Europe’s political risk was a theme tempering market optimism throughout last year. But despite the ongoing Brexit impasse and inroads made by anti-establishment populists in French and German elections, investors breathed a sigh of relief that at least two of the continent’s three largest economies cobbled together pro-European Union ruling governments.
Judging from German Chancellor Angela Merkel’s struggles, the resilience of the European political establishment may be only skin deep.
On Tuesday, Merkel, the centrist leader of the Christian Democratic Union, fended off a mutiny spearheaded by the leader of the CDU’s Bavarian sister party the Christian Social Union. Interior Minister Horst Seehofer’s threat to resign, German weekly Der Spiegel said, was “the end of German politics as we know it.”
Merkel staved off the revolt from the center-right portion of her delicately constructed coalition by agreeing to create transit centers inside the German border that will process migrants and, theoretically, send them back to the European country to which they first arrived. The theory is predicated on a number of presumptions, including whether Germany can reach a deal with said countries.
In the process, the embattled German leader has fueled outrage among the political base of the center-left social democrats (SPD), which make up a much larger share of the grand coalition than do the CSU.
SPD leaders have been relatively quiet, but their voters are incensed. For the moment, the SPD’s fear of new elections is what is holding together Merkel’s coalition. Nevertheless, the fragility of the political establishment in Europe’s largest economy has been laid bare for all to see.