Last month, British Prime Minister Theresa May invoked the symbolism of the Italian Renaissance during a speech in Florence in an effort to give the impression that Britain is seeking a soft Brexit from the European Union, with a long transition period that preserves its historic ties with the continent.
But German industry isn’t buying that rosy picture. Joachim Lang, CEO of the powerful German Industry Association, which is known by its German initials BDI, told a news conference Thursday that companies need to prepare now for a messy divorce.
“German companies that have a connection with the UK and Northern Ireland must now take precautions for a very hard departure” of Britain from the EU, scheduled for March 2019, Mr. Lang told journalists. German firms, he added, sense a “sword of Damocles of insecurity is hanging over them, but they are also exposed to the danger of a massive devaluation” of the British pound against the euro.
“A Damocles sword of insecurity is hanging over German companies.”
The BDI leader said German companies are already experiencing difficulties in staffing their operations in Britain. Employees in Germany and other EU countries now refuse to take work assignments in Britain because their immigration status after Brexit is still unclear and they often end up taking jobs elsewhere in the EU. There aren’t enough qualified executives in Britain to fill open positions, he said.
German companies currently have about 400,000 workers in the UK, helping conduct €170 billion ($200 billion) in annual trade between the two countries. The UK takes about 7 percent of Germany’s exports, compared with 51 percent going to other EU countries. But Britain takes the largest amount of German car exports in Europe.
Despite those deep connections, Brexit wasn’t much of a topic in the recent German election campaign. The matter didn’t come up at all in a pre-election debate between German Chancellor Angela Merkel and her chief rival Martin Schulz, nor is it likely to be much of a discussion point in upcoming coalition talks to form a new government. But the BDI leader’s latest comments signal that the country’s businesses are indeed worried about the possible consequences.
German companies are particularly concerned about their supply chains, which often involve choreographing intricate movements of parts and components back and forth across EU borders before final assembly. When Britain leaves the EU, coordinating such movements will become difficult unless a free-trade area is agreed.
While German firms would no doubt hope for a smoother process surrounding Britain’s exit, Mr. Lang laid the blame for the rocky ride to date with London, not Brussels. German companies wholeheartedly support the EU’s negotiating position with Britain, he said. Ms. May’s government “talks a lot, but has no clear concept” for the country’s departure from the EU.
Ms. May, in her Florence speech, said she envisaged a relationship not as close as Norway’s, which is a member of the European Economic Area, but not as distant as Canada’s, which only has a trade agreement with the EU. She said trade should not involve tariffs, but ruled out free movement of EU citizens, a position the EU has said it will not accept.
Much of this was still not specific enough for Germany. Mr. Lang said British suggestions about rights for EU citizens were insufficient, and their ideas for the land border between Northern Ireland, which is part of Britain, and Ireland, which will remain in the EU, are impractical. Questions about financial firms’ presence in London are also still unanswered, he said.
More questions were raised Wednesday when Ms. May gave a terrible performance at the Conservative party’s annual conference, raising the possibility she may soon be replaced by a politicians such as Boris Johnson, the country’s foreign minister, who takes a much harder Brexit position than Ms. May.
If no serious progress is made by December, Mr. Lang said companies will need to prepare for a “Brexit chaos” in the final year before Britain’s departure becomes final. Companies that now manufacture in Britain should think about relocating to other EU countries, he added, while those that make products for the British market should find British subcontractors who would become self-sufficient.
London-based companies have already sounded a similar alarm by starting to move some of their operations to the continent. More than a dozen banks have said they will shift operations to Frankfurt, including Goldman Sachs, Britain’s Standard Chartered und Japanese banks Daiwa, Nomura and Sumitomo Mitsui.
There’s still time for progress. An EU leaders meeting is set for later this month, and another in December. London is hoping to resolve enough issues in October to begin discussions about the shape of their relationship after Brexit happens. Mr. Lang said the BDI doesn’t expect that kind of progress until December at the earliest. Any later than that, and it could be a rough ride for all sides involved.
