Brexit, Germany,the EU and the Eastern Partnership

The views expressed in this article are those of the author(s) and may not coincide with the official position of Caucasian House

Anne Hardt
Intern at Caucasian House

Since the Treaty of Lisbon in 2009, the European Union has been facing several interrelated crises: the Euro-crisis, the Ukraine conflict, the influx of refugees, IS terrorism, Euro-skepticism. And most recently adding to this, the British referendum held on June 23rd 2016 in which 52 percent of voters pronounced support for Brexit, alias leaving the EU.

While the UK traditionally constituted one of the European key players and formed one half of the former French-British leading tandem, Euro-skepticism, nevertheless, is nothing new to Britain. Already in 1975 the UK held a referendum on the continuance within the Union. Moreover, with four opt-outs respectively, the UK and Denmark are leading in terms of exemptions from usually binding EU regulations.

The continuing British drawback from EU-activities gave rise to a new leading power within the European Community. With more and more crises, Germany is gradually establishing its leadership, deriving legitimization from its economic and demographic power.[i] Initially replacing the UK in the tandem, today, it is often described as the dominating force in the EU. As Juergen Habermas puts it: “The ‘European vocation’ of a cooperative Germany is steadily deteriorating into an undisguised leadership claim of a ‘European Germany in a German Europe’”, especially since Angela Merkel came to power in 2005.[ii] During the response to the Greek crisis Germany, for the first time, openly carried out the leadership role: “(…) finance minister Schäuble threatened Greek exit from the euro, thus unashamedly revealing itself as Europe’s chief disciplinarian. The German government thereby made for the first time a manifest claim for German hegemony in Europe – this, at any rate, is how things are perceived in the rest of Europe (…).”[iii]

While the EU is trying to tackle its continuing internal issues, throughout its history it has never limited its mission of democratization and economic wellbeing solely to its members. After the great enlargement in 2004, 2007 and 2013, EU-admission still serves as the main driver of reform in countries at its Eastern doorstep. These are currently supported through the Eastern Partnership Programme. With the EU as the biggest donor for democratic and economic reforms these countries depend on Europe’s internal ability to financially support them. And while Grexit and Brexit had already towered above the EU-Eastern Partnership Summit in Riga 2015, Dietmar Bartsch, faction leader of the German Left Party cautioned against a sole focus on core Europe after the Brexit referendum.[iv]

Therefore, this article will look at Brexit’s likely impact on Germany and the German position regarding Brexit. It will then assess in how far the European and German positions align. Finally, it will look at reactions and possible implications for the Eastern Partners.

Brexit’s impact on Germany

To present, banks are the most affected by Brexit. The German share index Dax lost 1000 points (-10 per cent) in the hours after the referendum.[v] The stock of the Deutsche Bank lost 20 percent, the Commerzbank faces similar issues.[vi]

However, more consequences can be expected in the medium-and long-run. The UK constitutes the third biggest export market for Germany worth 90 Billion Euro of goods and services per year, following the US and the Netherlands. Approximately 2,500 German enterprises are based in the UK, 370,000 jobs are created through this chain. For German car companies the UK is the biggest export market. The chemical and pharmaceutical industry realized 13 Billion Euro in 2015.[vii]

Losing access to the internal market, the British economy and, therewith, German enterprises involved could severely be affected.[viii]  A devalued Pound, bureaucratic obstacles and import duties could raise prices for German products, making them less competitive on the British market.[ix] 10,000 companies registered in the UK as Limited (Ltd) or Public Limited Company (PLC), like Air Berlin or the Drug chain Müller, could lose their status as legal entities with the freedom of establishment being limited to EU-countries.  According to the Prognos Institute 70,000 jobs could be lost in Germany until 2025, followed by a gradual market-recovery.[x] The June 2016 Federation of German Industry estimates are more than ten times higher: according to them, approximately 750.000 jobs depend on exports to the island.[xi]

The credit insurer Euler Hermes predicts a 6.8 Billion Euro loss until 2019.[xii] The Bertelsmann Foundation forecasts real GDP per capita in Germany to fall between 0.1 and 0.3 percent in 2030. Adding dynamic effects GDP could decrease up to two percent.[xiii]

Moreover, the UK was among the top three study and Erasmus destinations in recent years with nearly 16.000 German students in 2013 and 3,140 German Erasmus-scholarship recipients.[xiv] Until now, students from the EU paid the same as British students; tuition for non-EU-citizens was significantly higher. And while participation in the Erasmus initiative does not rely on EU-membership, Brexit-negotiations have to clarify if the UK will remain part of the programme.

