Germany Chancellor Angela Merkel and U.K. Prime Minister David Cameron, February 4, 2016.
Toby Melville / Reuters

Queen Elizabeth, the United Kingdom’s longest-serving monarch, undertook what was, perhaps, her final state visit last year. Of all the places she could have traveled to, she chose Germany, the de facto leader of Europe. The three-day tour was filled with reminders of U.K.-German relations—a lecture on their shared history by the popular historian Neil MacGregor of the British Museum, a speech on U.K.-German business ties in Frankfurt (a financial hub that could benefit from Brexit), and a first visit to the former concentration camp Bergen-Belsen, which was liberated by British troops in 1945. It was a trip that clearly, though subtly, reflected the queen’s position on Brexit: the United Kingdom must remain in the European Union.

German Chancellor Angela Merkel, on the other hand, has taken a less sentimental approach to Brexit. Since her 2014 speech on U.K.-German relations at the British Parliament, she has more or less kept silent to avoid antagonizing pro-Brexit supporters. She has made it clear that she is not willing to preempt a vote by pushing for fundamental reform of the EU or insisting that the United Kingdom stay.

Only this month did Merkel mention Brexit, but implicitly, warning that countries outside of the union “will never get a really good result” in negotiations with the EU. She also sharply rebuked the most radical elements of the pro-Brexit debate that she believed had led to the murder of Jo Cox, a pro-EU member of Parliament, last week. These statements, however, are less a direct plea to the British and more a reflection of the troubling rise of Euroskepticism and right-wing radicalism in her own country.

Indeed, Europeans are increasingly wary of Brussels’ power. A Pew Research poll shows growing skepticism not just along the periphery. Favorable opinions of the EU declined eight percent in both Germany and the United Kingdom compared to 2015 and there have been double-digit drops in France and Spain. However, there are stark policy differences between the United Kingdom and the rest of the bloc when it comes to EU competency and, particularly, the role of Brussels in managing immigration and dealing with terrorism.

Germans realize that the United Kingdom will still be an important partner regardless of how it votes on June 23. According to another recent poll, nearly eight out of ten Germans prefer that the United Kingdom remain in the union. They also feel that the United Kingdom has been a more trustworthy partner than the United States and hope it will remain one of Germany's key allies even as it distances itself from the EU.

Queen Elizabeth and German Chancellor Angela Merkel at the Chancellery in Berlin, Germany, June 24, 2015.
Fabrizio Bensch / Reuters

Wirtschaftswunder or Wounded?

As Europe’s economic engine and largest market, Germany has little to gain from Brexit. At first, uncertainty in the financial markets may push investors to hedge their bets on London and look more toward Frankfurt and Paris. But actors unaccustomed to eurozone rules may be reluctant to operate under the watchful eyes of the Frankfurt-based European Central Bank. Brexit could also scuttle the planned merger between the London Stock Exchange and Deutsche Börse, which would be anything but business as usual.

Major multinational firms with footprints in both the United Kingdom and on the continent will also have to reassess the distribution of their assets and operations. The depth of uncertainty will be the deciding factor. The United Kingdom could lose foreign investment to Germany as companies seek to retain a presence in the EU despite higher regulation and taxes, but there is no reason to believe that foreign CEOs would necessarily switch to doing business in German.

More troubling for Europe’s top exporter is how trade negotiations will proceed with the free- market-oriented United Kingdom. Brexit comes at a particularly difficult time—amid the suspension of the Schengen system of borderless travel and the wave of populist politics across Europe. German exporters enjoyed a trade surplus with the United Kingdom in 2015 that topped $57 billion and a total export volume almost twice that accounting for nearly three percent of German GDP. Only France and the United States have bought more German goods in recent years. It should be no surprise that both Merkel and the German-British Chamber of Industry & Commerce have said that negotiating a post-Brexit trade deal would be “a long-drawn process.”

When it comes to the broader impact of an exit on Germany’s growth and employment, a worst-case scenario, as DZ Bank warned, could result in a loss of up to $50 billion to German GDP in 2017 alone. It could also send Europe’s strongest economy into a brief recession. Although Germany successfully weathered the financial crisis, the consequences of a British departure could further expose underlying weaknesses in its economy. But those who hold such a pessimistic outlook are in the minority. Most German industry respondents to a Bertelsmann Stiftung survey this past year believe they would be unaffected by Brexit.

