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Despite House of Commons Drama Britain Is No Closer to Finding the Answer to Brexit

By Denis MacShane. Originally published on 16 January 2019

As the dust settles on one of the House of Commons unfinest hours the future of Britain as a European power-player is as unclear as ever.

On Tuesday, the Commons voted to humiliate Prime Minister Theresa May. On Wednesday the Commons voted to enshrine her Prime Minster for as long as choses to stay.

The UK parliament came close to making itself a laughing stock as MPs pirouetted to both condemn and console the Prime Minister in the space of 24 hours.

One can only feel sorry for the poor leaders of European nations as they try and decipher what on earth is the message British MPs are trying to send.

The problem is that Britain’s political class is locked in three separate contests.

The first one is between plebiscite and parliamentary democracy. For three centuries the way of governing Britain was by means of representative parliamentary democracy – decisions taken in the House of Commons by elected MPs.

Beginning in 1973, British leaders opted for referendums in some cases, culminating in the June 2016 plebiscite on EU membership.

Just 37 per cent of the total electorate voted to quit the European Union without ever defining what “Leave” would mean –  a political exit? A full trade and economic exit?  An exit from the right of Brits to live in Europe?

Since she became prime minister in July 2016 Mrs May has insisted that plebiscite democracy cannot be challenged. Parliamentary democracy must bow before the plebiscite.

The second contest is for the soul of the Conservative Party. Since the middle 1990s, the Conservative Party has been a battleground about Europe. For the pro-Reagan-Bush-Trump Tories the main policy object has been to cut Britain out of Europe. The EU in their eyes is socially progressive, environmentally sensitive, obsessed with human rights and committed to a modified capitalism and globalisation that seeks to control aspects of the market.

UK Conservatives who want to win elections and hold power know that ultra-free market, winner-takes-all, weak-to-the wall deregulated capitalism is not where the British want to be.  But the powerful hold of anti-Europeanism promoted by the Murdoch and other off-shore owned media has won over the Tory rank-and-file members who see Europe as an enemy to be vanquished.

The third contest is between the UK state apparatus and the European Union. Britain has never liked the deepening of the EU – dismissed with a curled lip – as the “European Project” and resisted all power-sharing measures.

This week saw all three contests out in the open fighting to the death. Mrs May insisted on the supremacy of the plebiscite over parliament. Parliament said No. But the Tory anti-Europeans were not ready to carry their fight to the point of destroying her as Prime Minister so she won that contest as she defeated Labour’s poorly timed and feebly executed vote of no confidence in her administration.

The European government heads and the bureaucracy in Brussels have won the post referendum struggle with Britain by simply playing defense – refusing to make concessions that would be illegal under EU law.

So the Commons votes while making headlines do not settle any of these three struggles nor do they answer the question what happens now?

Mrs May is back in control.  She opposes a new referendum – asking the people – which has the support of many opposition MPs but only ten Conservatives. or a new general election. For the first time since July 2016 she says she might talk to opposition MPs but not to party leaders. She remains Neville Chamberlain in her contempt for non-Tories not Winston Churchill, a man who moved easily between parties and reached out to Labour in 1940 when the nation needed to come together.

Mrs May is divisive. She insists that she will not move on red lines she drew in 2016 – notably the UK must leave the Customs Union and cannot accept freedom of movement.

The latter seems to remove the possibility of a Norway style relationship between the UK and the EU in the European Economic Area since such a compromise assumes freedom of movement.

Agreeing to staying in the Customs Union solves much of the Ireland border question. It is line with Labor thinking so might win support from Labour MPs but she insists the UK must start negotiating separate trade deals after 29th March so staying in the Customs Union is excluded.

There is talk of an extension but that means the UK stays as an EU member which, in turn, implies the UK takes part in the European Parliament elections in May 2019.

That is Nigel Farage’s dream of turning April and May into a UKIP fiesta of hate against Europe. The European Parliament which sees its number of seat reduced after the 73 UK MEPs leave has already distributed the UK seats to other countries. Unpicking that to allow the UK to have an extension because Mrs May cannot persuade MPs to support her deal is difficult legally and politically.

In short the headlines of Parliamentary votes, defeats and victories for Mrs May do not alter the fundamental problem.

