Brexit: Geopolitics trumps economics (updated)

GEOPOLITICS TRUMPS ECONOMICS

Despite the angry headlines, the UK’s position on Article 50 is of surprisingly little interest to other EU Member States writes Tim McNamara. The UK remains steadfastly parochial arguing over who can trigger Article 50, whilst the rest of Europe is focused on much bigger issues. The EU27 still presume that the timetable for invoking Article 50 will remain the same and there is little appetite in the rest of the EU for a further delay.

The focus instead for many of the big players is geopolitics, even more so since the triumph of President-Elect Trump in the United States. Economic self-interest, long played by Theresa May as the ace card in Brexit negotiations, is not the major driving force behind the EU’s negotiating position.

Brexit is not just an economic question

It is apparent that elements within the UK government seems not to yet understand that this is not a zero-sum game based purely on economic self-interest. As in any international negotiation, the self-interest of each individual sovereign states paramount. spacing

All decisions/compromises/negotiating strategies and tactics flow from that basic principle. To understand the position of parties is to understand not just their ‘red lines’ but their core interests. Just as the Leave campaign urged voters to ‘take back control’, governments in other EU states will have their own red lines on control. And with General Elections in Germany and France next year – as well as the Netherlands – national interest will be acutely felt in 2017.

Yet Ministers, such as Fox, Johnson, Davis, Grayling, seem to cling to a naive belief that since the EU exports more to the UK than the other way round, then market-based analyses point to only one way forward in the upcoming divorce proceedings. This is the reductionist view that says the economic bean counters will be in charge of negotiations. It also fails to grasp the challenge the UK is facing with our EU neighbours.

For example, Germany exports a significant amount of high-end manufacturing to the UK. Not only are these type of exports fairly immune to price sensitivity they are also extremely difficult to replace (fungibility) by either domestic sources or imports from elsewhere. The fungibility of exports is especially relevant if a trade war were to break out, if German car exports to the UK were to suffer from price sensitivity because of tariffs, the reverse would apply to UK exports to the EU. Since the UK exports more cars to the EU than it imports, there would only be one loser in such disputes. Yet, this is relatively small beer when taken in the context of German foreign policy and its consequent geo-political interests.

Matthais Wissman, the president of the German Association of the Automotive Industry recently stated that: “The UK is an important market for the German car industry but cohesion of the EU and the integrity of the single market is more important for us.” This a clear a signal as you can get that Germany’s geo-political interests (such as the medium to long-term stability of the EU) will be far more important than its national commercial interests. This includes the viability and sustainability of the eurozone.

Postcard from America

The populist victory of Donald Trump has also increased pressure on the EU to stick together as a block. This won’t always be easy, with the Hungarian Prime Minister accusing some EU colleagues of being hysterical in their reaction to President-Elect Trump’s victory; but it will be the binding force of the EU block. Germany perceives Brexit as a strident form of geo-political vandalism that could be highly damaging to its core interests. Those core interests (political, economic, military, social) are vested in the viability of the European Union. Anything that is seen to threaten the integrity of the EU is by extension a threat to Germany.

This will include the interests of the French government who have been Germany’s main strategic partners for over 50 years. The Germans will not allow the UK to pursue a policy of divide and rule across the continent as this would be the antithesis of German foreign policy goals for two main reasons. EU integrity per se AND the current threat of Russia. It is becoming very apparent that the UK will not be able to have its Black Forest gateaux and eat it.

A survey by the pro-EU group British Influence of EU ambassadors to the UK underlines this point, it said that there is an overwhelming consensus that the EU27 will be united in the Brexit negotiations. Furthermore, the UK PM’s strident comments so far on Brexit have not been well received in EU capitals. Theresa May needs to do some serious bridge-building if she wishes to have a harmonious negotiation process.

One thing many in the Conservative party underestimate is the attachment to the concept of free movement amongst the EU27. Whether this is for demographic reasons (e.g. Germany) or historical experience (those Member States who were previously under the Soviet ‘yolk’). Movement across land borders on the continental mainland has always had a different perception than the black/white view pertaining to the UK. One other general election that seems to have passed most commentators by, in the UK, is the Polish general election in 2019. It is difficult to see any serious Polish political party conceding anything of significance on free movement before, or in, an election year.

In an interesting political development, the German SPD (Social Democratic Party) have warned their UK allies (the Labour Party) that failure to oppose Article 50 carries inherent political risks. By anchoring their ship to Brexit, the SPD argue, the Labour Party will be stuck arguing with Theresa May rather than building alliances across Europe. Furthermore, by backing Brexit, they will get no credit if all turns out well, but will share the blame if it has a medium to lon-term negative effect on the economy.