May and Merkel – will they get along?

The parallels are all too obvious. They are both females, in their late fifties or early sixties. They are both pastors’ daughters. They both studied untypical subjects (geography and physics). They are both known for being practical, having a strong endurance and, paying attention to details. In addition to all of this, they have fought their way to the top by beating the competition (mostly men) and by making sure that there is actually not too much competition left to challenge them in the future (Merkel has killed off all critics in her party while May was the last Tory-woman standing after a bruising Referendum campaign).

Both are known to be hard workers. Both have the reputation of wanting to get things done and, of just getting on with it, as people say here in Britain. Both Merkel, the German chancellor, as well as May, Britain’s new Prime Minister, have been around for a while (Merkel since 2005, May since 2010). Both are said to be a “safe pair of hands”, a safe bet. Neither of the two has the reputation of being too emotional, chatty, charming, or anything but business.

So, the question goes, will they get along, the German chancellor and her British counterpart? For sure, the relationship between Merkel and May will be crucial when negotiating Britain’s exit from the EU. Both will be studying each others previous negotiating quite closely, and they will be trying to predict the future by investigating the other’s past behaviour in negotiations where a lot was at stake.

From a German point of view, out of the two choices at hand – Theresa May and Andrea Leadsom – May is definitely the preferred option. This is not so much because she was a soft Remainer, but rather because she is expected to behave fairly rationally, pragmatically and reasonably. That’s not to say that Merkel and others should not expect some tough negotiating. Theresa May will, and I am sure that people in Berlin and Brussels will be aware of this, fight as hard as she can to get “the best deal for Britain”.

A lot will depend on the careful calibration of this relationship. Merkel might help May where other European partners don’t want to. But, as the leading representative of one of the most important trading partners of the UK, she can also play a huge role in massaging May into the desired direction.

As to the end result, I am not sure whether it makes a huge difference whether the two get along well, given the gigantic task that lies ahead of them. There is a fundamental issue here that needs to be resolved but that at the same time seems totally unresolveable. How do you keep full access to the Single Market if you plan to reduce the European Freedom of (Labour) Movement? Any negotiator will have to be very witty to achieve anything that comes close to this.

Depending on how the coming months unfold, Merkel could become May’s interconnector into Brussels and other European capitals. However, it could also be the contrary. Merkel might well become a strong adversary to May, should the British Prime Minister try to use the Europeans currently living in the UK as bargaining chips for the negotiations in Brussels.

However, we should not overplay the importance of the relationship between the two. Germany and the UK no longer have closely aligned interests (at least not as aligned as before June 23rd) and so each side will fight with might for what they want to get out of this situation.

So what does Angela Merkel think?

In our post-Brexit world, there are some key figures that will strongly influence the outcome of the negotiations. One of them is Jean-Claude Juncker, the head of the EU Commission, a seasoned EU-politician who made us laugh earlier this week when he asked Ukip-leader Nigel Farage why he attended a session of the European Parliament, given that he was one of the driving forces behind the Leave-campaign.

Juncker did not speak English during that session and made sure that none of his staff or that of other EU-bodies enters any preliminary talks with the British before Article 50 of the Lisbon treaty has officially been triggered. According to Juncker, there “can be no preliminary discussions”. Since the referendum vote last Thursday, Juncker has played hard-ball. As the leading EU-representative, he is obviously not just angry about the British vote to leave but also afraid that it could lead to contagion among other dissatisfied EU-member states. The last thing that Juncker wants to see happening is more countries following the British example.

Then there is Francois Hollande, the French President who will face a general election next year and who has promised to not seek reelection should the unemployment rate stay at where it is. For Hollande, Britain’s vote for Brexit is a dangerous affair. After all, Mr. Hollande has a Ukip-like party in his home country as well, called Front National, a party that has been around since the early 70ties and that has gained some support by voters during the last years.

With France’s economy continuing to suffer and the population resisting reforms, their leader Marine Le Pen offers even more drastic solutions to the country’s problems than Nigel Farage in the UK. It is precisely this why France is relatively harsh towards the UK – to send a message to voters at home that populism does not lead to great results. Thus, the head of the French Central Bank declared over the weekend that UK banks will lose their passporting rights that currently allow them to trade in Europe should the UK leave the EU.

This week, President Hollande delivered a second blow by stating that the City of London would be losing its right to conduct Euro-clearing should the country separate from the EU. According to the FT, he said: “It can serve as an example for those who seek the end of Europe . . . It can serve as a lesson.” Thus, we can assume that France will – for domestic reasons – take a ruthless stance in the divorce talks.

Besides Juncker and Hollande, there is – of course – Angela Merkel, the German chancellor. Also in this crisis, Merkel has followed her previous success recipe. In Germany, we have gotten to know her for only taking sides and positioning herself once all or at least most of the other parties have voiced their opinion. It’s a strategy called “merkeln” that Merkel mastered during her early years in the Christian Democratic Union (CDU), at the time a hugely male-dominated club of guys that ran the show. By waiting them out, Merkel was over time able to gain control over the party.

Even when she became Chancellor, Merkel stuck to her strategy. On numerous occasions, we have seen it played out, both on the domestic but also the international front. No surprise then that it also came into play when Merkel started talking about the consequences of the British Brexit-vote. On Friday, just hours after the announcement of the result, Merkel warned against drawing “easy and hasty conclusions”. On Sunday, she said she would not “push for an immediate withdrawal”.

But before the European Summit on Tuesday, Merkel changed her tone. According to the FT, she said: “We will ensure that the negotiations will not be run on the principle of cherry-picking,” the Chancellor said. “We must and will make a palpable difference over whether a country wants to be a member of the family of the European Union or not. Whoever wants to get out of this family cannot expect that all the obligations fall away but the privileges continue to remain in place.”

