German View

Schäuble's Secret Brexit Plan

Schäuble source dpa
The German Finance Ministry, headed by Wolfgang Schäuble, took the unusual step Wednesday of denying a local media report that the government was preparing a bailout plan for struggling Deutsche Bank. The bank's shares, which hit new lows on Monday and Tuesday, rose after the statement.
  • Why it matters

    Why it matters

    Britain’s decision to leave the European Union could lead to other countries leaving the 28-nation bloc.

  • Facts

    Facts

    • Britain has at least two years’ time to negotiate a departure from the European Union.
    • Following its exit, it is free to hammer out a so-called “association treaty,” which outlines trade rules and other issues between Britain and the European Union.
    • Other countries that might want to leave the European Union could be France, Austria, Finland, the Netherlands and Hungary, according to a paper from the finance ministry.
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    Audio

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The German government aims to push for the European Union to negotiate an association agreement with Britain once it leaves the E.U., but wants to avoid making too many concessions that would give incentives for other states to follow suit, according to an internal German finance ministry paper seen by Handelsblatt.

An association treaty spells out trading rules and other regulations between the European Union and a non-E.U. country, for instance whether import tariffs apply to certain goods or services.

A treaty with Britain, once it had left the European Union, should not offer too much leeway to Britain in gaining access to the European Union’s internal market, said the ministry’s document, of which Handelsblatt has obtained a copy.

The document, prepared by Finance Minister Wolfgang Schäuble’s department, is called “German strategy regarding Brexit.” Eight pages long, the paper details how the government wants to deal with Britain as it leaves the European Union.

To deter other European countries from leaving the bloc, the European Union “should refrain from setting wrong incentives for other member states when renegotiating relations,” said the paper.

Both Mr. Schäuble as Chancellor Merkel fear that the European Commision, France and Italy could exploit the current uncertainty to push for greater risk-sharing.

Other countries that might want to leave the European Union could be France, Austria, Finland, the Netherlands and Hungary, according to the paper. “The extent of the knock-on effect will depend on the handling of the United Kingdom,” it said.

Mr. Schäuble and his boss, Chancellor Angela Merkel, are also worried about another issue, according to the document. Both fear that the European Commision, the region’s executive body, France and Italy could exploit the current uncertainty to push for more risk-sharing — a reference to pooling liabilities in tackling the euro debt crisis, for example. Germany should “proactively” steer against such a development, the paper said.

Mr. Schäuble’s staff are worried about an increased level of shared liabilities in the euro zone, for instance an independent budget for the 19-nation single currency region or a European deposit guarantee scheme.

These are sensitive topics in the northern European countries, which are net contributors to European Union and have usually resisted greater risk-sharing in the euro zone or European Union. More risk-pooling would not be the right answer following the Brexit vote, according to the document. It could strengthen the hands of other euroskeptic movements in E.U. countries, not least in Germany, where the euroskeptic party Alternative for Germany, or AfD, attracts more than 10 percent of the electorate in opinion polls.

 

Britain Germany economy GDP EU European Union net contribution pay 23 p37 The E.U. Biggest Economies and Contributors-01

 

Berlin is only willing to accept a deeper level of integration in the European Union when E.U. treaties are changed, for instance to strengthen the control of budget and economic policies. One of the proposals in Mr. Schäuble’s paper is to give the European Union the power to block a nation’s budget plan if it does not meet the region’s deficit rules.

The finance department, however, does not expect that there will be a consensus for more integration.

The paper also said Britain’s departure from the European Union could cost Germany €3 billion, or $3.3 billion, to make up for the future absence of Britain’s contribution to the European budget. The hole would have to be plugged by other E.U. countries.

Before Britain leaves the European Union, however, it has to negotiate with the region about its exit terms. According to E.U. rules, it has as least two years’ time to come to a “leave agreement.” In coordination with the European Union, Germany is willing to offer “constructive exit negotiations” but “difficult separation talks” are being expected, according to Mr. Schäuble’s document.

Britain not only has to leave from the European Commission, where hundreds or perhaps thousands of British citizens work, but also needs to part ways with the European Investment Bank. In addition, it needs to discuss which entitlements and obligations it still has with respect to the E.U. budget and whether Britain can still take on the E.U.’s rotating presidency next year.

 

Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. To contact the author: hildebrand@handelsblatt.com

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