New Survey Not on Britain's Side

British Prime Minister Theresa May hopes German exporters will pressure Berlin into making concessions to the UK in Brexit talks. She will likely be disappointed.
Is Theresa May making promises she can't keep? Picture source: Bloomberg

Theresa May has said repeatedly in recent months that she doesn’t believe “E.U. leaders will seriously tell German exporters, French farmers, Spanish fishermen, that they want to make them poorer just to punish Britain and make a political point.”

She thinks export-dependent German companies in particular will exert pressure on Berlin to protect their close trade links. After all, Britain is Germany’s second most important market in the European Union. Germany had a huge trade surplus with Britain last year, with exports worth €86.1 billion, more than twice as high as imports from Britain at €35.6 billion.

But Jürgen Matthes, an economist at the Cologne Institute for Economic Research, said that from what he has seen and heard, German companies don’t want concessions to Britain to be so generous that they endanger cohesion within the EU. “Even if that means taking some losses,” he said.

A survey released this week by the corporate consulting firm Deloitte came up with similar results. Only 26 percent of large German firms that do business in Britain want the country to retain extensive access to the single market if it’s allowed to block the free movement of people from the EU, one of the EU's four basic freedoms.

“German companies see their home market as Europe, which they have to protect,” said Alexander Börsch, chief economist of Deloitte Germany. “They don’t want to risk the EU breaking apart because other countries pull out after Britain. In light of this, the companies believe it’s better to accept short-term disadvantages.”

A hard Brexit would prompt one in three German firms to relocate their British operations to another European country. Nearly 50 percent said they would invest less in Britain.

More than half the companies surveyed by Deloitte said they were preparing for their British business to deteriorate. But they don't know exactly what to prepare for because even though Britain formally launched the Brexit process on March 29, negotiations have not yet begun and won't start in earnest until after the British general election on June 8.

“First there were expectations of a soft Brexit, then a hard Brexit, and now a hard Brexit with concessions. It’s completely unclear what the outcome of the negotiations will be,” Mr. Börsch said.

A hard Brexit, which involves Britain leaving the EU single market for goods and services, would prompt one in three German firms to relocate their British operations to another European country, according to the survey. Nearly 50 percent said they would invest less in Britain. Such considerations are particularly common among firms in the technology and automotive sectors. Over half the firms in those industries are also considering raising their prices to pass on the costs of Brexit to British customers.

Brexit may even benefit the German economy. The survey found that 41 percent of companies could imagine Germany becoming more attractive to foreign investors after Britain leaves. Germany could lure more foreign startups, strengthen its standing as a research location and attract more foreign talent. The financial capital Frankfurt in particular is seen as a big potential winner of Brexit. Munich could become more attractive as a technology site and Berlin for startups.

“There are very clear advantages,” said Mr. Börsch. “But regardless of what the outcome of the Brexit talks will be, the conditions for trade between the two regions won’t be better than we have today. Companies will have to prepare for this and this will mean additional costs.”

Kerstin Leitel is a correspondent for Handelsblatt in London. To contact the author: [email protected]