To me, this was a clear sign that Merkel has synchronized her attitude towards the British question not only with fellow Christian Democrats such as Finance Minister Wolfgang Schäuble (“In is in. Out is out”), but also with her European allies. Even if we hear conflicting messages out of Brussels, the Leave-side should not take this too serious. Yes, there are different positions on how the EU should deal with the British exit but leading figures such as Merkel, Hollande or Juncker will make sure that there is a unified position in the end.

Instead of reading the tea leaves in Brussels, the British side should focus more on making up their mind and defining what kind of relationship they want with the EU. Unless they have reached that stage, there is no point in bowing and scraping in various European cities. Until Article 50 is triggered, the UK will not be able to strike any agreements with the EU, even if Merkel continues stating that there is no need to be particularly nasty towards the Brits.

Whoever succeeds David Cameron should not rely solely on comments made by German industrials like Markus Kerber, the head of the BDI, the equivalent to the CBI. Just because Kerber warned against trade curbs between the UK and Britain, this does not mean that this position is widely shared by decision makers. For Merkel and other Europeans, there is more at stake here than trade.

What a Brexit would mean for Germany

I have heard it several times already. “So what is all this Brexit-talk about?“ my German friends ask, “why do the Brits want to leave?” “Why to they always need to get a special deal (an “Extrawurst”, in German)? Can they not just stick to the rules?” they ask. Some of these friends then concluded that it would be best if the UK were to leave the European Union. “Sollen sie doch gehen,“ they said. Let them leave.

This is only one part of the story. It’s not as if Germans don’t care whether the UK exits the EU. Once you leave the superficialities aside and really start talking to people, many of them admit that it’s not a great prospect to imagine the EU without the UK. Germany, as one of the core countries advertising deficit reduction and balanced books, is quite aware that a British exit would shift the balance in the EU.

Not only would we lose a country that has never shied away from making it’s point (and by that often publicly stating what Germans would not dare to state). Inevitably, without the UK, Germany would be one of the last men standing with regards to the adherence to existing deficit rules and the resistance to more financial burden sharing.

Due to our history, Germans don’t like to lead in Europe, a fact that – because of the size of the country and its economy – has recently been more hindering than helping. Because of the past, Germany still fears of being perceived as being dominant by other European countries, France in particular.

A British depature would unquestionably spell the end for the alliance between Germany, France and the UK that has governed the EU in the past. Instead, we would see a power shift towards Southern European countries such as Italy, Spain and Portugal – and with that a change in attitude towards fiscal planning, the reform of the Euro and greater integration.

Without the UK, Germany risks being accused of imperialism and dominance when advocating structural reforms and putting the necessary pressure behind these. Germany fears to be “left alone with all these Southerners,” people in Berlin say quietly. Given that there is more trouble ahead – the euro urgently needs fixing, Greece´s debt problem is still unsolved, the EU still has not made the structural reforms that are needed for the continent to remain competitive – it’s an unpleasant idea that Germany might have to go it alone.

Admittedly, the UK is not part of the euro and is thus not directly involved in currency isses. Nevertheless, the country has been a strong voice for reforms and competitiveness which is part of the message that Germany wants to convey. Taking into consideration that there’s still a deep divide between the Northern euro-members and the Southern euro-members, one needs countries like the UK to strike a balance. Of course, I’ve also heard the counter argument: That the UK will never want more, but less integration, and that it can never play the role it should because of it’s non-participation in the euro, in the Schengen-agreement and the Dublin compromise.

A recent study by IHS has thus been arguing that a Brexit could – leaving aside the short-term economic shock – in the long run help the remainder of the EU to move forward. Howard Archer, IHS’s Chief UK and European economist, pointed out that the UK has, in the past, acted more like a brakemen, not as an enabler of further integration. A British exit and that of other member states who are resisting more integration could consequently lead to a core of European countries finally making the necessary steps and growing together, without disturbances from outside. The economic shock following a Brexit from the EU could cause enough pain among EU member states to force them to move forward.

I don’t find that argument too convincing. Europe has shown in the past that it needs strong leaders in order to make changes. Without the UK, there would be at least one voice less advocating for free-market ideas and reforms. Many people in Berlin, especially those working closely with Mrs. Merkel, are quite aware of this problem. But unlike in the spring when finance minister Wolfgang Schäuble toured the City in order to make the case for remain, or last January when Mrs. Merkel travelled to London, we haven’t seen any high profile visits from Germany in recent weeks.

Germans fear that an Obama-type-visit to London (where he warned that the UK would be at “the back of the queue” in case of a Brexit) might be perceived as interference and have a contrary effect on the British population. “There is no argument that hasn’t been made yet,“ a German politician close to Mrs. Merkel and her party told me last week in London. “It would be seen as interference, nothing else.” Because of that, Mrs. Merkel underlined at the G7 summit in Japan, it was the decision of the British people to vote for or against Brexit. (Annotation: On Thursday, June 2nd, Mrs. Merkel and other European leaders made an unexpected intervention. “It’s in all of our interest, but also in British interests, to say that we’re putting all of our weight into a negotiation as part of the EU,” she said, according to the Financial Times).

The threats made by the French economic minister and by Jean-Claude Juncker, the head of the Commission, were “not helpful,“ the politicain stated. A British exit could contribute further to the erosion process that the EU is currently in. “Our economy is at it’s best whereas the French one is at it’s worst”, he said. Without the UK, differences like these could become more pressing. That`s also why the UK should play a more active role in Europe, did it vote to stay. “If they stay, David Cameron needs to make a strong confession for Europe”, the politician said.

Is that realistic, given that the prime minister needs to heal all those old wounds that have been reopened during the referendum-campaign? We will see.