No solution has a majority, or a settled support from MPs, public opinion, the media or economic actors for any solution.

The clock ticks down to 29th March. Probably Brussels and London will cook up emergency arrangements to stop a full chaotic, crash out with 50 kilometer queues of just-in-time trucks waiting to pass customs at Calais or Dover.

But that is not guaranteed. The Brexit nightmare is not turning into a dream solution. The agony continues.

 

Denis MacShane is the UK’s former Europe Minister. He has written 2 books on Brexit.  The next one is called Brexeternity.

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ARBURG’s apprentice exchange gets GBF donation

The German British Forum (GBF) is donating £1,500 to help several engineering apprentices in Germany and the United Kingdom exchange places for four weeks’ technical learning in spring 2019.

John Guest apprentices and another UK apprentice training at ARBURG in Lossburg in 2017

The exchange programme, now in its third year, is organised by ARBURG Ltd. in Leamington Spa, which in May celebrated 25 years of the subsidiary in the UK, and is supervised from the German side by Training Director Michael Vieth at ARBURG GmbH + Co KG in Lossburg in the Black Forest. ARBURG is a premium manufacturer of injection moulding technology including machines, software and robotic systems. It also produces an additive manufacturing – or 3D printing – machine, the Freeformer.

In 2019, the programme will arrange for seven German apprentices from ARBURG Germany to take four week training placements at UK customers of ARBURG Ltd., and then send UK apprentices from UK customers to Lossburg.

In the programme’s first year, 2017, six apprentices from both countries were exchanged, with just one apprentice from each country going in 2018. In 2017, apprentices from John Guest completed a series of short placements at ARBURG Germany, including pre-assembly, final assembly, injection moulding and robotics. By gaining exposure to each stage of the manufacturing process, the young engineers came away with an improved knowledge of manufacturing best practice, providing them with a good insight into the philosophy and technical capability of their German technology partner.

With a little help from the GBF, a UK registered charity, ARBURG Ltd expects to involve seven apprentices. “The first year’s exchange was really successful, certainly customers like John Guest, one of our largest customers, found it very useful training, exposing the young apprentices to knowledge of systems they may not get access to in the UK,” says Colin Tirel, Managing Director UK and Ireland, ARBURG Ltd.

“We’d like to sustain and grow the programme and we’re grateful to the German British Forum for the donation.” John Guest famously makes the plastic push-fit “Speedfit” connectors for the plumbing industry.

 

10 October 2018

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October 4th: GBF welcomes BASF senior director to UK

 The German British Forum (GBF) will welcome Harald Pflanzl, Senior Vice President, Head Sub Region North-West and Central Europe at BASF when he visits the UK in November. Richard Carter, Managing Director of BASF UK and Ireland and the GBF will host a dinner for Harald Pflanzl at The Reform Club, London, where a range of topics including Brexit, sustainability and the future Germany-UK business relationship will be on the menu.

Attending the dinner will be senior GBF board members including Johannes Haas, UK managing director DZ Bank, Patricia Godfrey, partner at law firm CMS and board chairman of the German British Chamber (AHK) in London, Dr Ulrich Hoppe, Director-General of the AHK and guests including Lord Fox, Liberal Democrat Spokesperson on Business, Energy and Industrial Strategy in the House of Lords and Oliver Schramm, Head of Department Economic and Financial Affairs at the German Embassy in London.

Harald Pflanzl is visiting the UK to inspect BASF’s UK facilities and to visit customers. As part of his trip he will visit the German Embassy and meet German Ambassador Dr Peter Wittig. “With the German British Forum, we look forward to welcoming Harald to the UK at our dinner where we expect to discuss a range of important topics at a turbulent time as we run up to March 2019, and Britain’s expected exit from the European Union,” said BASF’s Richard Carter.

The German British Forum was founded in 1995 by Robert Bischof and David Marsh, CEO of OMFIF, to reinforce pivotal political and business relationships between Germany and Britain, to help promote education and social exchange. GBF’s president is Lord Peter Mandelson and its chairman is Bob Bischof.

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Mandelson: Hard Brexit Bad for All

By Hans-Peter Siebenhaar
Published 20 February 2017 in Handelsblatt

Former E.U. commissioner Peter Mandelson talks to Handelsblatt about why a hard Brexit is not what the British public want.

