The cracks are starting to show in the eurozone’s most stable member

Angela Merkel © Getty Images

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Germany has long been seen as the dull, stolid member of the eurozone, virtually immune to the populist rabble, with a population united beneath the benevolent gaze of long-standing chancellor, Angela Merkel.

Yet even as Merkel was being proclaimed the new leader of the free world after that awful Donald Trump fellow was elected in the US, Germany was in fact proving itself to be just as divided as any other nation.

Rather than the boring but sensible handover to a fourth term for Merkel expected at elections in September last year, the Germans in fact also saw a bit of a populist rebellion.

As a result, they only managed to form a government, still headed by Merkel, in time to take office three months ago.

Now it appears that the cracks are already appearing in the coalition.

Germany’s big problem with immigration

Germany’s big political issue right now – as in many other parts of the EU – is immigration.

Angela Merkel’s coalition partners – the Christian Social Union (CSU) – are at odds with her own Christian Democratic Union (CDU) party over the subject. The CSU wants to give the German police the power to turn away refugees at the German border if they are already registered as asylum seekers in other parts of the EU.

The reason the CSU is getting worried about this is because there’s an election just around the corner – well, in October – in the party’s home state of Bavaria. Its far-right rival, Alternative for Germany (AfD), is of course thriving on discontent over immigration policy.

Merkel blocked the CSU plan last week. She’s worried – almost certainly correctly – that it would irritate other EU countries and make it even harder for the EU to reach an agreement on how they should tackle refugees, including the issue of how many people each country takes in. As the FT reports, “EU diplomats fear that, if adopted unilaterally, this would trigger a chain-reaction of border closures across Europe”.

There’s an added urgency here right now, because the countries that feel they are bearing the brunt of EU-wide immigration – Italy in particular – are saying that they are fed up of being Europe’s buffer states, and that they aren’t getting paid enough to do it.

Last week, Italy refused to accept a boatload of more than 600 migrants who had been rescued from the Mediterranean. Spain offered emergency safe harbour, but clearly this is not a long-term solution.

As a result, Germany is keen for a meeting of eurozone leaders to be held on the topic, perhaps even before an EU summit that’s due in a little under a fortnight.

The risk is that the CSU wants to cause a scene so badly that it decides to break up the coalition, particularly as the CSU man who is proposing the law change is the interior minister, and under German law, he would be able to pass the law without it being approved by Merkel.

This crack can’t be plastered over with printed money

The fundamental problem here is again down to the fact that it’s easy to get countries to co-operate economically when times are good. No one cares about the potential downside of having a common currency when interest rates are on the way down and house prices are on the way up and there’s only upside. The politics of it all is easy in the good times.

But now it’s a nightmare. 2008 destroyed confidence in the financial system and made it clear to anyone who hadn’t already grasped this fact (which I suspect included many, many voters in most eurozone countries), that sharing a common currency meant giving up economic sovereignty to a collective.

Put simply, you can paper over a lot of cracks in your walls with money. But that doesn’t fix the cracks. And when the money starts to dry up, the cracks reappear, and often they’re worse than they were before.

I’m not interested in having a big discussion on the politics of immigration here (I’m an open borders man myself, but I also grasp that this is an ideal which our system is not yet efficient enough to accommodate). But it seems to me that this is primarily about one thing – a sense of control.

When economic times are hard, people feel insecure. Insecurity creates a “scarcity” mentality, which encourages tribalism and hostility to potential rivals for resources.

Let’s throw a couple of other factors into the mix: if you are a member of the euro, you now know very clearly that your country has ceded a great deal of control of its own economic policy. Further, in many cases, the actions of your own government make it appear that you have very little control over your own borders.

It’s hard to see either of these factors reversing in time to prevent political upheaval. So what’s the most likely outcome?

The end goal of those in charge of the EU for now is to keep the project together. If discontent over immigration threatens this cohesion then I suspect the people who pay the price for this will be the immigrants.

I suspect that you’re likely to see tighter border controls and what amounts to an unofficial suspension of freedom of movement before the EU risks allowing the blame for this to spread beyond national governments and onto Europe itself.

Because ultimately, this is the same fundamental problem that faced the eurozone during the Greece crisis. It’s hard to tell your own population of voters that you are handing out their money or other valuable resources to other countries that have run into trouble.

You might see it as a Europe-wide problem – but your voters see it as focusing on another country’s problem, when your nation has plenty of problems of its own.

I don’t see how this circle gets squared. Either Europe takes a step back, or we’ll see a steady decline in the number of pro-EU politicians in the top ranks of power within Europe. Eventually, one of them will decide that they have enough popular support to back a decision to exit.

Expect volatility. This is a slower-moving existential crisis, but it’s one that the European Central Bank can’t simply tackle with money printing.

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