With German elections today and Merkel getting rocked by an immigration scandal, things are looking rocky for the EU coming into October.

German Chancellor Angela Merkel is looking likely to lead another coalition government in Germany after Sunday’s Bundestag elections. Polling has her with a comfortable lead over SPD candidate Martin Schultz.

Schultz is a distasteful Brussels-centric technocrat who, to me, looks like the perfect candidate to ensure Merkel’s continued dominance in German, and by extension, European Union politics.

Schultz is to Merkel what John McCain or Mitt Romney were to Barack Obama, weak candidates put up by the establishment to run poor campaigns designed to lose.

In the same way that I believe Theresa May in the U.K. was made Prime Minister because she is weak, Schultz was put up against Merkel to ensure her victory and, possibly give her a majority government for the first time in her four terms.

In a recent article for Russia Insider I outlined what I think the deal was:

{Foreign Minster and former head of the SPD Sigmar} Gabriel, on the other hand, would have provided a strong counter-point to Merkel’s intransigence on her core value – the EU at all costs. Her pursuing legal action against Poland and denying Hungary its due for its real costs of her immigration policy for the EU are tempered by Schultz’s simpering.

Mrs. Merkel’s Miscalculation

So, Merkel, the ultimate political cockroach, cut a deal to remove Gabriel as her main rival while allowing him to gain popularity as Foreign Minister and say all the things she doesn’t want to say about relations with Russia until after the election is over where the real negotiations can begin.

Anyone watching the twists and turns over the Nordstream 2 pipeline know that Germany is trying to skirt a confrontation with the U.S. while ensuring the pipeline goes forward. Merkel knows she has to turn back towards Russia in the end because the U.S. is becoming unhinged politically.

The U.K. Shuffle

The same script played out earlier in the year in the U.K. Prime Minister Theresa May called for snap elections and then refused to campaign in support of her ideas and Brexit. Labor leader Jeremy Corbyn rose in the polls and nearly stole the government.

The plan nearly worked. If not for the Democratic Unionist Party’s (DUP) strong showing allowing May to form a weak coalition, the Tories would have lost Parliament. Labour could have re-entered Downing Street to dismantle Brexit and sideline Corbyn.

Flies in the Ointment

The questions over Sunday’s vote pertain to how much polling is under-estimating German dissatisfaction with Merkel’s immigration policy. This will directly affect the outcome for Euroskeptic Alternate for Germany (AfD).

If AfD’s totals surprise to the upside, and the latest polling has them as high as 12%, then that will make it difficult for Merkel to govern with the same iron hand she’s had over this past term.

I don’t think the polls are off by more than a couple of points. But if AfD polls 15+% they will be in a very strong position within the Bundestag to drive the agenda as the main opposition party. Merkel will have to make a Grand Coalition with Schultz and the SPD to form a government.

And while Merkel refuses to work with AfD she’s going to have a hard time controlling her conservatives if AfD continues to make its case with voters post-election.

We’ll have a replay in the Bundestag that we have here in the U.S. with Congress uniting against Trump.  They will not allow change to occur despite the voters wanting it.

So, a weaker Merkel, regardless of whether she wins, is only going to embolden other secessionist movements and Euroskeptic parties across Europe. It will be far harder for her to drive EU policy in Brussels if she’s taking heat back home.

Wither Catalonia

But, the big test for the EU is in Spain. The naked aggression of the government in Madrid is on display for the world to see in its attempts to stop Catalonian independence.  Each day brings more aggressive tactics.

I can’t stress enough that these measures will only inflame Catalans even more and ensure that support for independence will rise from the current 40% (supposedly) to well over 50%. Will it be in time for the referendum in ten days?

I don’t know. But I do know that time is against everyone trying to stop this idea.

The EU simply cannot afford to have Catalonia secede from Spain. It is by far the biggest contributor to Spanish GDP and therefore the tax base. With Spain’s very dicey finances and fragile banking system, losing Catalonia to secession would be tantamount to a death sentence for Spain’s sovereign debt market.

And if Spain’s sovereign debt market goes, so does the entire Euro-zone. With ECB President Mario Draghi trying to fool the market into thinking he’s going to stop buying bidless sovereign debt, there is little margin for error.

Remember, the European banking system is insolvent. Its assets are inflated in value thanks to the central banks and the quality of the economies to sustain those debt payments are deteriorating.

Headline GDP may be rising but if you print enough money you will eventually get more spending. That’s all that GDP measures, Gross National Spending. It says nothing about the quality of that spending.

So, if Catalonia votes to leave Spain and refuses to pay taxes to Madrid then what’s next?

Civil War and the violent suppression of an independence movement, which has already begun.

The problem with wholesale opposition to the referendum is that the problem will, as I said, only get worse over time. So, they stop this vote. Then what?

You take their ability to peacefully remove themselves from Madrid’s control, do you think they won’t resort to something worse next?

This is the fundamental problem with the authoritarian mindset, it truly does believe that might makes right and that guns give you all the power.

But, they don’t. They give you the illusion of power until that gun is taken away from you.

This is a lesson that Angela Merkel is going to learn over her next four-year term. Exercising brutal control through the application of leverage creates opposition that eventually cannot be bargained with.

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