Peter Mandelson, the Labour politician who helped the former British prime minister, Tony Blair, attain and hold on to power, believes that most Britons want the United Kingdom to maintain close relations with the European Union.

In an interview with Handelsblatt, he said the government was wrong to interpret the results of Britain’s referendum on E.U. membership as a sign that people wanted a “hard Brexit,” that severed all ties with the European Union.

He argued that even those who voted for Brexit “didn’t vote to make the country poorer or our economy smaller or to sacrifice so much of our trade which would be the result of a hard Brexit.”

“I think when asked the Brit people would say, no we want a continuing relationship, we want to secure the continuity of our trade, we want close collaborative relations with other countries in our own neighborhood.”

Mr. Mandelson is currently a member of the House of Lords, the British upper chamber of parliament, which on Monday starts to debate Britain’s withdrawal from the European Union.

The lower chamber, the House of Commons, has already approved a total withdrawal and Prime Minister Theresa May wants to start formal talks on Brexit by the end of March.

Mr. Mandelson said public opinion was that there is no need for Britain to withdraw from the single market or customs union, but the government is determined to follow a more hardline stance of a so-called hard Brexit.

“They believe they have a mandate, not only to take Britain out of the European Union but out of the single market and the customs union as well, and there has been no further real debate about that,” he told Handelsblatt.

Former Prime Minister Mr. Blair said in a speech last week that he believed people had voted for Brexit without understanding the full implications of the move.

Mr. Mandelson, who was Mr. Blair’s media manager, trade minister, and later a European Union commissioner for trade, said the nationalists in the ruling Conservative party, and some newspapers, were the ones pushing for a hard Brexit.

“Public opinion has no influence anymore,” Mr. Mandelson said. “Now that the referendum has taken place it has effectively neutralized the role of parliament to reflect the nuance and the balance of public opinion, and the government are determined not to test the view of the public again.”

He said he would prefer that the government find a way to maintain economic and trade relations between Britain and the European Union, warning that both sides would suffer from a total break.

While Europe would suffer economically from a hard Brexit, Mr. Mandelson predicted that Britain would be even more disadvantaged.

“I hope very much that when this negotiation gets underway that all sides will step back from mutual assured destruction, which could be the result if the divorce is very acrimonious. But that destruction, if it were to occur, would, in my view, be worse for Britain.”

When it comes to the role of the City of London, the former Commissioner predicted that there would be no immediate collapse of the city as a European financial hub. “London will continue to have very deep capital markets but many financial activities of institutions in London will move elsewhere in Europe and in some cases, out of Europe altogether,” leading eventually to a shrinking of its role.

He went on to say it was “naïve” to believe that Britain would be able to replace its current trade links with Europe with the “hypothetical gains” of a future closer relationship with the United States.

Any move toward the United States, particularly in terms of a realignment of product standards and regulatory frameworks, will make it all the harder to trade with Europe, he argued. “In shifting our eggs from the European to the American basket, we would be taking a leap into the unknown and for me that is too big a risk to take.”

Hans-Peter Siebenhaar is Handelsblatt’s correspondent in Vienna and specializes in media and telecommunications coverage. To contact the author: siebenhaar@handelsblatt.com

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Brexit will cost BASF €10s millions a year

Richard Carter, CEO of BASF UK and Ireland

This article was published in Handelsblatt.com on 19 February 2018.
The original article is here:
https://www.handelsblatt.com/unternehmen/industrie/uk-chef-carter-im-interview-brexit-kostet-basf-bis-zu-60-millionen-euro-pro-jahr/20977914.html?ticket=ST-4194873-Wktvh3Whd2Qacse2Vgcx-ap2

The upcoming Brexit causes unrest on the executive boards of companies, and international corporations like BASF are also changing the subject. The German chemical giant has been doing business on the island since 1880, and now has 10 factories and thousands of employees, who among other things produce paints, fertilizers and pesticides. Their boss, the Briton Richard Carter, is harshly criticising the actions of the UK government.

Mr Carter, how much does the upcoming Brexit make you nervous? 
19 months after the referendum there is still uncertainty about where we will eventually arrive. We are ready to make changes if we know what is needed. But the lack of certainty limits us to what we can do on a practical level now.

