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What Brexit Would Mean For Germany

Mon, 06/06/2016

By Florian Wastl , Director, MSL Germany

Uncertain outlook and a kick-start for Frankfurt?

The United Kingdom is Germany’s third largest trading partner. If it were to leave the European Union, repercussions would be felt across 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 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 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. Under Brexit, they would find themselves outside of the EU, and companies with sizeable European operations may be forced to relocate 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 many of 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: Unsettling and Destabilizing

Some Europhiles have been delighting that Brexit could finally get rid of a major obstacle to further European integration. However, such rejoicing is not just misplaced, it is also mistaken. The political fallout of a UK exit would be significant, and the drawbacks would far outweigh the benefits. The UK and Germany are close allies in the European Council and Council of Ministers. They tend to agree on key issues like free trade, competitive markets, fiscal responsibility, etc. – and they often vote together. 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 tip permanently in favour of the South.

Even more serious is that Brexit could set a dangerous precedent which could threaten the cohesion of the European Union altogether. 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.

Florian Wastl

Florian Wastl heads MSL Germany’s corporate and public affairs team in Berlin. He has over ten years of experience in communications and specializes in guiding international corporations through the German political and media landscapes. Prior to joining MSLGROUP in 2011, Florian was a press spokesperson at the British Cabinet Office. Connect with him on Twitter @flowa12 .

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