The EU is on the verge of political chaos and Britain could be the loser

If the UK is to secure a vital free-trade agreement, it needs both Angela Merkel and a stable Italy

Theresa May visits Germany today, for “crunch talks” with Angela Merkel. Embattled, wounded and clinging to power, the German Chancellor has much in common with her UK counterpart. Having led the world’s fourth largest economy since 2005, Mrs Merkel is a political giant. But her Christian Democrats (CDU) stumbled badly in last September’s election and “Mutti” could soon be out of office.

Some Brexiteers, given the tough line Berlin has taken in our Article 50 talks, take pleasure in Germany’s political misfortune. There is no English word for schadenfreude, but most of us know what it is.

Such gloating is wrong. That the EU’S commercial powerhouse and paymaster has been without a government for almost five months has not been good for Brexit. For Britain’s best hope of securing the UK-EU free trade agreement that is in everyone’s interests is to get beyond the technocratic, grand-standing Commission and negotiate with the member states, the most important of which is obviously Germany.

European Commission President Jean-claude Juncker and chief negotiator Michel Barnier are messianic believers in the European Project. They know little about public accountability and compromise, wanting only to entrench the power of the Commission and the supremacy of EU rules. Far better for Britain to talk directly with democratically-elected leaders who answer to continental voters and businesses – those indifferent to Brussels’ vision of a “European superstate”, but who grasp the jobs and commerce represented by continued close UK trading links.

Ahead of the second round of Brexit negotiations, then, as we try and agree the details of a “transition period”, Mrs May’s Germany visit is important and timely. While the media spotlight is upon her, she should stress that the case for a UK-EU trade agreement is compelling – a basic truth often lost amid spiky rhetorical exchanges. On-going tariff-free trade would help EU exporters to the UK more than their British counterparts, given the EU’S enormous cross-channel goods surplus – some £95 billion in 2017.

Mrs May should highlight that Britain is Germany’s third-largest market, accounting for almost 10 per cent of German goods sold abroad. Exports to Britain support 1.3 million German jobs, with 750,000 British jobs dependent on UK exports to Germany. That is why the head of Germany’s main employers’ group said it would be “very, very foolish to erect trade barriers against Britain”. Wolfgang Schäuble, former German finance minister, has similarly argued the EU should offer Britain a “reasonable deal” on financial services, given the City’s status as a global hub for capital-raising, legal services and foreign exchange.

After Brexit, the UK will be the EU’S biggest external market, accounting for almost 20 per cent of EU exports to non-eu countries, another reality Mrs May should emphasise. And during her Munich speech tomorrow, the Prime Minister must make clear that Britain’s post-brexit commitment to European defence, intelligencesharing and other anti-terrorist measures will be undiminished.

But Mrs May should remember that Mrs Merkel is weak. Having secured just 33 per cent of the vote – an 8.5 percentage point drop on the 2013 election – she has been forced into yet another power-sharing agreement with the centre-left SPD. But that “grand coalition” must be ratified by a postal vote of almost half a million SPD members, the outcome of which is far from certain. Having spent eight of the past 12 years in coalition with the CDU, many SPD activists feel their party has suffered reputational damage. Tens of thousands of new members have joined in recent weeks, with the party’s youth wing running a vigorous campaign to block the coalition, which could force new elections.

That poses a huge danger, in the form of Alternative für Deutschland (AFD). Formed in only 2013, AFD had already secured seats in 14 of 16 regional parliaments before the September election – in which it shocked the German establishment by winning 13 per cent of the vote. A hard-right, deeply eurosceptic party now controls 94 seats in the Bundestag, along with the chairmanship of three parliamentary committees. Another election would likely see Afd’s support rise further. The public, after all, has been offered another, unwanted “grand coalition”, after the CDU and SPD both fell to their worst election performance since the Second World War. The populist AFD will claim that power is again being sewn up by out-of-touch elites.

Should this CDU-SPD deal topple, followed by another indecisive election, Germany will be plunged into further months of political torpor – as the Article 50 clock keeps ticking. That would be extremely bad news for the UK’S Brexit talks. With the EU’S most powerful nation badly distracted, the Commission, motivated less by members states’ interests than by administrative diktat, would remain centre stage.

With Mrs Merkel weak, Mrs May should stress the economic importance of making Brexit work for both sides. For all its economic success, the German economy is plagued by inequality. Jobs and trade really matter, especially in the industrial areas that backed AFD. Across Western Europe, xenophobic nationalism is rising – not just in Germany, but also Italy, Greece and Eastern Europe. Fanned partly by the migrant crisis, it reflects anger towards bailout conditions Germany has imposed on other member states.

If recent financial volatility spirals into a bigger crash, the eurozone, harbouring a slew of bad bank debt, will suffer disproportionately, as it did after 2008. A flashpoint could be early next month, when Italy holds a long-delayed election. Should the anti-eu, fiscally incoherent Five Star movement win – and it’s leading the polls – we could see another eurozone bond crisis. That Italian vote is on March 4, when we will also learn the result of the SPD postal ballot.

If, on that day, German politics enters renewed chaos and Italian bond markets collapse, some Brexiteers will cheer. But Mrs Merkel’s demise won’t help Brexit. And a serious Italian bond crisis could trigger another Lehmanstyle meltdown, which helps no one. Brexiteers should be careful what they wish for. Schadenfreude is nothing compared to a decent Brexit deal.