Matthew Lynn

Germany is picking up the tab for Brexit

Germany is picking up the tab for Brexit
Getty images
Text settings
Comments

The car workers would pay a heavy price. The City would be muscled out of crucial markets. The Treasury would be sinking in red ink as tax receipts went into freefall, and farmers would lose their subsidies. During the long, painful debate about the UK’s departure from the EU there were lots of different groups which, we heard repeatedly, would pay a price for that. But now that we are out, we are finally getting a definitive answer. There will be a price to be paid. But it will be German tax-payers who will be picking up the tab, not anyone in Britain. And that could hardly come at a worse time.

EU leaders are due to meet on Friday to discuss the Budget for the next seven years. Boris Johnson doesn’t have a lot to be thankful for right now, but at least he doesn’t have to go through the ritual humiliation of trying to hammer out a compromise in Brussels in the middle of the night and facing furious headlines whatever deal he brings home. Instead, he can leave that dubious pleasure to Angela Merkel.

According to a report in Die Welt today, the Commission is planning a 13 billion euro (£11.7bn), or 42 per cent, increase in the German contribution to the EU. It currently pays in 31 billion euros (£27bn) to the EU Budget, but over the next seven year the annual amount will go up to 44 billion euros (£39bn). That will make it by far the biggest contributor to the EU on both a net and gross basis. That may be about to get worse. The EU is about to borrow 750bn euros (£672bn) for its Coronavirus Recovery Fund. It remains to be seen exactly how that will be dished out – there will be another fierce struggle about that – but because Germany has been relatively lightly hit by Covid-19 it should receive less money than Italy, Spain and France, but as the biggest economy it will still pay in more than anyone else.

In effect, Germany in paying the price for Britain’s departure. Ironically, the 13bn euros increase in its subs almost matches the UK’s gross contribution (14.6 billion euros (£13bn) in 2018), although the net figure was significantly less. 

Maybe the average German won’t mind about that, although you wouldn’t want to bet your last Bratwurst on it. But it could not have come at a worse time. Germany’s once mighty economic engine was already looking to like it was about to run out of steam. Its car industry, by far the largest sector of the economy, is stuck with a range of big diesel SUVs at a moment when they are about as popular as a sneeze at the supermarket check-out (the electric vehicle manufacturer Tesla is now worth more than BMW and Mercedes combined), and its export-orientated, manufacturing based economic model looks uniquely vulnerable in a world where trade has ground to a halt. 

The government is spending billions to prop up its economy, but it may need to re-invent itself as well, and that is not going to be easy. Germany, for historical reasons, has always been remarkably relaxed about funding the EU, in a way the British never were. Its tolerance is now about to be pushed to the limit – and quite possibly beyond it.

Written byMatthew Lynn

Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

Comments
Topics in this articleInternational