Germany’s ailing economy can’t afford a no-deal Brexit

The UK was the ‘sick man’ when we ‘joined Europe’ in 1973. Now, with Britain on the cusp of leaving, the European Union’s largest economy is decidedly out of sorts. After failing to recover over the summer, Germany is now almost certainly in recession. The state of the fourth biggest economy on earth always matters — but with Germany dragging down the broader eurozone, its declining health could decisively impact Brexit negotiations too.

Politically, Brussels and Dublin are bullish. They have dismissed Boris Johnson’s proposals, gambling on an extension and perhaps Brexit being cancelled entirely. But such intransigence could yet cause a disorderly no-deal Brexit — which would have a pretty big impact on all major economies on the continent. With the eurozone on the edge of financial meltdown, the EU’s ailing economy needs a no-deal Brexit like a hole in the head.

Germany has long been the beating heart of the eurozone. But that economic pulse has been getting weaker. The German economy shrank between April and June, the second contraction in less than 12 months. Preliminary data for the third quarter, July to September, shows the country’s mighty manufacturing sector rapidly declining.

To make matters worse, Germany’s new services sector orders just fell for the first time in five years. Its neighbours look on in horror, knowing what a German slump might mean for them. They want Angela Merkel to embark on a debt-fuelled spending splurge to stave off a region-wide recession. She resists, insisting that Germany’s ‘culture’ is to avoid running up debt.

Merkel faces the dilemma at the heart of her country’s body politic — and its key role within the single currency. If she is to boost Germany’s economy, spreading growth across the eurozone, the nation’s instinctive economic caution must be overcome. And it’s about more than just Germany.