Trade at risk

Why German industry must stop a hard Brexit

Hard Brexit, loooong lines. Source: picture-alliance/DPA/dpaweb

Source: picture-alliance/DPA/dpaweb

It’s like turkeys voting for Christmas, as the British would say. I can understand why Angela Merkel views the Brexit negotiations from a purely political standpoint. In political terms, it’s important that there should be no customs border within Ireland. But German industry has other interests and should pursue them.

Germany’s trade surplus with Britain amounts to some €50 billion ($58 billion) per year. It’s Germany’s biggest bilateral surplus with any other country. For German industry, a hard Brexit wouldn’t just be a tremendous misfortune — it would have a worse impact on the German economy than a trade war with the US.

The likelihood of a hard Brexit has increased dramatically in recent months. The border between the Republic of Ireland and Northern Ireland has become an insurmountable obstacle in the negotiations. The EU is insisting on a provision that the Commission wants to take effect if no technical or political solution is found. It would give Northern Ireland continued membership of the single market and customs union.

That would mean either that there would be a customs border between Northern Ireland and Britain or that Britain as a whole would have to remain in the EU’s customs union. Theresa May’s government rejects both. It wants a virtual customs union. The technology required for that has yet to be invented. The EU doesn’t like the proposal. But its chief negotiator Michel Barnier wants to continue talking with the British.

Missing the complexity

There’s no room in this column to list all the problems that Theresa May’s proposal would entail. But from the point of view of German industry, the proposal isn’t that bad. It would keep tariff-free trade. The argument that it would explode the single market is a massive distortion. The single market, its rules and arbitration mechanism would remain in force unchanged.

German industry has a fundamental interest in a clever compromise being reached. It was a pointless step by the BDI German industry association to call on the British government to change its position. The British government won’t listen to a German lobbyist. But the German government would be more likely to.

I also see a danger that Germany isn’t grasping the complexity of the political situation in Britain. British politics has three pro-European factions that are locked in mutual enmity: the first group consists of the hard pro-Europeans who reject any compromise in the hope of getting a second referendum. Polls regularly show there’s a majority for remaining but they did before the last referendum as well. And there are polls that show the opposite.

The second group consists largely of Conservatives who support the prime minister. And the third wants a customs union plus membership of the European Economic Area, perhaps on a temporary basis.

If the EU sticks to its red lines some of these pro-Europeans together with the supporters of a hard Brexit would vote against the treaty. If the House of Commons rejects the agreement there will very likely be a hard Brexit.

A deal that guarantees free trade in goods isn’t as good as full membership but significantly better than no deal. That’s why from the point of view of German industry it’s irrational to support a policy that increases the risk of a hard Brexit. Of all the Brexit positions in Britain, the one held by Prime Minister May is the best from Germany’s point of view – or at least good enough. She wants to protect trade and she wants close cooperation with the EU on security.

Given the political situation in Britain, anyone who continues to call for a hard stance in talks with the British government doesn’t have Germany’s economic interests at heart or is behaving like those turkeys voting for Christmas, bereft of the facts but full of gusto.

To contact the author: columnist@handelsblattgroup.com