A hard Brexit would pose a threat to jobs in Germany, with Gabriel Felbermayr, Director of the ifo Centre for International Economics saying that “a share of German value creation lies directly and indirectly in British demand for German products and secures jobs here.”
“Bearing this in mind, the Brexit negotiations should be about avoiding unnecessary damages. There is no reasonable Brexit scenario that stands to benefit Britain on balance. So there is no need to mete out additional punishment, which would also be costly for Germany,” added Felbermayr.
Conversely, a share of British added value lies in demand from the other 27 EU countries, he noted. This provides employment for many UK citizens. EU and British manufacturing and services are closely linked. British inputs, and especially services, are extremely important to Germany’s economy; while value creation from the EU accounts for a considerable share of the production value of Britain’s automotive branch.
Even if a comprehensive EU free-trade deal along the lines of the EU-South Korea agreement is reached, Germany stands to lose added value, as well as having to pay higher net contributions to the EU budget. Britain will also lose a great deal of added value, but will no longer have to pay a net contribution to the EU.
“If, however, no contractual agreement can be reached, Germany and Britain face far higher losses,” warned Felbermayr. Although a hard Brexit could help Germany‘s financial centre to attract added value from London, this gain would come at a very high price for Germany.
“The EU should refrain from making threats to prevent advance economic adjustments to an anticipated hard Brexit two years down the road that is actually in nobody’s interests,” said Felbermayr. He advises the EU to avoid dogmatic statements about “cherry-picking” or the “inseparability of the four freedoms”.
Every free trade agreement grants certain freedoms and denies others. The key is reciprocity.
Felbermayr criticised the separation of negotiations over an exit and a new trade agreement as problematic.
“All of the main points need to be put on the table together towards the end of the negotiations at the latest to facilitate a package solution. The bigger the range of areas up for discussion, the easier it is to make trade-offs; that is one of the lessons of game theory,” he said, concluding that a partial agreement is unlikely to achieve good results.