As the data above highlights, favourable economic relations with the UK are of great interest for Germany. However, with a German export share of 22.7 percent of the single market worth 691,409 Million Euro and a resulting trade balance surplus of 70,965 Million Euro in 2015, Germany is one of the great profiteers of the common market.[xv]  As President of the German Chamber of Industry and Commerce Eric Schweitzer puts it: “We have to keep an eye on European unity during the negotiations with Great Britain. The German economy depends on the continuity of the single market as a whole.” [xvi]

The German Position

In light of this, already prior to the referendum, leading force during the Greek crisis and German Minister of Finance Wolfgang Schäuble once more declared a strict course: “Inside is inside, outside means outside.”[xvii] The vote would be perceived as the final decision; renegotiations would not bring any change. At the same time he pictured the country as “crying” in case of Brexit[xviii]  and highlighted negative consequences for everyone, especially for Great Britain.[xix] If no other countries followed Britain’s lead and the UK remained the sole country leaving the Union he did not fear great consequences for the EU. More countries following the example, however, could severely weaken or endanger the Union. He described the German government’s vision for the future course of the EU not as one of deeper integration but of change.[xx]

Right after the Brexit-referendum on June 23rd, Chancellor Merkel alerted to take “hasty and simple decisions” and positioned herself in support of European unity and joint decisions.[xxi] She brought to mind the founding idea of Europe as a peace project and Germany’s special responsibility and vast interest for the success of European unity. In the light of growing EU-skepticism and the rise of right wing populism, the EU would have to secure that citizens feel the positive impact of the Union. An invitation to the President of the European Council Donald Tusk, French President Francois Hollande and Italy’s Premier Matteo Renzi for a special meeting three days later had already been sent.[xxii]

In search for a common course towards the UK and the consequences of Brexit, the day following the British referendum, the German-French tandem presented common drafts for the further development of the Union at a meeting of the EU founding states (Germany, France, Italy, BeNeLux). The suggestions envision a ‘flexible Union’, allowing for a different pace of reform and integration according to the abilities and will of the respective country.[xxiii] Key actions at this stage would be investigating citizens expectations and avoiding stagnation and hysteria.

In her official governmental statement on the referendum after a special meeting of the Bundestag on June 28, Chancellor Merkel expressed her big regret about the “free and democratic” decision. [xxiv] She confirmed the firm course of the German government and clearly spoke against cherry picking of favourable exit conditions and future benefits for the UK in official or unofficial negotiations prior to an official exit request: “Whoever withdrew from this family could not expect ‘to avoid the duties but that rights hold good.’”[xxv]  The official request would have to be the first step. She strengthened the British government’s duty to take the lead in establishing the future relation with the EU. Until the time of exit, Britain would maintain its rights and duties within the Union. However, afterwards there would be a significant difference between being and not being a member of the community.

While Merkel, again, highlighted the EU, also without the UK, as a peace project, the European values of freedom, democracy and rule of law and the advantageous economic dimensions for member states, she also strengthened the Brexit-decision as of paramount importance and as “an incision for Europe”.[xxvi] She raised concerns about this extraordinary situation, the first time such an incident had taken place since the Union’s founding, and cautioned against further decisions playing into the hands of “centrifugal forces”[xxvii] , causing unforeseeable consequences and a further divide of the European community. She called upon the 27 remaining EU-members to show will and ability for making the joint decisions needed. Merkel expressed her belief that the Union would be strong enough to sustain itself after Brexit.