David Cameron and Angela Merkel, February 18, 2016.
Yves Herman / Reuters

Political Firewalls

Brexit would also make it more difficult for Berlin to champion free trade and oppose protectionist tendencies from other EU member states. France would hardly be a willing partner—it is still struggling to pass needed labor law reforms in the face of furious union protests and mass strikes. After a dramatic show of defiance and then defeat over austerity programs last summer, the EU states to the east and the south need little reminder of the costs of disagreeing with Berlin’s economic positions.

The departure of the stimulus-friendly United Kingdom might seem like it would bolster the pro-austerity policies championed by Berlin. However, a “leave” vote means that Berlin would lose an important ally on free trade negotiations with Washington. Within the EU, only a handful of the smaller northern countries, including Ireland, the Netherlands, and the Scandinavian countries, as well as the Czech Republic, have comparable economic views. This group may ultimately find it difficult to oppose protectionist initiatives from other member states.

The impact of Brexit could also embolden the states that are already willing to ignore Brussels on issues such as the refugee crisis. Daniel Schwarzer, the director of the German Marshall Fund program in Berlin, noted that the failure of the EU to prove the worth of membership would “have a contagion effect in other nations.” The precarious position of Greece and the uncertain integration of southeastern European countries might make an exit look attractive for them as well.

Whereas many British voters and politicians seem to regard isolation as a virtue, this concept is understandably anathema to Berlin. Modern Germany’s political identity is inextricably linked to the fate of the European project. Germany’s first postwar leader, Chancellor Konrad Adenauer, believed that “European unity . . . is a necessity for all of us … necessary for our security, our freedom, for our existence as a nation.”

No German leader today wants to preside over Europe’s dissolution. Merkel’s political opponents have unfortunately made it harder for her to keep Europe united. The upstart right-wing party Alternative for Germany (AfD) has gained representation in several German states ahead of national elections in 2017. Formed four years ago as an anti-euro party, the AfD has successfully appealed to conservative voters’ distrust of the EU and anxiety over immigration.

Brexit could bolster AfD’s position that something is fundamentally wrong with the idea of a united Europe. The group’s leaders could argue that if the British can so easily leave the union, why then should Germany remain on to foot the bill for the EU budget. For now, two-thirds of Germans who support the AfD believe that Brexit would harm the EU, but they may reconsider if eurozone growth continues to slow and the flow of migrants picks up again.

Global Brexit

Berlin is also preoccupied by what Brexit could mean for European foreign and security policy. Although the United Kingdom and France typically serve as Europe’s expeditionary powers, there are signs that Germany could become Europe’s new strongman. It has increased its defense spending and conducts close to a dozen multilateral operations, but it will likely refrain from undertaking the range of combat missions conducted by the United Kingdom.

There is also a chance that Brexit will exacerbate Europe’s broader geopolitical challenges. The European Union will likely retain its soft power appeal, but France and Germany risk losing a partner with significant economic and military clout and one with a special relationship with the United States. As Christoph Heusgen, Merkel’s foreign policy adviser in the Chancellery, said, “Without having the British as a partner, the EU would not have the same weight.”

Finally, a Brexit risks damaging the EU’s sense of purpose. The loss of the United Kingdom’s relative dynamism would be felt, and the hole could potentially make Europe “more static, protectionist, and petty,” the Süddeutsche Zeitung editor and Merkel biographer Stefan Kornelius said. It might make Europe less capable of countering a more assertive China or Russia, for example.

Germany can respond by stemming any momentum there may be toward a greater dissolution. Berlin should build upon the common position of the inner six founding members of the European Union—Germany, France, Italy, Belgium, Luxembourg, and the Netherlands. Already, the foreign ministers of these core countries are meeting to discuss next steps. And if the United Kingdom chooses to leave the union this week, Merkel, as the so-called queen of Europe, will no doubt respond by keeping calm and carrying on. As she has said, quoting former German President Richard von Weizsäcker, “Europe will not move forward by leaps and bounds but step by step. […] We Germans will take […] these steps with the United Kingdom, and we will do so happily. May I wish you and all of us on this path the best of luck.”

  • PARKE NICHOLSON is the Senior Research Associate at the American Institute for Contemporary German Studies.
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