Go for Broke (II)

"Thousands of Jobs in Danger"

Germany's Minister of the Economy, Peter Altmaier is warning of the consequences a hard Brexit could have on Germany. "The EU and Great Britain can and must prevent the great crash at the last moment," Altmaier demanded yesterday, Wednesday, in an interview. "Thousands of jobs are in jeopardy."[1] German companies export "many commodities, particularly industrial goods, and cars, to Great Britain." Therefore, in the case of a hard Brexit, "losses" cannot be ruled out. "Enterprises with large amounts of exports to Great Britain" could "generally be affected." He "hopes," explains Altmaier, "that this will not lead to lay-offs." The minister of the economy pleads for all efforts to be made to reach an amicable solution with London.

"17 Billion Euros this Year"

The appeal raised by the minister of the economy follows similar warnings from Germany's industrial sector. At the end of February, the Federation of German Industries (BDI) declared that a hard Brexit could cost Germany a half percentage point in growth. "That would amount to around €17 billion less economic power for this year alone," Joachim Lang, BDI General Manager was quoted.[2] This is to be prevented at all costs. "Any alternative is better than a No-Deal-Brexit." BDI President Dieter Kempf repeated that warning at the end of March, adding that he parts from the premise that, should it end in a hard Brexit, every fourth German company, doing business on the British Isles, will have to cut jobs.[3] Already, the delay of the Brexit is inflicting serious damage on German industry. "This ambiguous situation dampens the mood, dissuades investors, costs growth and jobs."

Loss of Income

These warnings correspond to a number of studies undertaken by German think tanks. Already, last fall, the German Economic Institute (IW) in Cologne arrived at the conclusion that in the case of a hard Brexit, trade between the EU and the United Kingdom threatens a dramatic slump. If this negative scenario actually materializes, German exports to Great Britain could drop to 43 percent of its current value - representing a loss of more than €40 billion. (german-foreign-policy.com reported.[4]) In mid March, the Bertelsmann Foundation published an analysis that also warned that Germany - second to Great Britain - would be the hardest affected by a hard Brexit. "The Germans," according to the paper, "must brace themselves for annual losses in income of around €10 billion Euros and per capita annual losses of around €115."[5] Especially Düsseldorf, Cologne, and Upper Bavaria will be the administrative regions particularly affected by a hard Brexit, with losses of incomes between €520 and 650 million Euros annually."

Automobile Customs Tariffs

The British government's preparations for the hard Brexit essentially confirm these apprehensions. In mid-March, London announced the transitional arrangements it plans to put into effect, should Brexit be executed without agreed regulations with the EU. Accordingly, to avoid hardships for the population and industry, 87 percent of all imported goods will be duty-free. However, the percent of duty-free imported commodities from non-EU countries will be increased from the current 56 percent to 92 percent. On the other hand, only 82 percent of the imports from the EU would be duty-free – except certain agricultural products, to protect Britain's agricultural industry, it was opined. In addition, imports of cars from the EU will have a tariff of 10% applied.[6] The German automotive industry will be particularly affected. Nearly one-fifth of all cars produced in Germany are exported to Great Britain, which is German car manufacturers' second largest European market.[7] Tariffs of ten percent will seriously reduce their sales.

Pre-Recession

Warnings of a slump in exports to Great Britain are being raised at a moment when the German economy - in multiple ways - has come under pressure. Recently the BDI was among those predicting that the economic growth had fallen to a mere 1.0 percent. The threat of losses is not only due to US President Donald Trump's trade wars, threatening certain exports to the United States and China, and to the sanctions imposed on Russia.[8] Within the EU, itself, growth is also at risk. EU Commissioner Günther Oettinger recently named three problem issues: "Italy in recession, France lamed and Germany on the verge of stagnation."[9] In this situation, a hard Brexit, which, according to the Bertelsmann Foundation's most recent study, would also strongly affect France and Italy, could set off a strong movement downward.

"An EU Trade Colony"

Should it end in a hard Brexit, economists point out that, Berlin and the EU would share a significant portion of the responsibility. As was pointed out in an analysis of the Munich-based Institute for Economic Research (ifo), already back in January, the "backstop," - which is the contentious aspect of the Brussels-London negotiated agreement that prevents acceptance by Britain's House of Commons - is in fact "unacceptable." The unlimited nature of the backstop is the reason, according to ifo, even after Brussels' recent supplementary declaration. A simple EU refusal to allow an alternative trade agreement with the United Kingdom could prolong the backstop not only for years, but also for decades. Thereby, opined Gabriel Felbermayr and Martin Braml, the authors of the ifo study, London would find itself "in an absolute trade policy dependency" on the EU – "and would even be hampered in concluding its own trade agreements." Therefore Great Britain would degenerate "into a trade colony of the EU."[10] Berlin and Brussels could avoid this by simply setting a backstop expiration date, which, until now, they have avoided, in the hopes of forcing London to repeat the referendum. Also for Germany and the EU, the stakes in this poker game are in the billions.

[1] Florian Kain: "Wir müssen den großen Crash verhindern". bild.de 02.04.2019.

[2] "Jede Alternative ist besser als ein harter Brexit". Frankfurter Allgemeine Zeitung 27.02.2019.

[3] Harter Brexit könnte Deutschland 17 Milliarden Euro kosten. faz.net 30.03.2019.

[4] See also The EU's Game of Chicken.

[5] Dominic Ponattu: Brexit kostet Deutschland bis zu zehn Milliarden Euro jährlich. bertelsmann-stiftung.de 21.03.2019.

[6] Most imports tariff-free under no-deal plan. bbc.co.uk 13.03.2019.

[7] Kerstin Leitel: Harter Brexit bedroht 18.000 deutsche Auto-Jobs. handelsblatt.com 22.06.2017.

[8] See also War of Sanctions against Russia.

[9] Die Wirtschaft stemmt sich gegen die Stagnation. Frankfurter Allgemeine Zeitung 01.04.2019.

[10] Martin T. Braml, Gabriel J. Felbermayr: Quo vadis Brexitannia? ifo Schnelldienst 2/2019. 24.01.2019.