The European Position

European Union leaders – the President of the European Commission Jean-Claude Juncker, the President of the European Council Donald Tusk and the President of the European Parliament Martin Schulz – urged for a timely start of the exit negotiations in a written statement to shorten unnecessary insecurity, therewith aligning the German and European positions. According to article 50 of the Lisbon Treaty the British exit request has to be received in Brussels. The time frame for negotiations is limited to two years. After the expiration of this period the UK would automatically be separated out of the Union.[xxviii] British Premier David Cameron initially declared to resign in October 2016, leaving the formalities, thus starting the official Brexit-process, to his successor. This could have delayed the process until 2017.[xxix]

Similar to Merkel’s speech, on June 23rd, Juncker described the outcome as the citizens’ will. In the spirit of “Inside is inside, outside means outside” he raised antipathy for the planned delay until October on German television.[xxx] Like German politicians, Juncker pronounced his regret about the decision and did not foreclose the possibility of further referenda in other member states. Populists in France and the Netherlands had already voiced claims. He announced a first informal meeting of the remaining 27 countries the following week.

Meanwhile also President of the European Parliament Martin Schulz denoted Cameron’s postponed resignation as “scandalous” and holding the whole continent in captivity.[xxxi] Ultimately Cameron laid down his office on July 13, 2016. Theresa May was named Premier and charged with leading Brexit. Schulz, moreover, aligned himself with Schäuble’s and Merkel’s firm course: “Who leaves leaves”, all advantages of membership would be lost after Brexit.[xxxii] Schulz also highlighted this in the light of impending referenda in other European countries. As Schäuble he emphasised the EU’s need for change and called on the European community to tackle drastic social inequality, youth unemployment and tax evasion: “Europe has to change” and “Europe has to improve”.[xxxiii] Rather than calling on EU-members to stand together, Tusk declared the future 27 members as “decided to preserve our unity”.[xxxiv]

 

Brexit and the Eastern Partners

Currently six countries form part of the Eastern Partnership: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. Reactions in Armenia and Azerbaijan were calm. Both are rather affiliated with Russia, Armenia and Belarus, moreover, form part of the Eurasian Customs Union. The three countries do not interact with the EU in a close manner. Stronger statements regarding the referendum-turnout came from the three EU-membership-aspiring countries Georgia, Moldova and Ukraine and from the Belarusian opposition.

The common fear was a focus on internal EU-affairs and, therewith, away from countries in the European diaspora.[xxxv] When asked whether Ukraine would stay a topic on the EU agenda, Miroslav Mizera, Adviser to the Secretary of State at Ministry of Economy of the Slovak Republic, stated that Ukraine would only stay an indirect topic e.g. vis-à-vis the energy union. In his view, while the UK was never a great supporter of the Eastern Partnership and Ukraine’s membership in the EU, it also did not oppose it, leaving the Community in a comfortable position. Without the UK, European skeptics of the Partnership could grow stronger.[xxxvi]

For the Eastern Partners this could not only have ideological but primarily financial consequences: In Eastern Europe, the biggest donations for political and economic development stem from the European Neighbourhood Instrument.[xxxvii] From 2010 to 2013, cooperation was fostered by nearly 2.5 Billion Euro.[xxxviii] 730 Million Euro were provided in 2014, 15.4 Billion in total for the European Neighbourhood Instrument covering the Eastern and southern Mediterranean Partnership from 2014 to 2020.[xxxix]

Moreover, processes such as visa waivers bringing countries closer to the EU and the four freedoms like the common market and freedom of movement  could be delayed.[xl] In April a Dutch referendum had already hindered the ratification of the Ukrainian Association Agreement. Germany opposed visa liberalisation for Georgia in June 2016.

