A spat over the admission of asylum seekers has strained the relationship between German Chancellor Angela Merkel and a junior coalition partner, but analysts said the government was unlikely to collapse.
Interior Minister Horst Seehofer, leader of the socially conservative Christian Social Union, or CSU, wants asylum seekers arriving on the German border to be turned away rather than be admitted and assessed, a stance Merkel has rejected as damaging to her efforts to forge an EU-wide solution to the asylum crisis. The interior minister was reportedly ready to defy the chancellor and put some of his policies into practice as soon as June 18.
Should Seehofer's party pull out of the federal government, Merkel would be two seats short of a majority in the Bundestag. But Holger Schmieding, chief economist at Berenberg, wrote in a research note that the chancellor is likely to survive.
"New elections would not resolve anything, especially as this is a dispute within the conservative camp rather than the usual controversies between different political groups," Schmieding wrote, noting that no other party would conceivably have the numbers to form a government.
Germany's Dax stock index fell 0.5% at 10:13 a.m. ET, having started the day regaining lost ground following the European Central Bank’s interest rate guidance June 14. Equity markets across the globe were in retreat after the U.S. announced tariffs on Chinese goods, intensifying fears of a generalized trade war. Yields on 10-year German Bunds fell 3 basis points to 0.395%.
Seehofer’s stance has reportedly received backing from some members of Merkel's Christian Democratic Union but the parties are pushing for a resolution in the coming days.
At stake for the chancellor is a potential European rules-based asylum system, with the timing of the tussle with Seehofer particularly unhelpful ahead an EU summit on June 28-29. The meeting was already likely to be dominated by disputes with the new populist Italian government over issues including immigration.
Seehofer has to face regional elections in Bavaria in October where his CSU faces a growing challenge from the hard line, anti-immigrant AfD party.