What Brexit Would Mean for Germany

Opposite trends: Uncertain outlook for business, some good news for Frankfurt

The United Kingdom is Germany’s third largest trading partner. If it was to leave the European Union, repercussions would be felt throughout the German economy. The most imminent would be uncertainty. Would a bilateral trade deal between the UK and the EU be in place in time for Brexit? What would it entail? For instance, would EU standards continue to apply in the UK? And would the bilateral deal be as favourable as current arrangements? These questions would need to be answered quickly, although the volume of trade between the two countries would probably remain unaffected in the immediate aftermath of a potential leave vote.

German investors may start to look elsewhere sooner. A country dropping out of the world’s largest single market would be a less safe, and therefore less attractive, place to invest. Investors need certainty to minimize risk. They would not find it in the UK in the aftermath of a Brexit vote.

Ironically, Germany could also benefit from Brexit, although the extent of this tends to be exaggerated in the German media. Large parts of Europe’s financial services industry are based in the City of London and regulated by the British financial services regulatory body PRA. Under Brexit they would find themselves outside of the EU, and companies with sizeable European operations may be forced to relocate their headquarters, along with at least some of their London-based staff, to other EU countries. As Europe’s second financial city and seat of the European Central Bank, Frankfurt would seem to be the obvious place for them to move to. It is estimated that as many as 10,000 jobs could migrate from London to Frankfurt as a result of Brexit.

However, claims by some in the German media that Frankfurt could overtake London to become Europe’s new financial capital are vastly overstated.

The political fallout: Brexit would be detrimental and deeply unsettling

Some German Europhiles have been gleefully delighting in the fact that Brexit could finally rid them of the most important stumbling block to further European integration. However, such rejoicing is not just misplaced, it is also mistaken. The drawbacks of the UK leaving the EU would far outweigh the benefits. In fact, the political fallout would be a lot more detrimental for Germany than any potential economic consequences.

The UK and Germany are close allies in the European Council and Council of Ministers. They tend to be in broad agreement on issues such as free trade, competitive markets, fiscal responsibility, etc. – and they often vote the same way. A British exit would see Germany – as well as the Netherlands and the Nordic countries – lose a key ally and big hitter in the Council. So far the big four (France, Germany, Italy, and the UK) have been equally split between north and south. Without the UK, the balance would be permanently tilted in favour of the south.

Even more serious is the prospect of Brexit setting a dangerous precedent which could threaten the cohesion of the European Union. Although – like in other member states – support for the EU is on the wane, Germans still believe in the Union as bringing peace, stability and prosperity. For a country right at the centre of the EU and highly dependent on exports, this is understandable and – together with the EU’s founding myth of Franco-German reconciliation – goes some way to explaining why there are still more calls for deeper rather than less European integration in Berlin.
It is unfathomable for most Germans why anyone, or any country, would want to leave the EU. A leave vote would be deeply unsettling for many in Germany.

By Florian Wastl, Director, MSL Germany

WastlFlorian Wastl heads MSL Germany’s corporate and public affairs team in Berlin. He has over ten years of communications experience and specializes in advising international companies to help them navigate the German political and media landscapes safely and successfully. Prior to joining the group in 2011, Florian held a number of other communications positions, including as press spokesperson and at the British Cabinet Office.