(Bloomberg) -- German Chancellor Angela Merkel defused a feud with her Bavarian allies over migration, ending a standoff that threatened to upend her government.
The euro rose after Merkel and Horst Seehofer, the interior minister and Bavarian party leader who had threatened to resign, unveiled the deal late Monday after more than four hours of last-ditch talks in Berlin. The accord halts a slide toward a historic breakup of the two-party bloc that’s governed Germany for most off the time since World War II.
“After a tough struggle and some difficult days, we’ve found a really good compromise,” Merkel, who heads the Christian Democratic Union, told reporters. Seehofer confirmed the deal, which involves setting up holding centers for some refugees at the German border.
Merkel and Seehofer, who heads Bavaria’s ruling Christian Social Union, pulled back from the brink as they risked the possibility of a government collapse and potential end to Merkel’s almost 13 years as chancellor. Under the deal, Seehofer stays on as interior minister, a post that gives him federal border enforcement powers.
The truce clears away an obstacle that eroded Merkel’s authority at a time when her challenges include a trade conflict with U.S. President Donald Trump, the U.K.’s exit from the European Union and rising populism across Europe. 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 Trump next week.
The euro jumped on the news, trading at $1.1639 at the end of Monday after sliding earlier in the day as much as 0.8 percent to $1.1591.
After their deal, Merkel and Seehofer met with her coalition’s third partner, the Social Democrats. The SPD will have to agree to any tightening on Germany’s border, raising a possible snag after it rejected a similar proposal in 2015.
Bavaria became a migration flashpoint during Europe’s refugee crisis in 2015 and 2016 as the main entry route to Germany. Gains by the far-right, anti-immigration Alternative for Germany party, or AfD, have returned the topic to the CSU’s agenda ahead of a state election in October.
Europe or Bavaria
The 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. The CSU chief signaled he would move ahead with the plan anyway.
Merkel seemed to short-circuit that threat with a deal at last week’s EU summit in Brussels, involving efforts on the European level and a series of bilateral agreements. But Seehofer rejected that, too, on Sunday.
Their deal calls for the establishment of “transit centers,” extra-national facilities at the border where asylum applications can be processed quickly. Refugees already registered in other EU states can be sent back on the basis of bilateral accords -- or as part of an agreement with Austria, according to a statement distributed to reporters.
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