June 15, 2018 / 7:47 AM / 10 months ago

Daily Briefing: Bavarians at the gate

LONDON (Reuters) - We’re seeing just how much Europe’s politics are being defined by the 2015 migration crisis and its leaders’ uneven response to it.

German Interior Minister Horst Seehofer walks in the German lower house of parliament in Berlin, June 14, 2018

First, Italy’s far-right, anti-immigrant League gets into government in Rome; now the survival of Angela Merkel’s already weak coalition in Berlin is at risk.

She has so far failed to placate leaders of her Bavarian CSU sister party, who want the right to turn away refugees registered elsewhere in the EU - something that would ride roughshod through current EU rules on asylum and the Schengen open borders pact.

Her interior minister, Horst Seehofer of the CSU, is even threatening to start refusing arrivals without her agreement from next week, a challenge which would force her to sack him and trigger a full-blown government crisis.

The CSU is to decide on further steps at a meeting on Monday. All this is happening because of the failure of other EU countries to work together to share the fallout from the earlier migration drama, when hundreds of thousands of people fleeing conflict in the Middle East and Africa turned up on its shores.

A new EU poll shows that immigration is now the top concern of European voters. But reflecting just how politicised and disconnected from real-life issues the whole debate is, those concerns are at their highest in countries where immigration is minimal - Estonia, the Czech Republic and Hungary.

Merkel is by no means the only European leader in trouble - as we turn to Athens and London. Greece's parliament is debating a no-confidence motion on Prime Minister Alexis Tsipras after his historic but controversial accord to solve a decades-old name dispute with its tiny northern neighbour.

Opposition politicians have accused him of a massive capitulation in agreeing a formula including “Macedonia”, the birthplace of Alexander the Great and a key component of Greek national identity. The debate in parliament is expected to wrap up on Saturday.

Tsipras’s coalition has a thin majority in parliament, so the government is unlikely to fall, but if parliament were to back the no-confidence motion Tsipras would have to hand over his mandate to the country’s president. Tsipras is already trailing in opinion polls, hurt by the painful economic reforms introduced as a condition for a third multibillion-euro bailout for Greece in 2015.

Meanwhile in Britain, pro-EU lawmakers in Theresa May's ruling Conservative Party are seething after she offered them much less than they were expecting in a new amendment setting out parliament's role in shaping Brexit.

They rejected a last-minute offer yesterday that would have allowed parliament a “neutral” debate over what to do in the event of a snag but didn’t explicitly give them much power over what happens next.

The whole thing has to go back to parliament for some kind of resolution next week; the bad blood between May and her Europhile backbenchers is getting worse and a rebellion still can’t be ruled out.


The Federal Reserve and European Central Bank may have unnerved markets this week, with the former signalling a total of four rate increases this year and the latter suggesting possibly none until the end of next year but pledging to end bond buys in December. One central bank, however, shows no sign of budging.

The Bank of Japan has dialled down its inflation view and said it would continue buying bonds for the foreseeable future. Add to that President Trump’s determination to impose "pretty significant" tariffs on some $50 billion worth of Chinese goods and you have a combination of factors that leaves markets not quite sure which way to turn.

But the central banks may have lit another fire under the dollar, which has surged to seven-month highs against a basket of currencies and is set for its biggest weekly gain since November 2016. The euro, meanwhile, is on track for its worst week in 19 months, having slumped almost 2 percent on Thursday after the ECB meeting, and the yen is down to three-week lows versus the dollar.

World stocks are set for a weekly loss, Chinese mainland shares have fallen around one percent and are at a more than one-year low and the yuan is at two-week lows. The question now is whether and how China will react to the new U.S. tariffs.

The stronger dollar is having the usual effect on emerging markets. Brazil’s real is down 2.6 percent on Thursday to one-year lows and the Turkish lira is again weaker and heading back towards recent record lows. An index of emerging market currencies from JPMorgan is down at seven-month lows. But the Fed and dollar are unlikely to deter Russia’s central bank from cutting rates today by 25 bps to 7 percent.

Greek Prime Minister Alexis Tsipras attends a parliamentary session ahead of a debate on a motion of no confidence by the main opposition in row over a deal on neighbouring Macedonia's name, in Athens, June 14, 2018

On euro zone bond markets, it’s happy days again. Yields on Italian bonds - the market most vulnerable to higher borrowing costs - are set for their biggest weekly drop since September 2012, down around half a percent.

Wall Street saw Nasdaq close at a new high while the SPX also inched up as strong retail sales numbers reinforced the picture of growth streaming ahead. Watch for June’s Empire manufacturing survey due later today. The euro zone will see final CPI, which arguably will be of less interest than comments from Novotny and Couere.

 — A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own. —

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