Germans are becoming more anxious about Britain’s forthcoming departure from the European Union than the British themselves. The latest bout of German angst was set off by a study that estimated Brexit will cost German businesses €9 billion ($11.4 billion) a year in customs duties and other trade costs – if the European Union and Britain don’t agree on an exit deal and simply trade under World Trade Organization rules.
“These increased costs and uncertainty threaten to reduce profitability and pose existential threats to some companies,” said the study by consultants Oliver Wyman and law firm Clifford Chance.
Trade volume between Germany and Britain amounted to €121 billion ($150 billion) in 2017. Germany has the largest trade surplus with Britain of any country in the EU, totaling about €47 billion in 2017, meaning Germany stands to lose the most from a chaotic British exit from the EU.
Joachim Lang, director general of the Federation of German Industries, who has been critical of Britain’s inability to reach an agreement on the terms of disengagement, said if a deal is not reached by next week at an EU summit, German companies would have to adopt emergency measures that assume trading with Britain would be more difficult. That means relocating businesses that produce for international markets to EU countries.
“Some of them will be forced to focus on their worst-case scenario contingency plans that nobody wants and will harm everyone,” Mr. Lang said.
Contrast that gloom with the upbeat mood in London. British business advisor BDO said at the end of last year that its monthly Optimism Index, which measures how firms expect their order books to develop over the next six months, increased in December. The rise in business optimism is also reflected in the jobs market, BDO said.
More than 60 percent of small exporters in Germany have no experience with borders.
From the German point of view, a free trade agreement with Britain would be better than nothing. Because cargo must be declared at borders, indicate proof of origin and, possibly, be required to be manufactured to meet British standards, the lack of a trade deal would be costly in a number of ways for German firms.
For example, Britain is the fourth largest market for German carmaker BMW, which directly employs 24,000 people in the UK and supports another 50,000 jobs.
At one factory near Oxford, which builds the iconic Mini, four out of five of the 250,000 cars produced last year were exported, half of them to EU countries. Nine out of 10 Mini parts come from outside the UK. If BMW wants to continue to build the Mini in the UK, it faces longer waiting times at borders, more bureaucracy and higher costs.
The UK is the only market where we produce for all three car brands,” said a BMW spokeswoman. “Britain is therefore of great importance to us.”
While major companies have supply chains outside of Europe and can better adapt to Brexit, smaller companies tend to be confined to the European market. “More than 60 percent of small exporters in Germany trade only in the EU,” said Finja Carolin Kütz, head of Oliver Wyman in Germany. “They have no experience with borders, so they face great challenges in the future.
As Britain evolves separately from the EU, differences in regulation may create technical barriers to trade that most affect Germany’s small and medium-sized companies, said Thilo Brodtmann, chief executive of Germany’s mechanical engineering association. “Even the conclusion of a free trade agreement between the EU and Britain, which is not now foreseeable, would not prevent these additional burdens,” he said.
Donata Riedel writes about economic policy for Handelsblatt and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: email@example.com and firstname.lastname@example.org