So how do you prepare for Brexit? What is your so-called emergency plan? 
We look at tariffs and barriers to trade, talk with customs experts and our customers about the possible consequences. We’ve formed teams with members from the, Brussels and our headquarters in Germany, which deal with five different topics, most notably the impact on trade and regulation. For example, it would be important for us to know if the EU regulatory requirements under REACH are still valid for us.

How likely do you consider the option of “hard Brexit”? 
Although the UK and the EU have now started the second phase of negotiations, this seems the most likely option right now. It is regrettable – but the companies simply have no planning certainty at the moment. 

How do you rate the position of the UK Government? 
We would like to see the UK Government clearly positioned, clearly demonstrating what it wants and what it will do if it does not achieve that. We are in close contact with the government, but we can not make the necessary arrangements for the day-to-day business unless the basic parameters are clear.

Have you calculated what the costs of a Brexit for BASF are? 
We expect 40 to 60 million euros in extra costs per year – only through possible tariffs and tariffs, their conversion and delays in the supply chain.

Do you have advantages as a daughter of a German company? 
Brexit is not just a problem for the British. A tough break with the EU will affect imports to Britain more than exports from the UK. Trade goes both ways. And the supply chains are now so complex that goods sometimes even cross the borders several times.

What would be the highest priority for BASF at Brexit? 
Of course, we would like to change as little as possible. It is important for us that trade with the EU continues to run smoothly and that there will be no diverging regulatory requirements.

As a chemical company, BASF is involved in the supply chains of many companies in other industries …
Absolutely. We supply the aerospace, automotive and agricultural industries – just to name a few examples. Some of our employees are even involved in the production process directly on site. For example, we have a team of people responsible for paints at car maker Nissan in Sunderland. That’s why the Brexit is so complex. The boundaries between the sectors are blurred.

There is currently talk of a transitional phase. What do you make of it? Is it useful? 
In any case. We think that the “about two years” that the British government is talking about are rather short. We would prefer up to five years. The time is running out. We need certainty.

However, the future relationship between Britain and the EU will not be discussed until October. 
That’s just six months before Brexit! From a political point of view, that may be a lot of time, but it’s too short for companies. Some companies will already implement their contingency plans by then. The Brexit has an incredible amount of impact to prepare for, and that takes time.

Can you give examples of that? 
Introducing customs duties could have a significant impact on supply chains, for example, if goods are no longer efficiently handled at Dover port and there are congestion and delays. The same applies of course to the ports on the other side of the canal, in Calais or Antwerp. And from the transportation industry, it is likely that there will probably be a shortage of truck drivers in the UK soon. Many of them came from other EU countries – which now offer them better opportunities.

BASF currently generates three to four per cent of group sales in the UK market, with 10 production sites and 1,400 employees. Where do you stand in five years? 
I can not give you an answer to that. That is the answer. And it says a lot when an entrepreneur can not tell you how his business will look in five years. The uncertainty is just too big. We hope that will change in the coming weeks.

Will the British market lose importance as a result of Brexit? 
At BASF we have to remain competitive, not only in the industry, but also within the Group. If we decide on investments internally, the plant must meet certain conditions – and that could include access to the European single market. The connection to the EU is important for multinational corporate investors like us. But wherever Brexit will lead, the UK market is important to us, and we will continue to explore new opportunities. But we hope that Britain will clarify its intentions.
ENDS

The full Handelsblatt article is available to Handlesblatt subscribers here: https://www.handelsblatt.com/unternehmen/industrie/uk-chef-carter-im-interview-brexit-kostet-basf-bis-zu-60-millionen-euro-pro-jahr/20977914.html

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UK and EU could be better partners apart

Why a deal will (have to) be done
by Bob Bischof, London, 28 February 2018

As a German businessman who has lived and worked in Britain for 40 years and seen all facets of the Anglo-German divide over Europe, I am convinced that UK and continental negotiators will reach a mutually satisfactory accord over European Union withdrawal.

Britain and the EU-27 are better off apart than together. The EU will reach an agreement because the other 27 countries believe it is in their interest that Britain not only leaves now, but also that no future government thinks of knocking on the door again. Many well-meaning British Europhiles from all parties are sadly wasting their time by campaigning for Britain to stay in.