Moreover, the Brexit-referendum gave rise to another concern: Moldova, Georgia and Ukraine, the Europe-affiliated Eastern Partners, are still kept in both, the Russian and European sphere of influence. They see the EU as a counter force to Russia’s efforts of increasing its influence in bordering regions. According to Radio Liberty, the frozen conflicts between these countries and Russia can be seen as an example of destabilizing influence seeking. The geographical proximity and some of the cultural ties, Moldova and Georgia home Russian minorities, are advantageous for the Russian Federation.  As Radio Liberty reports, “in eastern Ukraine, news of Britain’s decision drew triumphant comments from pro-Russia separatists controlling large swaths of the region.”[xli] With internal problems that weaken the EU and a reduction in westward leading efforts, fears are growing that despite countries’ resistance, Russia could expand its influence.[xlii]

Federica Mogherini, High Representative of the European Union for Foreign Affairs and Security Policy and Vice-President of the European Commission already pledged continuing support and the webpage bne IntelliNews published an email statement of an anonymous EU spokesperson reassuring that Brexit would not change the EU’s approach towards the Eastern Partnership.[xliii]

For the EU, in addition to its internal problems, the failure of the Eastern Partnership would mean a significant loss of influence on the world stage. The Eastern Partnership instrument plays the key role in this regard: “The Eastern Partnership is the only policy instrument the EU has to engage with its eastern neighbourhood; there is no alternative to it therefore it has to survive.”[xliv]

On the other hand, even without Russian influence seeking, Brexit could trigger new debates whether being part of the EU is really worth conducting painful economic and democratic reforms or whether the Eurasian Customs Union could be a valuable alternative.[xlv] This lowers the EU’s bargaining position when it comes to enlargement and conditionality.[xlvi] A recent statement given by Deputy Minister of Georgia Anna Dolidze mirrors these presumptions. She describes the results of the Brexit-referendum as questioning the European Union as a “symbol of peace, friendly relations, overcoming war through economic cooperation” for people inside the Union and beyond.[xlvii]

 

Despite Eastern Partnership-countries usually depending on the EU, this time the tables could turn: Anna Dolidze suggests that while there were various questions about the EU and its identity, the community should not stop investing and could even look for inspiration in Eastern Partnership countries, countries that, nevertheless, believe in the European project.

Conclusion

Brexit carries significant consequences for the German market as a whole and for the German citizens. Trade barriers, bureaucratic changes and downsizing could lead to a 6.8 Billion loss until 2019 and an up to two percent reduction of the German real GDP until 2030. Nevertheless, German economic ties are much stronger with the internal market as a whole. It, therefore, depends on the EU’s survival.

In this regard, already prior to the referendum, the German government, pronouncing its hope for a Union with 28 members, called on a firm and united European course. In the Brexit-aftermath this position still holds. Merkel cautioned against hasty decisions while expressing her regret. She closed the door for a way back to the European community and urged for a quick solution to end the insecurity in the remaining 27 countries. German and European statements largely reflect each other. A common fear is followers of the British example causing new referenda.

While the German and European position in this ideological and economic crisis is rather inward looking, countries in the EU’s Eastern periphery cooperating with the Union on economic and political reform through the Eastern Partnership apprehend a long-term focus on internal affairs. Ambitious to join the European community, Georgia, Moldova and Ukraine fear being left alone financially but also politically with the EU being perceived as the counter force to Russian influence seeking. And while the European community usually constitutes the demanding power in East-West relations, the tables could turn. The Eastern Partnership constitutes the EU’s only instrument for interaction with its Eastern outskirts. However, EU-membership in a weak Union becomes less attractive, alternative membership in the Eurasian Customs Union could seem equally or even more promising. The EU’s bargaining position is lowered, its position as a global player further weakened. Therefore, in times of internal crisis and both sides’ reciprocated need for the Eastern Partnership, the European Community may profit from (still) positive EU-associations of some of its Eastern Partners.

 

 

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[i] Pro Europa (2013): “Jürgen Habermas: Democracy, Solidarity and the European Crisis.” Leuven University. http://www.pro-europa.eu/index.php/en/at-issue/european-identity/11-j%C3%BCrgen-habermas-democracy,-solidarity-and-the-european-crisis.

[ii] Habermas, Jürgen (2012): “The Crisis of the European Union: A Response.” Polity Press. Cambridge. https://books.google.ge/books?hl=en&lr=&id=w7yYbQYMDokC&oi=fnd&pg=PR1&dq=jurgen+habermas+eu&ots=f8u_AMzSY4&sig=DJSNGEqGEz4T0QpInxh8HHI7brc&redir_esc=y#v=onepage&q=germany&f=false.

