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June 18, 2018

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On the brink

We noted a newspaper article in Bild yesterday morning saying that the CDU's top leadership would meet in Angela Merkel's office on Sunday afternoon to watch the expected victory over Mexico, and afterwards solve the political crisis. Several events intruded.

Over the weekend, the crisis took a turn for the worse. The two parties, CDU and CSU, met separately and are talking to each other through the media. The personal relationship between Merkel and Horst Seehofer, CSU chief, is irreparably ruined. He is quoted as having said twice during a meeting: 

"I can no longer work with that woman."

There were lots of articles speculating about a break in the union between the two parties, about the CDU competing in Bavaria, and even about the Greens replacing the CSU in the government. Süddeutsche has a good report this morning showing the sheer exasperation of the CDU's leadership. There is an increasing sense that this is personal. Seehofer wants Merkel out, which the CSU now regards as a necessary condition for an CSU absolute majority in the August elections in Bavaria. 

It is possible that Seehofer, in his job as interior minister, will trigger the executive decision today to reject refugees registered with the Eurodac system. He will then order a stay of execution to allow Merkel to negotiate a European deal within the next two weeks, according to Die Welt. Merkel asked him in a meeting last week not to do that because she cannot negotiate a deal when a unilateral decision has already been taken. This would trigger a hostile reaction among other EU countries, and would make a compromise less likely. She is right, of course. And it confirms that Seehofer really does not want a European compromise at this stage. 

Is there a chance for a European solution by the time of the summit? The best analysis we have seen is by Christoph Schiltz in Die Welt. Merkel is seeking an informal summit with Austria, Italy, Greece and possibly a few other member states within the next ten days, that is, before the European Council on June 28/29. 

The EU has not been able to agree a unified asylum system, but Merkel is now determined to set a deadline of June 29 for an EU-wide deal. Failing that, there could be bilateral deals, say between Germany and Italy, but those are equally difficult. The article quotes an EU diplomat as saying that the price Italy's new government would try to extract would be excessive. In his FT column, Wolfgang Munchau says Greece would almost certainly demand debt relief, and Italy's demands would include changes to the fiscal rules, and a change in the ECB's mandate to include bond purchases. This is just another way for Markel to end her career. 

Of the seven pieces of legislation in the asylum package, three remain unresolved: one is the strengthening of the Eurodac system to include biometric data. Another is a proposal for stronger penalties for asylum seekers who abuse the system. There may be a deal on those two. The big outstanding issue is the change in the Dublin regulation. The present regulation shifts responsibility for refugees to the country of the first port of entry. The border countries, supported by Germany, want a binding EU quota. This is rejected by Austria, Hungary, Poland, Czechia and Slovakia. The last meeting of EU interior ministers brought no progress - except that Italy is now much more forceful in its demands than before. A qualified majority would be sufficient, but the European Commission is not sure whether this is even is possible, according to Schiltz. It would be a political miracle if Merkel were able to pull this off. 

Like many other conservative commentators Jasper von Altenbockum supports Seehofer, but he notes that Seehofer's strategy also has a fatal flaw. If Germany starts to reject refugees that are registered, Germany will create incentives for governments of border countries not to register refugees, but to wave them through the Schengen area towards the German border. The quid-pro-quo of Seehofer's proposals is that refugees that are not registered are allowed into Germany.

Our conclusion is that, if there is no deal on the reform of the Dublin regulation, the Schengen system of passport-free travel will no longer be sustainable. Like the eurozone, Schengen is another triumph of ambition over reality, and it is likely to remain in a permanent state of crisis. We will see more unilateral actions by member states to protect their borders without regard for the system as a whole. Unilateralism is also the euro's most dangerous enemy.

Our other stories

We also have stories on the contrasting visions of Merkel and Helmut Kohl on the future of Europe; on whether the Franco-German roadmap is still feasible; on the Dutch response to it; on asset managers starting to prepare for a hard Brexit; on the end of Spanish income moderation; and on the Macedonia deal going ahead.

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