Yesterday we reported that the tenuous Merkel coalition government is in a crisis following a revolt of the junior coalition partner, the CSU, over Merkel's immigration policies.
Specifically, as we said Merkel was facing a rebellion from her hardline Interior Minister Horst Seehofer, who demands 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.
This morning, the rebellion appeared to come to fruition when a report on a local radio said that Merkel's Interior Minister Seehofer announced the end of the CSU's allliance with Merkel's CDU, effectively collapsing Merkel's government. From Reuters.
- GERMAN BROADCASTER HESSISCHER RUNDFUNK SAYS ON TWITTER INTERIOR MINISTER SEEHOFER ANNOUNCES END OF CSU PARTY'S ALLIANCE WITH MERKEL'S CHRISTIAN DEMOCRATS IN INTERNAL MESSAGE
The result was an immediate plunge in the Euro:
However, this was promptly reverse following subsequent reports by an unnamed CSU lawmaker who denied the report:
- SENIOR CSU LAWMAKER SAYS REPORTS OF CSU PLAN TO DISSOLVE ALLIANCE WITH MERKEL'S CDU IS "RUBBISH"
- SENIOR CSU LAWMAKER SAYS WE WANT TO PRESERVE PARLIAMENTARY ALLIANCE WITH MERKEL'S CDU
The Euro then promptly spiked:
With Reuters and Bloomberg making the following clarification:
- SPOKESMAN FOR HESSISCHER FUNDFUNK TO REUTERS THE TWITTER ACCOUNT THAT TWEETED REPORT CSU FRACTION TO BE DISSOLVED IS NOT OURS
- SEIBERT: REPORT CSU QUIT MERKEL ALLIANCE FROM SATIRICAL MEDIA
It wasn't just the Euro: Bunds rallied 32c higher with 13k contracts trading in a one-minute window on the initial report; the rally was trimmed however after German government spokesman denied the initial report.
So for now, Merkel's government appears to be still in place, although it remains to be seen just how the CSU and CDU reach a compromise over the increasingly disruptive topic of immigration. If anything, the sharp EUR reaction showed just how great Merkel's influence on Europe's overall stability is. Of course, if Draghi really needs to crush the Euro, he now knows which European politician he needs to get rid of next.