[iii] Oltermann, Philip (16/07/2015): “Jürgen Habermas’s verdict on the EU/Greece debt deal – full transcript.” The Guardian. https://www.theguardian.com/commentisfree/2015/jul/16/jurgen-habermas-eu-greece-debt-deal.

[iv] Tagesschau.de (28/06/2016): “Keine Rosinenpickerei für Briten.” ARD. http://www.tagesschau.de/inland/merkel-brexit-101.html.

[v] Tagesschau.de (24/06/2016): “Brexit-Folgen: Dax verliert rund 1000 Punkte.” ARD. http://www.tagesschau.de/eilmeldung/eilmeldung-1339.html.

[vi] Tagesschau.de (28/06/2016): “Zölle, Visa – und das viel zu billige Pfund.” ARD. http://www.tagesschau.de/wirtschaft/brexit-wirtschaft-101.html.

[vii] Tagesschau.de (28/06/2016): “Zölle, Visa – und das viel zu billige Pfund.” ARD. http://www.tagesschau.de/wirtschaft/brexit-wirtschaft-101.html.

[viii] Ibid.

[ix] Tagesschau.de (28/06/2016): “Zölle, Visa – und das viel zu billige Pfund.” ARD. http://www.tagesschau.de/wirtschaft/brexit-wirtschaft-101.html.

[x] Tagesschau.de (04/07/2016): “Erste Auswirkungen schon in 2016.” ARD. http://www.tagesschau.de/wirtschaft/brexit-wirtschaft-deutschland-101.html.

[xi] Tagesschau.de (25/06/2016): Was der Brexit für Verbraucher bedeutet.” ARD. http://www.tagesschau.de/wirtschaft/brexit-verbraucher-folgen-101.html.

[xii] Tagesschau.de (25/06/2016): Was der Brexit für Verbraucher bedeutet.” ARD. http://www.tagesschau.de/wirtschaft/brexit-verbraucher-folgen-101.html.

[xiii] Bertelsmann Stiftung (2015): Brexit – Mögliche wirtschaftliche Folgen eines britischen EU-Austritts.” https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/Policy-Brief-Brexit-de_NW_05_2015.pdf.

[xiv] Ibid.

[xv] Eurostat (2016): “Intra-EU27 trade, by Member State, total product.” http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tet00039&language=en.

[xvi] Tagesschau.de (28/06/2016): “Zölle, Visa – und das viel zu billige Pfund.” ARD. http://www.tagesschau.de/wirtschaft/brexit-wirtschaft-101.html.

[xvii] Ibid

[xviii] Tagesschau.de (03/03/2016): “Schäuble würde bei Brexit weinen.” ARD. http://www.tagesschau.de/ausland/brexit-115.html.

[xix] Tagesschau.de (03.07.2016): “Drin heißt drin – und raus heißt raus.” ARD. http://www.tagesschau.de/ausland/schaueble-brexit-101.html

[xx] Ibid.

[xxi] Tagesschau.de (24/06/2016): Merkel spricht von ‘Einschnitt für Europa’.” ARD. http://www.tagesschau.de/ausland/brexit-269.html.

[xxii] Ibid.

[xxiii] Tagesschau.de (25/06/2016): “Steinmeier warnt vor Brexit-Hysterie.” ARD. http://www.tagesschau.de/ausland/brexit-289.html.

[xxiv] Tagesschau.de (28/06/2016): “Keine Rosinenpickerei für Briten.” ARD. http://www.tagesschau.de/inland/merkel-brexit-101.html.

[xxv] Ibid.

[xxvi] Ibid.

[xxvii] Ibid.

[xxviii] Tagesschau.de (24/06/2016): “Juncker wartet auf den Scheidungsbrief.” ARD. http://www.tagesschau.de/ausland/brexit-287.html

[xxix] Tagesschau.de (01/07/2016): “Gove will sich Zeit lassen.” ARD. http://www.tagesschau.de/ausland/brexit-gove-103.html.

