No-deal Brexit will slam German economy — but don’t expect a Teutonic Hail Mary
It has long been an article of faith among hardline Brexit backers that the threat of a no-deal Brexit will motivate European leaders, terrified of its likely economic impact at home, to compromise with the UK at the last second on thorny issues like the customs union “backstop”; in this worldview the role of German carmakers looms especially large, as this key industry will supposedly bring game-changing pressure to bear on the German government to strike a deal, even at the cost of embarrassing compromise. Well, it seems they’ve got it half right: a no-deal Brexit will indeed take a cruel toll on the German economy (an outcome no German or European economist has denied), according to a new forecast from German industry association BDI. The only hitch is that the likely economic fallout of no-deal on the continent has been a known quantity for some time, has already been priced into their negotiating position and has still so far failed to sway EU Brexit negotiators. Now that they’ve scented blood, don’t hold your breath for a sudden change of heart.
- The Federation of German Industry (BDI) warns that Germany’s economic growth, currently hovering at a 0.5% annualized rate for 2019, will dip further to a big fat zero (that’s 0.0%) in 2020 in the event of a no-deal Brexit, which could indeed slam the German car industry as gleefully predicted by Brexiters.
- BDI’s Director General Joachim Lang warns: “Germany’s economy will continue to lose steam until the end of the year. Economic uncertainty remains high, because of global trade tensions and the U.K.’s exit from the EU.”
- All this means that a German recession is ever-more likely in 2020 — an especially plausible scenario following last quarter’s economic contraction (in technical terms a recession is defined as two consecutive quarters of economic contraction).
- Unfortunately for Brexiters, none of this changes the long-standing political calculus motivating Angela Merkel’s political coalition, which has made it clear that even powerful domestic industrial interests — read, the car industry and the German mittelstand — must take a back seat to the larger mission of maintaining the cohesion of the EU, viewed by Merkel and her colleagues as a historic responsibility. That in turn requires a firm position on Brexit, and that means backing Ireland (still an EU member) over the demands of the UK, a soon-to-be non-member. That’s a position reiterated by the BDI itself as recently as June of this year.