Europe and beyond

Germany can no longer afford for the UK to leave the Single Market

With President Trump trade tariffs and Brexit turning increasingly acrimonious Germany finds itself with an outdated economic model built on a world that no longer exists.


Disponibile anche in: Italian


US and the UK are on a path now to raise domestic employment by implementing explicit or implicit anti-trade policies (other non-EU countries will certainly follow suit).
Whatever the merit of these policies they will force down the US and UK’s current account deficits and ergo the EU’s current account surplus.
Because the EU’s austerity program has essentially bankrupted peripheral Europe it is no longer able to absorb German surpluses.
So Germany’s current account surplus will be forced into a rapid decline, meaning Germany either has to borrow a huge amount to fund government led investment (e.g. China 2009–’11) or it simply accepts much higher unemployment.
That would be accepting much higher unemployment with a political environment led by an unpopular coalition and the Alternative für Deutschland already on 15%.
Considering President Trump’s views on Germany’s approach to trade there’s little chance of Germany extending its trading relationship with the US.
So to avoid either huge borrowing needs or significantly higher unemployment Germany must ensure it can continue to trade tariff-free with the UK.
The questions are:

  1. How far down the path is Berlin in recognising and enacting policy to ensure this?
  2. Does Merkel have the leadership skills to drive this through at the EU level?
  3. Would UK voters accept the effects of absorbing German surplus (i.e. was Brexit about immigration more than jobs, real incomes etc.)?

Tom Brammar | Mar 9, 2018 9