Don’t Sacrifice the EU for Trade with Britain

Since the UK is the third most important export destination for German businesses and the British share some views on economic governance with Germans, the question arises about the German position in the Brexit negotiations. A contributin by IW Director Michael Hüther for German Newspaper Frankfurter Allgemeinen Zeitung.

Whatever the European Council may decide at the end of April regarding its principles for the Brexit negotiations, it is already clear that the 27 remaining members of the Union will not be divided by the upcoming departure of Great Britain. This has become ever clearer in the last few months since the British referendum, not least in the response to Theresa May's letter of divorce. Sober, problem-oriented and without any indication to punish the UK, President Donald Tusk developed a reasonable basis for discussion from an EU perspective.

Brexit is, first and foremost, a British problem. The referendum was driven by internal conflicts of the Tories, the result won with lies and false statements - in short, the complete repertoire of populism. The fundamental criticism of the EU, which is part of the British habit, may indeed have played a role as well as doubts about the refugee policy of recent years. More important, however, were the regional economic imbalances and the economic and political dominance of the Greater London area, which have been characterizing the United Kingdom for too long. The snap elections, which are now due to be held on the 8th of June, can defuse the tensions of the Tories and avoid any doubts about the negotiation mandate. Clarity is always welcome.

The loss of the second-largest European economy hurts. Yet, neither the demise of the European idea nor an economic or political disaster for Germany or any other nation state on the continent will be due to Brexit. Of course - in spite of being first of all a British affair - Brexit has huge implications for the EU. However, it also opens up new opportunities, especially in paving the way for a European defense community, which is justified both militarily and economically. Until now, the British have impeded even small steps in this direction.

The Commission's White Paper presents realistic scenarios for the further development of the Union. There is no utopian fantasizing about a "United States of Europe". On the contrary, options are being sketched out, which emphasize the subsidiarity principle and focus on the essentials (effectivity and efficiency) and also discuss a multi-speed Europe. No trace of a Brussels dictation. Nor does the paper support conspiracy theories, which see the EU as a submissive servant of French policy in the tradition of Richelieu - only seeking to divide Europe.

Since the UK is the third most important export destination for German businesses and the British share some views on economic governance with Germans, the question arises about the German position in the Brexit negotiations. Some propose that Germany should concede to the UK’s demand to have full access to the internal market without free movement of workers. Furthermore, Germany should also link this concession to an agreement for higher funding contributions to the EU. This does not involve a useful design principle for the EU financial framework, however. The argument that the effect of free trade is particularly strong without labor migration is misleading and does not acknowledge the allocation advantages of a common market.

Above all, should Germany serve as the Trojan horse of the British, whose political leadership is disorganized and stuck traditionally between trial and error and whose statehood is threatened by own inability? This does not make sense at all. In this way, Germany would break with its European partners and initiate the degradation of similarities. As a result, one country after another would put its own wishes and interests first. And how credible can the German government promote European integration if it plays into the hands of the Brexit populists?

The unity of the EU members would be endangered by Germany and the chance be missed to develop a new political and economic balance in Europe. The European Union cannot be reduced to the internal market, even in economic terms. Eventually, this would be the collective exit of all members by transforming the Union into an unstable free trade area. The then impending disintegration would cause economic damage, especially to Germany. We would ultimately sacrifice the EU for trade with the British – not a good deal.

However, such proposals are popular among those who have fundamental doubts about the European project, which deny the cooperative capacity of the national states and interpret the EU as an instrument for the financial exploitation of Germany. However, far from the economic advantages, the strongest justification for European integration lies in the centuries-long history of war and violence. The lesson of the first half of the 20th century was that peace and freedom can only be secured through transnational structures.

The biggest mistake of the European narrative, however, was that the nationstates would disappear sooner or later. The modernization initiated by nation building processes towards the expression of sovereignty and identity as well as for the granting of freedom and security have been ignored. European politics must take this historical reality into account and turn it into a positive momentum. The European Union is a club of unpredictable democracies, which has to deal with obstinacies and conflicts, which must endure nonsimultaneities of political and economic developments.

European integration has been and still is an unprecedented success story. She is without compare. The US is running straight into a deep constitutional crisis, China is caught in the trap of its undemocratic structures, and Russia and Turkey have for the time being left their mark as partners of the free and democratic world. The European Union, however, remains as vanguard of the values of the transatlantic West. All this has to be acknowledged from an economic point of view, when the EU's negotiating strategy is defined. There is more at stake than just trade.