Brexit Berlin

Sorry You’re Leaving

US-Präsident Obama in Berlin
Don't be a stranger. Picture source: Bernd Von Jutrczenka / DPA

Everyone knew this day was coming. Yet German Chancellor Angela Merkel joined other European politicians in offering a rather melancholy goodbye to Britain as it officially starts an uncertain two-year negotiating process to leave the European Union.

“We are losing a strong and important member state,” Ms. Merkel said Wednesday. “I hope that Britain and the European Union remain close partners.”

Berlin, along with Brussels and the other European capitals, has been preparing for this day for some time. And yet, like Ms. Merkel, the mood from the capital was one of sadness and uncertainty about the days, weeks and months ahead. As Europe’s largest economy and an export power, Germany needs the next two years to go well.

“A clear guideline for the negotiations is that the Europe of 27 stick together.”

Sigmar Gabriel, German Foreign Minister

“We need each other. We should do everything to foster a friendly relationship with London also in the future,” German Foreign Minister Sigmar Gabriel said. “Let’s stay friends!”

It’s true that Germany will not be taking the lead; Brussels will spearhead negotiations with London over the terms of its departure. Donald Tusk, president of the E.U. Council, was the one to receive the official letter Wednesday from British Prime Minister Theresa May invoking Article 50 of the Lisbon Treaty, making Britain the first country ever to declare it is leaving the six-decade old European economic community. And former French cabinet minister Michel Barnier will be sitting across the table from London.

It’s also true that German politicians – including Ms. Merkel and Mr. Gabriel Wednesday – have called on the remaining 27 E.U. members to stand united in their approach to the talks, something the bloc has so far done with surprising success to date. Now that Britain’s exit is official, the month of April will be dedicated to forming a common strategy, culminating in an E.U. summit on April 29. There are already a number of major stumbling blocks.

“For Germany, a clear guideline for the negotiations is that the Europe of 27 stick together and that we not only maintain this great European unity project but develop it, and equip ourselves for the next storms on the horizon,” Mr. Gabriel said.

And yet, Germany clearly has an outsized say in what happens next – and an interest in the negotiating process running smoothly. Ms. Merkel reported that Ms. May had telephoned her on Tuesday, promising close cooperation in the coming months. As an export-led nation with a close trading relationship with Britain (the U.K. was Germany’s third-largest export destination in 2016 behind the U.S. and France), Germany arguably has more at stake than any of the other 26 nations remaining in the European Union.

“The danger of a lasting collapse of trust through controversial negotiations is all too easy to imagine.”

Dieter Kempf, President, German industry association BDI

That sense of anxiety was palpable among business leaders, a number of whom took Wednesday as an opportunity to urge political leaders not to let the coming talks descend into rancor.

“The danger of a lasting collapse of trust through controversial negotiations is all too easy to imagine,” said Dieter Kempf, president of the German industry association BDI, calling for “maximal damage limitation” from both sides. German carmaker BMW, which has already threatened to pull production of the electric Mini brand out of Britain, called on London to pay heed to the needs of international companies in its talks. In other words: No border tariffs.

Others were a bit more resigned to the fact that negotiations, from Germany’s perspective, have already gotten off on the wrong foot. Britain has made clear it intends to leave the European single market for goods and services, in part because the E.U.-27 refused to bend on the terms for staying in the project, which include allowing free movement of people between countries. Britain’s decision to go for a so-called hard Brexit by leaving the single market, while it may have been a political necessity in Britain, was almost uniformly seen as the wrong one by businesses in Germany.

The fear now, especially among the financial community, is that nothing even close to a comprehensive free-trade deal will be ready to take its place by the time Britain is set to leave in March 2019.

“It is unlikely that in the coming two years, in addition to the exit, there will also be a broad economic deal that regulates common market access,” Hans-Walter Peters, head of German bank Berenberg and president of the German banking association, said Wednesday.

Whether such resignation is justified remains to be seen. Like many industries, banks on both sides have an interest in being able to continue doing business both in the E.U. and in Britain, and have been lobbying politicians hard. Berlin, for the moment at least, seems to have recognized that the failure to reach a deal that smooths the way for Britain’s exit would be bad for both sides. That was the key warning from Wolfgang Schäuble’s finance ministry in an internal report Handelsblatt obtained earlier this week. No deal would lead to “grave” financial and economic consequences, and not just in Britain.

But not everyone is getting the message. Germany’s parliament, in a study from March 22 obtained by Handelsblatt, estimates that Britain’s GDP could be as much as 10 percent below where it would have been if it remained a member by 2030. By contrast, the impact on the E.U.-27 will be “limited,” it said.

 

Christopher Cermak is an editor with Handelsblatt Global in Berlin. Handelsblatt staff contributed to this story. To contact the author: cermak@handelsblatt.com

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