Into th the slow lane
‘Cardiac arrest’ for Germany’s core industry?
Germany risks an economic war on three fronts at once. The combined shocks would endanger the post-war miracle, and expose the underlying fragility of an ageing nation with 20th century industries. Donald Trump’s 25pc tariff on European cars is likely to come into force this autumn, shutting half a million German vehicles out of the US market.
This could happen just as Italy’s Lega-Five Star insurgents force a budget showdown with the EU, threatening to set off a chain of events that ultimately leads to euro rupture and a lex monetae default on vast German credits.
Both sagas may well intrude before the final Brexit summit in October. A “no deal” breakdown would then start to have an existential feel for Germany.
Its car industry sells 770,000 vehicles a year to the UK, more than to the US and China combined. Britain is their profit cash-cow.
Eurointelligence says the combined effect of Trumpian tariffs and a Brexit bust-up would amount to “cardiac arrest” for the core industry of the German economy, already reeling from the diesel scandal and struggling to keep up on electric cars.
Of the three threats, Brexit is by far the easiest to defuse. Theresa May is bending over backwards to avoid a clash.
Yet Berlin has chosen to take a maximalist ideological position despite the enormous risk. The German elites have come to believe their own rhetoric about the sacral qualities of the EU single market, even if a cynic might think it cover for mercantilist advantage.
Amid the barrage of demands on May over recent days, we have a gem from the German Federation of Industry (BDI): “The United Kingdom is hurtling towards a disorderly Brexit”.
Britain “has to accept” – note the imperial tone – the customs union, the single market and EU law under the sway of the European Court. There is no glimmer or recognition that both the Tories and Labour fought the last election on manifestos rejecting such outcomes, and that violating this is a capital crime. It sums up the German view. They want full access to Britain’s market for goods where they have a €50bn (£44bn) surplus, while refusing reciprocal access to services on the normal basis of “mutual recognition”. They demand that Britain remains in the full regulatory and legal structure of the EU just to secure this dog’s dinner.
“The British Government is still playing for time. This strategy will lead to disaster,” states the BDI. This leaves one speechless. It is of course Brussels that is playing the time game. It is withholding assent on a flexible solution to the Irish border in order to force Britain into its legal orbit, aiming to eviscerate Brexit.
The high-decibel warnings by European businesses – the German BDI, Airbus, BMW, Siemens – are coordinated and are intended to scare Britain into “compliance” at the Brussels summit this week.
On the EU side the push is coming from the European Commission’s taskforce on Article 50, controlled by Martin Selmayr. On the British side it is being fanned by a nexus of Remain interests with an eye on the Chequers battle over the Brexit White Paper in early July.
May is boxed into a corner. She decided before last December’s EU summit to pursue a friendship policy hoping that it would unlock a tolerable deal, even pledging total solidarity in defence regardless of Brexit talks.
This strategy has failed. The gestures were pocketed. The December pledge to move on “Phase II” talks has come to nothing. Propitiation has emboldened Selmayr and the Franco-German axis to push harder.
We have incessant leaks from Brussels, one day suggesting British aircraft might be denied landing rights at EU airports, another that British citizens might need EU visas, unlike citizens of Venezuela, Indonesia, Botswana or Kazakhstan.
I do not expect the British Government to deviate from its current course. It has effectively abandoned Brexit and will opt for the lamentable halfway house of EU duties without EU rights. There is a 1940 feel to this, except that this time we are France.
Several readers told me after my last jeremiad that it is still not too late for a new departure, and some suggested that the UK should exploit Germany’s troubles with the US and Italy to force better terms. My answer is to outflank the entire Selmayr structure. We should not negotiate at all with people who have demonstrated an intent to harm us. The only way to achieve this safely at such a late stage is to rip down our entire tariff wall and declare unilateral free trade from March 2019. There should be a five-year carve out for agriculture.
It would change the global narrative of Brexit overnight. It would cut through the Gordian knot of Ireland. If there were a hard border it would be erected on the orders of the EU, on one side only. If the EU refused to entertain a hi-tech “MaxFac” and “trusted trader” scheme for intra-Irish trade – and a waiver for the 80pc of small business traffic – it would be on their heads.
Unilateral free trade would eliminate the worry over long queues at Dover. The queues would be in Calais, and the EU side would suffer the opprobrium of chaos, and the reproaches of European companies with broken supply chains.
The presumption that it would lead to a flood of cheap goods and wipe out British industry is unscientific.
Average tariffs are just 1.6pc. Sterling moves by that much in a single day. The currency would find an equilibrium rate for the capital account, as it has in free-trade Singapore with a booming manufacturing sector greater akin to Germany as a share of GDP.
Where there are pockets of hardship, the Government would have wide latitude under WTO rules for state aid. It takes 20pc of GDP to fight a big war. Let us earmark a fifth of that – £80bn or so – as a transition fund financed by borrowing to get the country through the crisis until British independence is safely restored.
Not a penny of the £39bn exit should be paid unless the EU acts in a civilised fashion over Euratom, landing rights, visas, and a long list of house-keeping issues.
It is a fair bet that Britain would enjoy a surge in global investment and economic dynamism once the dust had settled. It would no longer be a pitiful supplicant, begging for mercy at one excruciating summit after another. The venture would be marvellously daring. Can it be any worse than what is now coming straight at us?
‘We should not negotiate at all with people who have shown an intent to harm us’
German chancellor Angela Merkel alongside Rupert Stadler, chairman of car maker Audi. Merkel faces an economic war on three potential fronts