German businesses are putting more and more pressure on the German Chancellor to not allow Britain to leave the EU with no deal as concerns are rising on the Continent regarding the influx of money from the UK into Europe.
As Angela Merkel looks set to negotiate one of the most expensive coalition arrangements in the country’s history, neither Germany or France are willing to fill the EU budget gap left by Britain’s exit which has forced Berlin to reconsider its Brexit approach.
Mr Münchau, a leading European economics expert, wrote in the FT: “This looming financial squeeze informs Germany’s position on Brexit in rather specific ways.
“Germany clearly wants to avoid a breakdown in the Brexit talks. A no-deal Brexit would cause an existential crisis in the EU since neither Germany nor France would be willing to plug the gap.”
He believes “a country in the middle of Europe with an exceedingly large current account surplus can ill-afford the chaos of a cliff-edge Brexit” – and this is why Germany’s foreign ministry has already prepared a four-page document detailing the outlines of a future trade and co-operation deal.
The paper calls for continued cooperation on foreign and security policy, terrorism and airlines, among other industries, but questions are being asked about the free movement of people.
The ministry states in the paper: “We share the UK’s desire to secure a close partnership with the Union after its exit that covers economic and trade relations.”
It also calls on the EU to avoid a piecemeal approach and any should include, “at a minimum”, the fields of foreign and security policy; fighting terrorism; cooperation on criminal justice; agriculture and fisheries; energy; transport, and especially air transport; research and digital issues.
While the paper does not represent Mrs Merkel’s formal position, it does offer the UK reassurances that Europe’s biggest economy is keen to talk trade despite the Brexit talks deadlock.
The paper calls for a “balanced, ambitious and far-reaching” trade deal but maintains the idea that Britain cannot “cherrypick” certain areas of EU membership that could give it a competitive advantage.
A spokesman for the German chancellor said earlier this month: “A verdict on whether any future exit accord should include transition rules can only be reached when the shape of future EU-UK relations has become clearer.”
Mr Münchau said: “I do not see the EU agreeing to free movement of airlines or nuclear materials without free movement of people. This brings us back to immigration, the issue at the heart of the Brexit talks.
“If the UK restricts the movement of EU citizens into Britain, it is hard to see how a trade agreement can extend much beyond free tariffs on manufactured goods.”
However, Britain’s trading interests with Germany present another opportunity for the UK Government to push the EU negotiators toward a more favourable trade deal.
Merkel’s softening language is not surprising given that German companies would likely be outraged if faced with a sudden cut in supply chains and trade routes.
Last year, Germany ran a trade surplus with Britain of almost £45billion (€50.5billion), representing 1.6 per cent of Germany’s GDP as well as Berlin’s single-largest bilateral trade surplus with any country.