Will The German Elections Smooth The Path To A Soft(er) Brexit?

Will The German Elections Smooth The Path To A Soft(er) Brexit?

So just how many ways can be used to describe an event? So far we’ve had Hard, Soft, Chaotic, Amicable, to name just a few and the continued use of modifiers doesn’t look like slowing down anytime soon. The whole Brexit saga is starting to look more and more like a Rubics Cube where you just can’t get the last two squares.

 

It’s like the old joke about peace talks where after three weeks of intensive discussions, the two sides decide which side of the table to sit on.

 

There is any number of seemingly irreconcilable differences. Try as I can, I haven’t really found anything the two sides agree on apart from the fact that they’re both completely in the right and that the other side is going to come out worse for wear.

 

For a “marriage” that started in 1973, there’s a lot of pent-up frustration. After 44 years you would have thought the two parties would have at least got to know each other but with the way the negotiations have gone so far, separate bedrooms must have been in use from just after the wedding.

 

What’s on the table is the alimony settlement. Who pays what to whom and when and who gets the children. Children in this case, of course, being tariffs and taxes. Hard Brexit would deny the UK access to the single market with the UK having to fall back on WTO (World Trade Organisation) agreements and rules for trade with EU members. Hard Brexit would leaver Great Britain in full control over border security, immigration, free movement and new trade deals with trading partners, free from any EU restrictions.

 

Soft Brexit would be a kind of limbo for the existing relationship with the UK giving up MEPs (Members of the European Parliament), its European Commissioner and the seat on the European Council. It would, however, retain access to the single market without any tariffs and any passported regulatory agreements for financial services (MiFID for example) would remain in place. This is the “half-in, half-out” relationship that for example, Norway follows. It’s much like a kind of associate membership and would mean Britain would have to agree to the freedoms of movement (goods, services, capital, people), essentially the 4-red flags to the “Leave” bulls.

 

September 24th is election day in Germany with German Chancellor Angela Dorothea Merkel seeking a 4th term in power. While Merkel’s CDU party (Christian Democratic Union of Germany) is expected to emerge with the biggest slice of parliamentary seats, it seems highly unlikely Mrs. Merkel will win a clear majority in the Bundestag. Can you spell Coalition?

 

Who the coalition party ends up being is a different question and the possible answers varied. What is clear is that the CDU has been bleeding voters who have been moving en masse to the right-wing, Anti-EU AFD (Alternative For Germany) party. Support for the AFD has been surging, and most of that is coming from Chancellor Markel’s side of the room.

 

Currently the third biggest party in Germany (latest polls put the AFD at 11% behind the CDU at 36% and the SPD at 22%).

 

If the CDU and the SPD form what is commonly referred to as the “Grand Coalition” that would leave the AFD as the leaders of the opposition parties in the Bundestag with all the additional privileges that come with that position (Presidency of the parliamentary budget committee for example).

 

Chancellor Merkel is a very savvy politician. She knows when to press the accelerator and when to stamp on the brakes. With Germany’s prominent position in the EU economic pecking order, any hard Brexit would have inevitable consequences for the German economy and German workers.

 

The UK is one of Germany’s most important trading partners and not only for the number of German cars on British roads. Many German manufacturers rely on facilities in the UK for their production, and the UK is a key supplier of intermediate goods into German manufacturing. Hard Brexit and the UK denied access to the single market would have deep-felt consequences for these German manufacturers. This would be a hard hit for the German economy and a pill Mrs. Merkel could probably do without.

 

Hard Brexit does damage to the UK, but it damages all the remaining EU member states as well. Brexit denies the EU of one of its strongest members, economies, and contributors. Divorce is never pretty, and both sides tend to suffer some hardship. Brexit could be a catastrophe for the UK economy. It certainly won’t be a piece of cake for the EU either. An amicable compromise would seem to be the only viable solution.

 

Will it happen? There are plenty of arguments to support an amicable solution, BUT there are 44 years of bad-blood as well, and that seems to have the upper hand for the time being at least.

 

Disclaimer:
This article is for educational and informative purposes only and should not be considered as investment or trading advice

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