Meseberg, Merkel agreed to far more ambitious reforms than anyone expected. Crucially, she and Macron announced plans for a common eurozone budget, to be funded by a financial transaction tax and EU disbursements.

Merkel’s concession represents a significant departure from what she was willing to accept only a few weeks ago: namely, a program to extend jointly financed loans to troubled eurozone member states. Now that she has agreed to a common budget, existing EU treaties will have to be amended.

But that will not be acceptable to the Netherlands, which leads the Hanseatic League (comprising the Scandinavian and Baltic countries), or the Visegrád Group (the Czech Republic, Hungary, Poland and Slovakia). In fact, the Meseberg agreement will be rejected by Germany itself: the electoral base of Merkel’s Christian Democratic Union opposes a eurozone budget, as do CSU voters, not to mention the far-right Alternative für Deutschland (AfD) and the liberal Free Democratic Party (FDP).

Merkel knows the European and German political scene better than anyone. Why, then, has she made the decision to meet Macron halfway? The answer is that she now needs something from him and the southern eurozone countries that have become transit points for migrants and refugees. At home, Merkel has come under fire from Seehofer, who is demanding that the government send back all refugees who have already been registered in another EU country.

Seehofer’s hardline position on refugees partly reflects the challenge his party faces from the AfD in Bavaria’s elections this fall. But Seehofer is not just playing domestic politics. He has also been undercutting Merkel’s foreign policy, by throwing his support behind other populist and nationalist leaders such as Austrian Chancellor Sebastian Kurz, Hungarian Prime Minister Viktor Orbán, and even Russian President Vladimir Putin. As a result, Bavaria is now part of an anti-refugee crescent that runs through the Visegrád Group, Austria and Italy.

Merkel has suggested that she would dismiss Seehofer were he to issue a ministerial directive for returning refugees. Her own approach is to push for a pan-European refugee agreement at an EU summit later this month. And last week, she met with the leaders of Italy, Greece, France, Austria, Bulgaria and the Netherlands, whose help she needs to restrict the movement of asylum seekers within the EU. In exchange, Greece no doubt wants debt relief; Italy wants looser EU fiscal rules and a change to the European Central Bank’s mandate to include bond purchases; and Bulgaria wants a fast track to eurozone accession.

Merkel’s sudden diplomatic flexibility suggests that Seehofer’s pressure campaign is working. But the political fallout remains to be seen. As matters stand, the CSU could simply accept economic concessions in the eurozone negotiations, though that might hurt it in the upcoming elections. Alternatively, it could break its eternal partnership with the CDU, now that its public support has reached 18%, second only to the CDU’s 22%, according to a recent INSA poll. If the CSU rebels, the CDU can put forward its own candidates in Bavaria. But this is hardly a viable option, as a civil war between the two allied parties would sink them both.

There is a third possibility, though. Merkel could be toppled and replaced by someone further to the right on the refugee issue—a German version of Kurz—such as the CSU’s Jens Spahn, who is currently serving as the federal health minister. Merkel recognises this possibility—which, as it stands, appears to be the most likely scenario for Germany—but she has little choice but to draw out the game in the hope that some other solution will emerge.

Given the risks Merkel faces, Macron cannot expect her to stick her neck out too much. Moreover, he himself will have to tread carefully, because Merkel is one of his only allies within the EU. In addition to the Visegrád countries, the Baltic states, Scandinavia and the Netherlands are all more or less aligned against him on issues relating to eurozone reform. And now Euroskeptic populists are in charge in both Austria and Italy.

Even if a suitable candidate could be found to replace Merkel, that person would not be able to match her in standing up to the likes of Putin and US President Donald Trump. A Germany without Merkel at the helm would be a boon to populists everywhere. If Seehofer’s tactics really do result in Merkel’s removal from power and her replacement by someone like Kurz, it will be clear that Orbán and Jarosław Kaczyński, Poland’s populist de facto leader, are not some kind of Eastern European anomaly, and that both presage what awaits the EU.