German and UK flags

Brexit and the EU: Germany moves on

Published: 22 February 2017
Author: Kirsty Hughes
In Berlin, Brexit is not at the top of the agenda. EU challenges will loom large in the upcoming German elections. But Germany’s main concerns on Europe range from Russia’s behaviour to the impact of Trump, France’s presidential election, and unity, or not, amongst the EU27.

Tough talks ahead – May’s dream trade deal not possible

As far as Brexit goes, Berlin – like the rest of the EU – is waiting for Theresa May’s Article 50 letter. Once it’s received, the European Council will issue negotiation guidelines, followed by a more detailed draft negotiating mandate drawn up by the Commission which must then be approved by the Council. Actual talks might not start until June.
Amongst my Berlin interlocutors last week, there was much concern as to the tone of the Brexit talks once they start. No-one thinks these will be anything other than very tough negotiations. The possibility of a breakdown of talks – the WTO cliff – is one that Germany wants to avoid, even though it would damage the UK more. Merkel (if she remains in office) will do her best to keep the tone constructive, but her top concern is the unity of the EU27.
Many in Berlin are especially concerned that the UK does not understand the limits of what it can get from the Brexit talks – there are worries that what May wants in terms of a trade deal is impossible and that this is not yet politically understood in the UK. 
The UK view that, since it already meets all EU regulations, a very good, deep trade deal will be possible is essentially rejected. Since the UK wants its own regulations, its own migration policy, and will not accept oversight of the European Court of Justice, a trade deal that is somehow much much better than that with Canada is seen as simply unrealistic. If the UK will not in future directly take on EU rules and regulations (i.e. be a ‘rule-taker’), then any free trade deal has to get into the tricky detail of how much deviation in rules might be allowed, how to supervise that and how to deal with disputes.
While there is at least some optimism that tariff-free trade in goods can be achieved, the tough hits will come with non-tariff barriers – the bureaucracy of regulatory checks, rules of origin and more. 
Services can be in a deal, but only on the basis of regulatory equivalence – passporting for the City of London will end, cross-border production and supply chains will get more difficult. There is no magic wand that can give the UK a ‘Norway minus’ deal of full access to the single market while having its own migration policy, regulatory environment and supervisory bodies.
May’s hard Brexit approach also means that experts in Berlin cannot see how to avoid a harder border than now between Ireland and Northern Ireland. Scotland is not at the forefront of anyone’s thinking – but there is awareness that an independence referendum could come back onto the agenda, and would have to be factored in if so.

Transition deal will be complex

The Article 50 talks will also need to set out some sort of transition process for the UK to cover the time between it leaving the EU – in March 2019 – and the implementation of a UK-EU trade deal some years later. There seems to be some common ground here between the UK and Germany but also much room for disagreement. A transition arrangement will be a patchwork of different specific transitions – the time needed to establish new customs procedures, forms, processes etc will be different to the transition time needed to protect EU citizens’ rights, or to protect products (from food to drugs) as the UK leaves the EU’s various regulatory agencies.
As in Brussels, there is deep awareness in Berlin of the amount of detail that Brexit is going to entail. There are hopes that, once talks start, the EU27 and UK can make an early announcement of their joint goal of protecting EU citizens’ rights in the UK, and UK citizens’ rights elsewhere in the EU. But the devil will be in the detail – from access to health, education and social benefits to questions of timing and longevity (will EU citizens already in the UK keep these rights for their entire lifetimes, if not, how long?).
The European Commission wants to focus talks, once they finally start, onto the UK’s budget liabilities. The UK is likely to insist it wants to talk about the framework of its future trade deal in parallel – but this will need new guidance from the European Council. EU member state politics will enter in here – Germany is not the only country worried at how to keep unity across the 27 while also keeping Brexit talks on track.

EU politics

By the autumn, Germany and France’s elections will be over. The possibility of some new energy and strategic direction for the EU looks better towards the end of 2017 than now.
In Berlin, there is a recognition that whether Fillon or Macron win the presidential election (should Le Pen win all bets are off), France will need some time to implement new policies and shake off its political weakness of recent years. A revived Franco-German partnership, perhaps with a broader leadership – taking account of Poland, the larger southern states, and with more German attention too to some of its smaller near neighbours – could change the European mood. But this will need new, high impact policies too not just good intentions.
There is some talk of multi-speed Europe, but one that is open to all, and with the unity of the EU focused now around its single market more than the eurozone (much though more reforms are needed there too). 
That’s the more optimistic outlook. But there is much unease in Berlin: from Trump to Putin, to populism (including Brexit), the EU is at a critical moment – and there is no denial of that. The EU’s current malaise, of lack of leadership, lack of solidarity and big internal and external challenges, is what will pre-occupy Germany in the autumn. Brexit will matter too – but it’s neither Germany or the EU’s main challenge.

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