There has been much noise and hot air. Prime Minister Theresa May’s cabinet met last week and declared that only a bespoke deal is acceptable – earning an immediate rebuff from Brussels that this is impossible. Jeremy Corbyn, the leader of the Labour party, has pledged that Britain will stay in a customs union with Europe to help industry and employment and prevent a ‘hard’ Irish border. This spurred claims that Labour is ‘betraying’ those party supporters who want a full-scale EU exit. It also threatens May by encouraging Europhile Conservative rebels to join Labour against the prime minister’s strategy.

Squabbling over Europe is as old as Britain’s 50 years of half-hearted attempts at being a full and engaged European partner. European wrangles have haunted successive Conservative prime ministers. David Cameron had to step down after miscalculating the outcome of the 2016 referendum. May would have met the same fate, had her adversaries not hesitated to oust her out of fear of Corbyn in Downing Street.

The litany of divergence is long and substantial. Not having accepted the euro or Schengen area borderless travel, Britain will never sit at Europe’s top table. Public opinion, heavily influenced by a powerful right-wing press, is hostile to Europe. The British don’t like and are not good at the big government, structure and regulation conducive to European integration.

Other sources of division are Britain’s affinity with case law and a non-written constitution, contrasting with the continent’s Napoleonic code, and the British hankering for flexible labour markets and shareholder value rather than worker protection and the social market economy.

The referendum outcome gave credence to James Surowiecki’s book The Wisdom of Crowds. Large numbers of ordinary people sometimes make better decisions than smart elites. Because of deep cultural, political and economic disparities, I believe now – as I did before the vote – that Britain will continue to have misgivings about the EU and its political framework in spite of the fact that it will be worse off economically. Moreover, the EU will be better off without its quarrelsome neighbour.

For all these reasons, May and the EU have to and will agree a deal that Remainers and Leavers can (just about) live with in parliament and even in a second referendum.

Ultimately the EU will deliver such an accord. The reasons are rooted in reality, not fairyland. The right-wing press regularly claims that the EU needs Britain more than vice versa, that the EU’s exporters are somehow more vulnerable than the UK’s, or that the EU will be a more dangerous place without a deal. These mantras are overdone and misleading. Both sides need a deal, for equal and opposite reasons.

Separation can take place amicably. The French and German elections led to one common political result: more Europe and more integration.

A softer EU stance on Brexit is unlikely to encourage other countries to leave, as the EU is economically out of the doldrums. Employment is rising. Growth is higher and at a more sustainable rate than in Britain, where, in spite of sterling’s fall, the high current account deficit is expected to show only marginal improvement. Household debt is at record highs. Unemployment started to creep up in the last quarter of 2017.

No wonder net migration to the UK has fallen substantially. Because of Britain’s worse economics, I predict that immigration will shrink so much that May will claim victory and can drop insistence on free movement of people for a future accord. This is one more reason why, in the coming months, headlines will portray more harmony than hostility between London and Brussels.

Bob Bischof is Chairman of the German-British Forum, a Vice-President of the German-British Chamber of Industry and Commerce and a member of the OMFIF Advisory Board.

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Whither global Britain and China’s Belt and Road?

By Lord Peter Mandelson, GBF President
Published 17 April 2018 on Global Counsel blog

I have been in China again, this time as president of the Great Britain-China Centre, flying the flag at the UK-China Leadership Forum. This is an annual event at which representatives of Britain’s political parties exchange views with China’s communist party. The delegation was led by Theresa May’s able number two, David Liddington, and I was the senior Labour man (hope this doesn’t upset its leader, Jeremy Corbyn). A recurrent question of the week was how ‘global Britain’ will come to terms with a world in which China is becoming preeminent.

The May government’s instinct to date has been to turn to the US for greater comfort, security and trade opportunities in the post-Brexit epoch. It is an obvious – Western – choice given that, for the last half century, Britain’s place in the world has been anchored in its European partnership and American alliance. As one falls away, more reliance is placed on the other. The problem (apart from the policies and temperament of the current US president) is that the West’s economic growth and political cohesion are not what they were, and a lot of the world is reorienting itself to China’s growing potency. Obviously Britain will remain innately Western in outlook but it has to recognise that the coming era is going to be very different because of China’s role.

