The compromise deal meant that Mr Seehofer was able to hail tighter immigration controls, while Mrs Merkel was able to say that Germany adhered to European Union rules and upheld freedom of movement within the bloc.
German Chancellor and chairwoman of the German Christian Democratic Union (CDU), Angela Merkel, announces new deal with Interior Minister and chairman of the German Christian Social Union (CDU), Horst Seehofer, in Berlin on Monday.
Merkel reiterated her position that if countries start turning migrants away at national borders unilaterally, it would cause neighboring countries to close their borders and jeopardize the border-free movement within the EU.
"After intensive discussions between the CDU and CSU we have reached an agreement on how we can in future prevent illegal immigration on the border between Germany and Austria", Mr Seehofer told reporters as he was leaving the CDU's Berlin headquarters.
All new migrants would have to be screened at the centers and determined if they are eligible to seek asylum in Germany.
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That's football at the end of the day, there can only be one victor , and it goes to the best team rather than the best player. Both these nations won their respective World Cup groups and can come into this tie full of confidence. "I am sure he will.
He accused Merkel of failing to consult her junior coalition partners, the Social Democrats (SPD), who crucially have yet to give their go-ahead to the transit zones. While much of what was agreed remains vague, it is clear that the "solution" will involve "transit centres" on Germany's border with Austria and bilateral deals with other European Union nations.
Sebastian Kurz is Austria's current chancellor.
The SPD was quick to attack Seehofer, who had offered his resignation as minister and party leader on Sunday, blaming him for bringing the government to the brink of collapse with his so-called migration masterplan, over certain details of which he and Merkel have been at loggerheads. Party leader Andrea Nahles said "the CSU is on a risky ego trip that is paralyzing Germany and Europe".
Speaking at his party's annual gathering Sunday, Matteo Salvini, Italy's interior minister and leader of the anti-immigrant League party said he wanted to create a pan-European association of like-minded parties, Reuters reported, a further indication that nationalist forces are gaining strength.
"For the Christian Social Union (CSU) it is of utmost importance not to lose its credibility.The promise has been that Seehofer would stop immigration of those who are not entitled to go through the asylum procedure in Germany".
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The EU responded to the steel and aluminum tariffs with "rebalancing measures" that hit around $3.25 billion worth of American-made products.
"News that Merkel is safe and the fragile German coalition will live to see another day has encouraged traders back into the Dax, which had been suffering at the hands of investor anxiety about new snap elections", said London Capital Group analyst Jasper Lawler.
"We'll take the time we need to come to a decision", she added.
Before the refugee crisis of 2015, Seehofer was mainly concerned with regional pet projects tolerated by Merkel, such as rewarding mothers who raise young children at home with state benefits and charging foreign motorists for using Germany's Autobahn.
Angela Merkel returned from Brussels with an agreement forged, or critics would say fudged, with her European counterparts about the handling of refugees and migrants. He accused the CSU of a ruthless attitude towards refugees, insisting that the "C" in CDU and CSU no longer stood for "Christian" but for "chaos".
Despite those steps, both sister parties took a beating in September 2017 elections as millions of voters switched to the far-right AfD party, which is also running against the CSU in Bavarian elections in October, threatening to destroy its governing majority.
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