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The Euro rallied in relief after Germany’s ruling government came back from the brink. Chancellor Angela Merkel and coalition partner Horst Seehofer, who had threatened to resign, struck a deal on immigration.

Germany Merkel and Seehofer

The standoff had threatened to unravel chancellor’s ruling coalition, plunging Germany into a leaderless crisis and bring her career to an end. Merkel has served as Chancellor for almost thirteen years. The two reached a last-minute deal for tighter control over immigration with her rebellious interior minister Horst Seehofer after two days of talks.

The euro jumped on the news, with the $EURUSD trading at $1.1645 after sliding earlier in the day as much as 0.9 percent to $1.1591 earlier.

Seehofer announced the agreement late Monday after agreeing to a final round of talks with Ms. Merkel less than a day after offering his resignation as minister and chairman of the Christian Social Union (CSU), the Bavarian sister party of Merkel's Christian Democratic Union (CDU).

Seehofer announced, "We have clear agreement and have reached a sustainable solution. I will continue to serve as interior minister.".

Without the deal a historic breakup of the two-party bloc that’s governed Germany for most off the time since World War II would have plunged the country into crisis.

“After a tough struggle and some difficult days, we’ve found a really good compromise,” Merkel told reporters.

The deal  involves setting up holding centers for some refugees at the German border, it was crucial for Germany with a slew of important meeting ahead. The chancellor meets U.K. Prime Minister Theresa May and Hungary’s Viktor Orban on Thursday, before heading to a North Atlantic Treaty Organization summit with U.S. President Donald Trump next week.

Merkel and Seehofer met with her coalition’s third partner, the Social Democrats after the deal was made. The SPD will still have to agree to any tightening on Germany’s border which could mean another obstacle to overcome. The Social Democrats rejected a similar proposal in 2015.

Bavaria is a migration hotbed since Europe’s refugee crisis in 2015 and 2016 as it is the main entry route to Germany. Gains by the far-right, anti-immigration Alternative for Germany party, or AfD, have brought  the issue back to the CSU’s agenda ahead of a state election in October.

CDU-CSU infighting began last month after Seehofer pledged to send back asylum seekers at Germany’s border if they’re already registered in another EU country. Merkel rejected that proposal, saying it was a unilateral move that violated European asylum law. 

We watch for any disruption frpm Afd ahead of the Social Democrats final decision.

Source: Reuters


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