Interestingly, Chinese political leaders are also reflecting on Britain’s direction. They do not want a declining Britain. I think this is because Britain remains an important trading partner and has businesses and assets which China wants to invest in or acquire. There is still some hope in Beijing that Britain can provide a guiding hand to restrain our American cousins. There is also a lingering expectation that Britain will come to its senses and eventually re-join Europe. In the meantime, real politic being what it is, China will not be averse to playing Britain and the EU off against each other. Foreign Office, and No 10, beware.

One area in which Britain might develop its relations with China is Xi Jinping’s much-vaunted ‘silk road’ Belt and Road Initiative. Xi’s reinvigorated number two, Wang Qishan, told the UK delegation when we saw him that this should not be mistaken for America’s post-war Marshall Plan. China wants to achieve three things with the BRI: to provide outlets for its surplus capex; expand its multiple export markets and supply routes; and match the West’s international development assistance programmes.

The whole concept has become more ambitious than originally envisaged – we are talking about a 50-year journey, not a short term fiscal boost –  and China does not have the required core capabilities and networks needed to make it a reality. But the machine is revving up and there will be no holding back when BRI finally starts to leap off the drawing board. EU members like Hungary are already lining up to receive their full share of BRI’s largesse (and who can blame them?).

What’s in it for Britain? We are an advanced service economy not a developing country, so we have plenty of professional and business skills to contribute to BRI’s railway, road, port, energy and other engineering and construction projects. China doesn’t have the financial and other wherewithal, engineers, architects, lawyers and designers to pull off all these on its own. Moreover, the efficacy of these infrastructure investments will ultimately depend on a wider ecosystem – how roads are maintained, how ports and railways are managed, what environmental, social and governance considerations need to be taken into account when delivering huge energy projects – these are areas where Britain, with its long history of international engagement, is well placed to help.

For different reasons, Britain and China both want to go ‘global’. Perhaps they might share the experience.

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The Power of Partnership

By Steffen Hoffman, President at Robert Bosch UK
Published 13 December 2017

 

Times are changing. And so is the way that Bosch does business.

The emergence of the Internet of Things is having a transformative effect on just about every industry – from automotive to agriculture, medical to mining. Disruptive technologies and business models can seemingly appear out of nowhere, re-shaping sectors in the blink of an eye.

The rapid pace of digital transformation means that it has never been more important to manage change and its impact on an organisation’s people and culture.

That’s something we are acutely aware of here at Bosch, as we’ve looked to become leaner, faster and more agile to react to the opportunities that IoT affords.

We’ve needed to become less conservative, and to establish a culture that encourages innovation. We want our associates to think big and to take a chance. If an idea doesn’t fly, then don’t worry, try something new. Fear of failure mustn’t hold people back.

New partnerships, new opportunities

The change of mindset is also represented by a new spirit of collaboration at Bosch. To succeed in the fast-moving world of IoT, companies need to focus on what they do best, while making the most of external knowledge and skills. No single outfit can lay claim to be an expert in every aspect of IoT, so organisations need to form alliances to achieve their aims. Earlier this year, for example, Bosch announced a collaboration with IBM to develop new options for industrial IoT.

In the domestic environment, meanwhile, we’ve forged links with world-leading companies such as Amazon and Philips Hue to provide a range of connected solutions for the home that are making lives simpler, safer and more convenient.

Internally, also, we’ve fostered a new spirit of partnership by establishing a number of vibrant start-up firms whose technology and skills are helping to bring IoT to life. One of these companies is Deepfield Robotics, a start-up based in Renningen, Germany, which is developing high-precision ground sensors and autonomous machines for smart farming. Here, small teams are working together to address agriculture challenges – such as maximising the crop yield of seasonal fruit and vegetables and improving harvesting techniques. With global population growth amounting to around 83 million people annually, it is crucial that we develop innovative farming technologies to meet increasing demand for food.

In each of these examples, people and businesses are benefiting from the power of partnership. This new approach of working flexibly and co-actively with a diverse pool of people with varying skill sets means we are building exciting new businesses and pushing forward the boundaries of our knowledge and understanding.

