BLOG

It's looking increasingly likely that German Chancellor Angela Merkel may have attended her last G-7 conference.

A day after the euro whipsawed on conflicting reports touting the collapse of Merkel's governing coalition, a lawmaker from Merkel's own party said the Chancellor could be out by the end of next week during an appearance on BBC World at One (via Express). On Friday, German media reported that Merkel's junior coalition partner, the CSU, had announced the end of its alliance with Merkel's CDU - though that report was quickly denied.

While the German public's anger over Merkel's "open door" policy has been simmering for years, the instability within the ruling coalition - which features a decades-old political alliance between the CDU and CSU - intensified when Merkel decided over the weekend to veto a plan by Interior Minister Horst Seehofer aimed at controlling and reducing illegal migration. The minister’s refusal to back down has already shattered an uneasy truce between conservative backers and opponents of her liberal asylum policy.

Whittaker

Kai Whittaker

German MP Kai Whittaker, a CDU member, said Merkel's clashes with Seehofer - who is demanding that German border police be given the right to turn back migrants without identity papers or who are already registered elsewhere in the European Union - are threatening to bring about "a new political situation. And probably a new chancellor."

As Whittaker astutely points out, the political crisis stems from the fact that the issue of immigration has become "a power question".  The AfD, which outperformed expectations during Germany's fall elections, owes its rise largely to its anti-asylum stance. And as the chaos builds, Whittaker explained that German lawmakers are largely in the dark about what is happening with the leadership.

"We are in a serious situation because the question of the migration crisis evolved into a power question...the question is who is leading the Government? Is it Angela Merkel or is it Horst Seehofer? Everybody seems to be standing firm and that's the problem."

[...]

There is a master plan to solve the migration crisis, which consists of 63 ideas of Horst Seehofer.

Wittaker also pointed out that Seehofer's clashes with Merkel could be linked to upcoming local elections in Bavaria, where the conservative party is concerned about retaining a majority.

"This must have to do with the coming election in Bavaria because it is vital for the Conservatives to win an overall majority because that’s why they have a national importance."

"This kind of has the potential to diminish the authority of her and Horst Seehofer and it could well be that at the end of next week we have a new situation. Probably a new Chancellor."

Merkel has opposed what she sees as Seehofer's heavy handed approach toward immigration, and has held meetings with members of her party seeking support for her failing asylum policies, which brought more than 1 million migrants to Germany in 2015, leading to a spike in violent assaults. However, many of Merkel's allies are even demanding changes to her "open door" policy regarding migrants. Seehofer's plan would replace an existing EU rule, which would allow Germany to send the asylum-seekers back to the first EU state they entered. For now, the coalition agreement is still in place. But if the German government collapses, or looks to be headed that way, expect even more volatility in the euro - and by extension, more strength for the US dollar (and pain for emerging markets).