[xxx] Tagesschau.de (24/06/2016): “Juncker wartet auf den Scheidungsbrief.” ARD. http://www.tagesschau.de/ausland/brexit-287.html

[xxxi] Tagesschau.de (25/06/2016): “Steinmeier warnt vor Brexit-Hysterie.” ARD. http://www.tagesschau.de/ausland/brexit-289.html.

[xxxii] Tagesschau.de (25/06/2016): “Europa muss sich verändern.” ARD. http://www.tagesschau.de/ausland/eu-brexit-schulz-101.html.

[xxxiii] Ibid.

[xxxiv] Tagesschau.de (24/06/2016): “Merkel spricht von ‘Einschnitt für Europa’.” ARD. http://www.tagesschau.de/ausland/brexit-269.html.

[xxxv] Zolotov, Andrei (2016): “Brexit: Implications for Russia, Europa and the world.” Russia Direct. http://www.russia-direct.org/debates/brexit-implications-russia-europe-and-world.

[xxxvi] Chyzhova, Olga (2016): “Brexit will take Ukraine off the EU agenda.” Ukrainian Prism. http://prismua.org/en/%E2%80%AA%E2%80%8Ebrexit%E2%80%AC-will-take-ukraine-off-eu-agenda/.

[xxxvii] Mantri, Geneve (29/06/2016): “Eastern Europe in the Long Shadow of Brexit.” Rusi. https://rusi.org/commentary/eastern-europe-long-shadow-brexit.

[xxxviii] European Commission (2015): “Eastern Partnership.” European Union. http://ec.europa.eu/enlargement/neighbourhood/eastern-partnership/index_en.htm.

[xxxix] European Commission (2015): “Support for the Eastern Partnership. Stories, facts and figures from the European Neighbourhood Instrument 2014.” European Union. http://ec.europa.eu/enlargement/neighbourhood/pdf/eastern-partnership-results-2014.pdf.

[xl] Bigg, Claire (11/07/2016): “Eastern Angst: Brexit Vote Sends Jitters Through Countries On EU’s Fringe. Radio Free Europe Radio Liberty. http://www.rferl.org/content/brexit-vote-sends-jitters-through-countries-on-eu-fringe/27819091.html.

[xli] Bigg, Claire (11/07/2016): “Eastern Angst: Brexit Vote Sends Jitters Through Countries On EU’s Fringe. Radio Free Europe Radio Liberty. http://www.rferl.org/content/brexit-vote-sends-jitters-through-countries-on-eu-fringe/27819091.html.

[xlii] Mantri, Geneve (29/06/2016): “Eastern Europe in the Long Shadow of Brexit.” Rusi. https://rusi.org/commentary/eastern-europe-long-shadow-brexit. and Bigg, Claire (11/07/2016): “Eastern Angst: Brexit Vote Sends Jitters Through Countries On EU’s Fringe. Radio Free Europe Radio Liberty. http://www.rferl.org/content/brexit-vote-sends-jitters-through-countries-on-eu-fringe/27819091.html.

[xliii] Valache, Carmen (14/07/2016): “CAUCASUS BLOG: Brexit leaves EU’s Eastern Partnership stuck in limbo.” Bne Intellinews. http://www.intellinews.com/caucasus-blog-brexit-leaves-eu-s-eastern-partnership-stuck-in-limbo-101965/.

[xliv] Valache, Carmen (14/07/2016): “CAUCASUS BLOG: Brexit leaves EU’s Eastern Partnership stuck in limbo.” Bne Intellinews. http://www.intellinews.com/caucasus-blog-brexit-leaves-eu-s-eastern-partnership-stuck-in-limbo-101965/.

[xlv] Mantri, Geneve (29/06/2016): “Eastern Europe in the Long Shadow of Brexit.” Rusi. https://rusi.org/commentary/eastern-europe-long-shadow-brexit.

[xlvi] Mantri, Geneve (29/06/2016): “Eastern Europe in the Long Shadow of Brexit.” Rusi. https://rusi.org/commentary/eastern-europe-long-shadow-brexit.

[xlvii] Ibid.

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