It’s not a process that will happen overnight, of course, as operational change takes time to implement and requires a different culture and mindset. But the potential reward is enormous. It’s only by thinking and acting collaboratively that Bosch and its partners will develop the IoT technologies of tomorrow.

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Merkel’s Germany: Shaper or Taker of a United Europe?

As Europe’s largest economy struggles to find its future path, what about calls that Germany is Europe’s hegemon?

By Bob Bischof, published in The Globalist on December 15, 2017
https://www.theglobalist.com/germany-merkel-macron-eu-europe/

As Germany’s main political parties struggle to find a formula for a new coalition agreement under Angela Merkel’s leadership, the rest of Europe is testing the waters.

Some argue nothing in Europe can move forward with a Germany occupied with itself. Others relish German paralysis. Yet again others fear German dominance no matter what. That is quite a spectrum of opinion.

Where should the future European journey go?

The majority of Europe’s political elites are trying to determine the proper pathway. Should there be further integration towards a United States of Europe?

Is such a move not mandated as a proper global counterweight in a world marked by the incessant rise of China, the hard-to- calculate Russians and the demise of the United States under Trump as the leader of the free world?

France’s President Emmanuel Macron has definitely defined such a response as his main aim. He needs Germany to come on board, not least to guard against the centrifugal powers of populism that are rising throughout most of Europe and keen to destroy his dream.

Spreading ominous thinking

But where does Germany stand? Is it really tearing apart at the fringes? That’s the suggestion of many who see the German elections in the dark light, on account of the success of the extreme left and right parties. Sections of the British press compared the right-wing AfD‘s march into the Bundestag to events in 1930.

Fortunately, this is far from the reality. Germany’s centrist parties scored an overwhelming 78% of the vote.

Still, one cannot deny or underestimate the disruptive danger of populism. In Poland and Hungary, for example, populists are making hay out of old fears and tribal aspirations.

German hegemony?

One underlying thread that united much political analysis throughout Europe is the fomenting of fears that is associated with the talk of a new German hegemony. In my view, that is just alarmist talk, designed to whip up the forces of populism in whatever country whose leaders think in those terms.

 Others present a milder suggestion. For example, David Marsh in a recent article on The Globalist talks about a rerun of the Holy Roman Empire of German Nations in the Middle Ages.

That, too, sounds ominous. However, any student of history knows that Germany‘s neighbors would have nothing to fear.

That Empire was never dominated from the center. In fact, the center was kept deliberately weak. Power resided in the leaders of the constituent parts of that empire, who elected whoever the new emperor would become. It was thus anything but an effective political entity.

If anything, that Holy Roman Empire – transferred to our era – actually resembles quite closely the European model which the UK always has in mind.

If one wants to compare the European present with the past, the first German reunification in 1871 is a more fitting example. Driven by the onset of the industrial revolution (today’s equivalent of globalization in terms of its transformative powers), first a customs union was created. Then, under strong leadership by Prussia, came monetary and political union.

But even that parallel doesn’t really fit for various reasons. Anybody looking for a clearer understanding of Germany’s multi-layered historic, social and cultural role in Europe should read Stephen Green‘s excellent book “Germany the Reluctant Meister.“ He hits the nail on the head.

What about Angela Merkel?

Frau Merkel‘s Germany needs France much more than the French need the Germans. Herself long on desire, but short on actual vision, she would like nothing better than Monsieur Macron driving the European project forward. To her delight, he has taken the initiative. He is her “vision king.”

True, unlike the SPD – her potential governing partner – Merkel will only be a reluctant follower when it comes to German taxpayers shouldering too much of the cost of futher European integration.

But I am sure Merkel believes it is a reasonable price to pay, all the more so as she can rely on the Social Democrats to provide her sufficient political cover. They will allow her to convince most of her voters, who want the CDU to govern, that this is worth the cost.

Which leads to one big question in the European context: Will the SPD jump aboard the Merkel bandwagon once again?

The reason why I feel confident about a rerun of the last coalition is that the Social Democrats need not to fear playing second fiddle to her and falling further back in the next election. This is definitely Merkel’s last term in power. In fact, it would be a surprise if she stayed the full term.

