How the German elections could change the course of Brexit

Early in the morning after his dinner with Theresa May on 26th April, an account of which was subsequently leaked to a German newspaper by his chief of staff, Jean-Claude Juncker made a telephone call to complain that the British Prime Minister was living on another galaxy. The call was not to Donald Tusk, the President of the EU Council responsible for directing the Brexit negotiations. It was to the German Chancellor Angela Merkel.

This illustrates where power in the EU lies. In the past, the so-called Franco-German motor provided Europe’s political impetus. Now Germany alone is at the wheel. That is not because it has set out to lead or considers itself entitled to do so—phrases like “manifest destiny” or “the indispensable nation,” which so easily trip off American tongues when discussing their country’s role in the world, would be anathema to any German politician. It is because the rest of the EU has chosen to follow. Germany’s economic strength, the attractiveness of its social model and the quality of its senior politicians have given it an unprecedented dominance in EU affairs. In the challenges of the sovereign debt and banking crises, Greece and the euro and Mediterranean immigration, Germany has provided the response.

Germany set the terms for David Cameron’s abortive re-negotiation of Britain’s membership of the EU and it is Germany that will determine the conduct and outcome of the Brexit negotiations. Any analysis of their prospects must start from an understanding of Germany’s own EU aims and how Brexit fits into them.

Germany has traditionally favoured something called a political union. But no German politician has ever spelled out what this union would look like. What German governments have consistently made clear is that it will not be a “transfer union”: there will be no big central budget, no common policies which require major expenditure and no pooling of member states’ debts. Germany’s energies are focused on dealing with the problems of the day. The only policies that Germany has proposed in recent times have been for tighter control by the European Commission of member states’ budgets, and more tax harmonisation. Both would suit its national interests, neither are exactly an integrationist clarion call.

Germany’s national interests are, of course, what German governments pursue in the EU. In this respect they are no different to other members: they are simply reluctant to admit it. For in German public discourse the EU is projected as something nobler than a transmission mechanism for Germany’s economic success. This is what motivates Germany in shaping the EU’s policies.

The current two priorities for Germany in the EU are sustaining the euro as a sound money currency and managing the problems associated with migration across the Mediterranean. Even before we decided to leave the EU, Britain was irrelevant to these interests: one reason no doubt why Germany was unwilling to pay too much of a price to keep us in. Brexit is, by comparison, if not a sideshow then at least a second-order issue.

This does not mean that Germany will pay little heed to the negotiations or is indifferent to their outcome. Order is a much valued quality in Germany and a disorderly British withdrawal from the EU—with no understanding on the terms of the divorce or the nature of the subsequent relationship—would, from a German perspective, be unwelcome. It would damage the EU’s international reputation, would spook the markets and would create a climate of uncertainty and instability. So Germany will be looking for an agreement and will use its political muscle to get one. But it will have its own interests to protect. These are the maintenance of unity among the 27 member states, the preservation of the integrity of the single market and ensuring that it does not have to pay any extra as a result of Britain’s withdrawal (hence the hard-line approach over the size of the divorce bill).

Maintaining unity among the 27 means that the EU will only deal with Britain through its appointed negotiators. Merkel will not engage in any bilateral diplomacy with May. When they meet, which in future will be rarely, she will listen to anything that the PM has to say about Brexit, but will not commit to any response. The tactic that Cameron employed in his re-negotiation of trying to sell ideas in advance to her and only advancing them if confident of her support will not work this time round.

As regards the single market, Germany will continue to insist that the four freedoms of movement—goods, people, services and capital—are indissoluble. May is right that Britain cannot stay in the single market without accepting full free movement. German intransigence on this point was a surprise to Cameron, who had hoped that Germany, which has its own public concerns about social benefits for Polish workers, would be more sympathetic here. But the issue was not so much one of principle, as precedent. If an exception had been created whereby a member state facing a high level of EU immigration could impose provisional restrictions on it, then other countries with balance of payments difficulties could demand their own restrictions, such as import surcharges,  on the free movement of goods—a red line for Germany.

Tariff-free access for exports to the UK is also a German interest, but not a central one. German manufactures sell on quality rather than price and most could absorb a WTO tariff regime without difficulty. Similarly, as regards customs arrangements, German car makers are less reliant on border-straddling supply chains, and could easily switch the sourcing of parts they currently import from Britain. BMW could manufacture its Minis in the Netherlands where it has spare capacity. So though the concerns of the German business community will be heard, as they always are, they will not be decisive. In any case, the German equivalent of the CBI has said the single market is its main Brexit priority.

In sum, Merkel will not show any particular sympathy for Britain during the negotiations. But she will not be vindictive and her decisions will be rational and predictable. However she may not always be Chancellor. She currently dominates both German and European politics and is, according to Forbes, the most powerful woman in the world. But she faces an election in September; and after 12 years in power she is not certain of victory.

Her opponent, Martin Schulz of the Social Democrats, was a surprise choice. He has no track record in German politics. His only national elected office was as a municipal councillor and mayor of a small town near Aachen. Since 1994 he has made his career in the European Parliament—where he led the Socialist group-—and served as its President from 2012 to 2017.

During his time in Strasbourg, Schulz displayed considerable political cunning, but was mainly interested in advancing the power of the Parliament itself. Since returning to Germany, he has presented himself as a man of the people and initially generated a bounce in the SPD’s poll ratings. Having hovered in the low 20s, they surged briefly to over 30 per cent. But the novelty soon wore off and Merkel’s CDU has re-established a six to eight-point lead.

In theory this should guarantee her the Chancellorship next time round. But German politics has become complicated. There are four parties in the present Bundestag: Christian Democrats, Social Democrats, Greens and Die Linke, a far-left party which has inherited the support of the former communist party of the German Democratic Republic. But there could be two more after September’s election: both the long-established Free Democrats (social and economic liberals) and the newer Alternative für Deutschland, an anti-euro and anti-immigrant party, are currently polling above the 5 per cent mark, which is threshold for representation in the Bundestag. Schulz had already hinted that, unlike all his SPD predecessors, he might be willing to go into a coalition with the ex-communists. He has already pulled his own party to the left, by indicating a readiness to repeal the labour market reforms introduced by Gerhard Schröder, the SPD Chancellor from 1998-2005.

Schulz is a euro-fundamentalist, a close associate of Juncker and would certainly want to punish the UK, for which, like many other Brussels apparatchiks, he has an undisguised contempt. If Merkel and Michel Barnier remain the key Brexit figures on the EU side, a deal, though not guaranteed, is possible. If, contrary to what the opinion polls currently suggest, Schulz becomes Chancellor it is much less likely.