With the collapse of Merkel’s attempts to build a post-election coalition, British media attention has now swung back to the intricacies of German politics. Somewhat ironically for a country rejecting the EU for a more global orientation, the UK now finds itself re-examining German motives and interests more keenly than ever before. So what is driving Germany’s response to Brexit and how does this impact the UK negotiating stance?
British views on Germany and Brexit tend to plump for one of two narratives. The “commercial” understanding of Germany that, eventually, after public displays of dissatisfaction, they will compromise towards Britain’s requests for a generous trade agreement so as not to impede lucrative UK trade. The other view, a “political” understanding of Germany, maintains they will not risk anything that weakens European integration – indeed, they will seek to punish Britain “to discourage the others”. Both arguments have logic to them, but both obscure a third element – Germany’s own “national interests”.
“Brexiteers” have sometimes been ridiculed for contending Germany will give in “because of car exports” but the statistics don’t lie: In 2016, Germany had a €50 billion trade surplus with the UK – a staggering 1.6% of German GDP – the largest bilateral trade surplus with any country. Given this, there will be significant business pressure to compromise on Merkel’s government. Less discussed in the UK is that despite the necessity for a compromise for German industry, it is surely within Germany’s national interest for Britain to “twist in the wind” before a deal is done.
Why so? For a start because, for over two decades, Germany has, in vain, attempted to augment its industrial power by transforming itself into the financial powerhouse of Europe too. Despite Frankfurt’s pleasant Taunus setting smack in the middle of the EU, it has never had the attractions nor infrastructure to match London or Paris. With Brexit though, the chance of clawing enough banking and trading business from London, to be a big player in the finance world is within reach. The same applies for the FinTech, IT “Start-up” and other sectors Berlin has been eager to attract.
Given this, isn’t it likely that Germany has both an incentive to eventually compromise while simultaneously delaying certainty on the post-Brexit “final state”? Seen thus, the delays and mixed messages emanating from Berlin are perfectly logical. Germany won’t leave its industrial giants (nor its famed Mittelstand) in the limbo of “no deal” – but it will attempt to squeeze as much value out of the Brexit process as it can in the meantime. This implies that any talk of article 50 extensions and transitions are a trap for the UK as it becomes waylaid in discussions in which cliff-edge scenarios encourage a drip feed of further relocations. It surely also suggests that a strategy of targeting German acquiescence over other countries has been a mistake.
A smarter, trade orientated approach for the UK government to Brexit would be to take the short term political hit of agreeing to a generous “divorce payment” and accepting some EU acquired rights of UK resident EU citizens. This should be done on the proviso of maintaining as near as possible existing trade arrangements – and as quickly as possible. Clearly, such a deal would be extremely attractive to the vast majority of EU member states.
The alternative would be a gradual attrition of UK’s premier industry – a sector in which it is both a world leader and one that is by far the biggest contributor to the treasury’s coffers. Brexiteers should ask themselves whether it’s really worth “dying in a ditch” for the sake of an easily serviceable one-off additional €30 billion payment, or to prevent EU citizens bringing their non-EU spouse to live with them?
The British Government has rightly castigated some in Brussels and Berlin for putting politics before business. As Germany’s energies become bogged down in the high stakes political poker of coalition building or new elections it’s time for Britain to act on its own advice and seize the opportunity to pursue a deal in its economics interests.
Nick Tolhurst is a German writer, lecturer & consultant on international governance and finance in the European banking industry. He was previously employed by the Foreign Office.