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Equant Analytics June Trade Outlook

Article 50: time to take a strategic look at trade

Almost as soon as the dust settles after the UK election, the Article 50 process to negotiate the UK’s exit from the EU will start. The UK so far has relied on a conciliatory Europe led by a Germany that was genuinely saddened by the loss of its like-minded Anglo-Saxon ally and therefore more likely to drive the bloc towards compromise. The G7 and NATO summits at the end of May, and the inauguration of President Macron have changed all that. Europe is finding a new assertiveness on the global stage. This was articulated by Chancellor Merkel in her Munich speech; she argued that the US and the UK could no longer be relied upon and that Europe must find its own voice to promote its own interests. And while much of the rhetorical anger in the speech may simply be attributed to electioneering, it serves as a wake-up call to the UK. Europe will have its own strategic interests when it starts the negotiations and the UK would do well to be aware of what these are.

Trade is political and this makes it strategic – that is, something that can be used as a tool to promote national or regional interests in economic or foreign policy terms. In this, EU negotiators will be keen to protect Europe’s economic and energy security as well as increasingly focused foreign policy interests.

The EU’s top ten export and import trade flows by sector with the UK are automotives, machinery (including computers), pharmaceuticals, electrical equipment and oil and gas (Figure 1). The top fifteen trade flows by sector add optical, photographic and medical equipment, plastics and aerospace. These are not just the top trade sectors for the EU as a whole; they are also among the top sectors for Germany, France, the Netherlands, Italy, Belgium and the UK.

Given that Europe exports to the UK some 85% more than it imports from the UK, it has been assumed that the cards are stacked in the UK’s favour. However, trade “wars” are reciprocal: one side imposes tougher arrangements and the other retaliates. As these are the top sectors for the UK as well, and as Europe is the UK’s largest export destination for each of these sectors, it will be important to bear in mind that the symbiotic relationship in these sectors are because of Europe-wide supply chains. Everyone will lose without some compromise.

Figure 1: Top 15 trade flows by sector between EU and UK (exports and imports, 2016, US$ bn)
Source: Equant Analytics, 2017

The second thing to note is just how concentrated this trade is. The top ten flows account for 53% of Europe’s trade with the UK. Add in plastics, optical and medical equipment and aerospace (the 11th and 12th largest flows and in the top five for Germany, France and Italy) and the top flows account for over 60% of Europe’s trade with the UK (Figure 2).

Again, the dominance of exports to the UK is clear – the top four sectors are all exports to the UK and constitute over 31% of Europe’s trade with the UK. Again, however, the importance of Europe-wide supply chains is critical. The UK is a large export market for German cars and automotive components, but this is because the UK is a major location within Europe for the manufacture of German cars. While this may appear that Germany is more dependent on the UK than the other way around, the UK’s exports of cars to the US has grown at an annualized rate of 9% and to China at an annualized rate of 13% over the past five years. This is not all attributable to German manufacturers, but there is no doubt that this has had an influence.

Figure 2:  Share of EU trade with the UK, top fifteen sectors, 2016 (%)
Source: Equant Analytics, 2017

Finally, the EU 27’s trade is 73% correlated with the value of the euro since 1998 suggesting that it is a trade-based currency rather than a speculative one. Its trade with the UK is slightly weaker at 70% but this is still substantial. (Figure 3). The euro is the world’s second largest trade finance currency and its position and strength can therefore be seen as a function of the strength of Europe’s trade. This is a quite distinct function for the euro and explains why Germany in particular has been keen to hold the Eurozone together: the euro’s economic importance is in trade and as supply chains develop across the region, this becomes more rather than less important. Just as is the case for Europe, a stable euro for the UK ensures that prices within the supply chains into which UK businesses are woven are also stable.

Figure 3:  EU 27 exports to UK vs euro-usd spot price, 1998-2016
Source:  Equant Analytics, 2017

Elections distort rhetoric and there is anger in Europe about the UK’s bellicose tone which, along with Trump’s visits at the end of May provoked the response from Angela Merkel that former allies could no longer be trusted and that Europe would have to go it alone. The danger is that rhetoric becomes entrenched on both sides after the election in the UK because there is still a long way to go before the German election. This would be a negotiating mistake on the part of the UK. Europe’s and the UK’s trade is almost symbiotic because of the importance of supply chains. Policy makers on both sides would do well to remember this.