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Germany Stands Against Protectionist Measures to Punish UK after Brexit

By: Amanda Blohm - Jun 27, 2016, 3:52 pm

Germany’s Minister of Finance Wolfgang Schäuble has prepared an eight-page plan for following the British referendum vote to leave the European Union.

Schäuble and the rest of the Merkel cabinet would like to avoid making too many concessions to the UK that would give the other 27 members incentive to follow. Germany is reportedly most worried about Austria, Finland, France, Hungary and the Netherlands. Additionally, Chancellor Angela Merkel and Schäuble want to avoid letting France and Italy use Brexit to push for a greater pooling of liabilities in the Eurozone.

The Finance Minister specified that the EU will not offer much leeway to Britain in gaining access to the EU internal market: “In is in; out is out.” Additionally, he stated there will be no automatic entry into common markets. German finance ministry officials spoke of “difficult negotiations as the EU and Britain part ways.”

It is not certain whether the rest of the EU member states would agree to implement a hybrid EEA-style arrangement — like that of Norway — but the outlook seems positive. France’s member of the European Central Bank François Villeroy de Galhau said Britain could “keep access to the single market” and its passport rights if it opts for the Norwegian model.

The German industry lobby (BDI) said it would be “very, very foolish” to protect measures or even place tariff barriers between the EU and Britain.

Main difficulties will arise due to Britain’s membership and participation in the European Investment Bank (EIB), the EU budget, where the United Kingdom is the second largest contributor, and because the UK would have had the EU presidency in 2017. The main reason why Germany is worried about Brexit, however, is because its annual contribution to the organization could rise by up to three billion euros.

The plan formulated by the finance minister includes creating an “Association Treaty” between the UK and the EU. The plan will not only address trading and markets, but other regulations as well.

Ultimately, the plan for negotiations between the EU and the UK will be forged by Chancellor Merkel, France’s Francois Hollande and Italy’s Matteo Renzi, where the latter two will surely bump heads with the former. Hollande and Renzi both want a radical shift in economic policy as a response to the Brexit, and Germany will not budge.

As The Telegrpah’s Ambrose Evans-Pritchard writes:

“What is clear is that two cardinal objectives of post-Brexit policy are hard to reconcile: the EU cannot impose a harsh settlement on the UK, to prevent a ‘domino effect,’ while at the same time nursing the Eurozone economy back to health.

“Failure to mend fences with London risks an economic crisis that would expose long-festering pathologies of monetary union.’There is a cocktail of factors that could lead to disintegration,’ said Pier Carlo Padoan, Italy’s finance minister. ‘We face a double reaction from Brexit: financial and political.”

The treaties and negotiations are said to take around two years to complete after the UK activates Article 50 of the Lisbon Treaty.

Merkel expressed deep regret for this and said she is “willing and able to not draw quick and simple conclusions from the referendum…which would only further divide Europe.”

Sources: Fortune, Handlesblatt, Focus, The Telegraph.