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Why Brexit empowers Germany

The Brexit votes creates a whirlwind of uncertainty, yet one thing is clear: it gives Angela Merkel’s Germany extraordinary power to shape the future of Europe, and through it the world. From now on the most important question for British politics is, how will Germany use its power?
Germany could decline the power thrown its way by the British electorate, but that would put it at the mercy of smaller nations. It could use its increased power for narrow, nationalistic purposes, but that would risk a political backlash from the rest of Europe, rising nationalism and break-up of the EU. It is therefore likely that Germany will reluctantly lead a coalition of European partners to renew the EU in the image of federal Germany.
To understand why Brexit will increase German influence we need to see the logic of political economy driving world politics.
Germany is an economic power house. Productivity is 30% higher than the UK, it has a highly advanced, diverse manufacturing base, and the world’s largest trade surplus, while the US and Britain have the world’s largest trade deficits and national debts. It also has vigorous, decentralised political culture, with representation by parties from the far left to far right as well as Greens. It has robust institutions with experienced politicians and civil servants used to competing and cooperating within a multi-level political system of powerful Länder, a focused federal government and labyrinthine European institutions. Germany also hosts the UN climate agency, UNFCCC, which will become increasingly important in world politics as the climate becomes more chaotic, while neighbouring Switzerland hosts the WTO, UNTAD, ILO, Red Cross and other international agencies.
Brexit will strengthen Frankfurt as Europe’s financial centre, pulling tax revenues and political power from the UK into Europe. While British politicians are preoccupied with internal conflicts and negotiating trade deals with the rest of the world, Germany will concentrate on tackling problems across Europe to strengthen the political economy of the EU and surrounding regions of Eastern Europe, Africa and the Middle East.
Brexit creates an existential crisis for the European project, in which Germany has invested more than any other country. It is unlikely to retreat now. Germany has handled many major political challenges since the Second World War – rebuilding West Germany, containing domestic terrorism, re-unification with the East, introduction of the Euro and the influx of over one million refugees. It made mistakes, but on balance it has become stronger in the process. Its response to the refugee crisis has been a national campaign to prove “Deutschland kann das” – Germany can do it – an attitude which will grow. Refugees will also contribute to Germany’s economy and make up for its declining domestic birth rate. German will be the biggest contributor to the EU budget by far and will be able to get its way more often than not.
But most important of all, Germany and the EU will write the rules of world trade and global governance. Markets need a political framework to set and enforce basic rules. International trade rules are largely set by dominant powers, like the British Empire, United States and now the EU. Decisions about rules governing the role and responsibilities of capital are as at least as important as about the movement of goods and labour. As the world’s largest trading bloc, the EU already sets standards for the rest of the world. Countries outside the EU adopt European standards of animal welfare, product safety, environmental protection and even labour conditions in order to export into the EU. Freed from British subservience to the financial sector, the EU can legislate for corporate responsibility, tax transparency and avoidance, a financial transaction tax and carbon taxes.
Germany abhors militarism and will extend soft power to promote institution-building, managed democracies and social market economies in the Ukraine, Northern Africa and Middle East to stabilise these regions, stem the flow of migrants and increase markets for its machine tools, advanced technology and tourist trade. It will increase investment in these regions, particularly in industries that mitigate climate change and employ lots of people, such as solar power, leisure and personal services. It will reassure Russia that NATO has no territorial ambitions to the East.
Of course it could all go wrong for the EU, while a British renaissance blossoms. But my guess is that British politics will become preoccupied by internal tensions while trying to negotiate new trade deals with the rest of the world. Civil servants will need to pay more attention to decision-making in the EU, with little say over what happens. Far from taking control, the UK will be rule-takers while Germany makes the rules. Having seen how Germany has developed since 1945, the world could be better for it.
Titus Alexander is convenor of Democracy Matters. This is a personal view.

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