By Erik Kirschbaum
BERLIN (Reuters) - The German government dismissed charges on Monday that it has become "incapacitated" because of its failure to agree on a strategy on the refugee question that has sent Chancellor Angela Merkel's approval ratings falling to five-year lows.
Merkel's spokesman Steffen Seibert acknowledged she and her conservative ally Horst Seehofer, leader of the Christian Social Union (CSU) sister party, had not bridged their differences at a two-hour meeting on Sunday over his demand for refugee limits.
But he brushed aside a chorus of complaints from the opposition Greens and Left parties that the government was rudderless because they were unable to find common ground on the explosive issue that has hurt the conservatives at the polls.
Seehofer wants a law limiting the number of refugees coming to Germany each year to 200,000. Merkel refuses any limits. Their dispute has festered for nearly a year in which more than a million refugees fleeing war and poverty arrived in Germany.
"The government was always fully capable of acting on this issue and it is still capable of acting," Seibert told a regular government news conference after being grilled about the divisions in Merkel's conservative bloc.
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"We're in the middle of an arduous and formidable process," he said. "We accomplished a lot but have a lot of work to do."
The CSU has long criticized Merkel's liberal refugee policy and on Saturday Seehofer said the two conservative parties face election defeats if they remain at odds over migration.
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In a regional vote on September 4, Merkel's CDU came in third place, behind the anti-immigrant Alternative for Germany (AfD) - a shock result that Merkel has acknowledged was a result of her party's pro-refugee stance. The AfD is also expected to perform well in a regional vote in Berlin next Sunday.
The accusations that Merkel's three-party grand coalition government - made up of her Christian Democrats, the CSU and the center-left Social Democrats (SDP) - has become incapacitated followed Sunday's fruitless meeting between Merkel and Seehofer.
The two later met SPD leader Sigmar Gabriel in Merkel's office but the refugee issue was not discussed, officials said.
"That the coalition leaders won't even discuss an issue that has everyone so worked up is an admission of failure," said Katrin Goering-Eckardt, a Greens parliamentary leader. "You have to ask yourself if this coalition has become incapacitated."
Left party parliamentary floor leader Dietmar Bartsch said it was astonishing that the coalition leaders avoided the issue.
Bartsch said the government's days were clearly numbered, adding: "The best thing would be to file for divorce quickly."
Even the SPD, part of the coalition since 2013, has started to express doubts about its ability to operate.
"It's Merkel's job to ensure that the CDU and CSU are able to govern," said SPD general secretary Katarina Barley, Gabriel's deputy leader in the SPD headquarters. "The SPD can't keep mediating the cat fight between the CDU and CSU."
(Reporting by Erik Kirschbaum; editing by Michael Nienaber and Gareth Jones)