Germany is going to make Brexit even more difficult than we expected

An unexpected source could potentially make the United Kingdom’s exit process from the European Union even more difficult than it already looks set to be —
the upcoming elections in Germany in 2017.
Brexit negotiations are inevitably going to be an incredibly tough, lengthy process. Brexit secretary David Davis has even said that the deal Britain does to leave could be the most “complicated negotiation of all time.”

Parties across Europe want different things from the negotiations and are threatening to veto any deals not in their best interests. Most recently the V4 group of eastern European nations has threatened to veto any Brexit deal that would risk the right of their citizens to live and work in the UK.

“Unless we feel a guarantee that these people [living and working in Britain] are equal, we will veto any agreement between the EU and Britain… this is an issue for us where there’s no room for compromise,” Slovakian prime minister Robert Fico said on Saturday.

Add to that the incredibly tough stance key EU leaders like Jean Claude Juncker, and Guy Verhofstadt, who will lead negotiations are taking, and doing a deal that is in everybody’s best interests could be nigh on impossible.

But Germany’s general election at the back end of next year — when Chancellor Angela Merkel is expected to make a run at a fourth term in the Reichstag — could muddy the waters even more, according to analysis from Elga Bartsch, the Chief European Economist at Morgan Stanley.

Germany’s coalition government, formed by Merkel’s Christian Democrats (CDU), Christian Socialist Union (CSU), and the Socialist Democratic Party (SPD) has seen its relationships increasingly strained in recent months, especially since backlash surrounding Merkel’s refugee policy. As Bartsch notes: “The political backlash against the government’s refugee policy is causing some serious strain between the coalition partners, notably between the CDU and the CSU, on immigration issues.”

Support for the CDU has waned substantially in regional elections in recent months, with its vote share in Berlin falling to its lowest level since the reunification of the country in last weekend’s election. The far-right Alternative for Germany (AfD) took more than 11% of votes in the same election, benefiting from anti-refugee sentiment. By contrast, the SPD is gradually increasing its support, as the chart below shows:

Germany vote shares

If vote shares continue to fall for the CDU and rise for the SPD — as looks likely — and a general election looms, these frictions will get more pronounced, especially when it comes to the ever closer union and integration within Europe. Here is Bartsch (emphasis ours):

“Ahead of the 2017 general election, we will likely see an increase in the political frictions between the coalition partners, CDU/CSU and SPD, on key issues including fiscal discipline and European integration. The latter will likely make it increasingly difficult to negotiate the UK’s exit from the EU and international trade agreements or to agree to any additional bail-outs.”

Germany is the biggest economy in Europe, and Merkel is the de facto leader of the European Union. Consequently, it is obviously going to play a crucial role in any negotiations, which by the time the election comes round will almost certainly have begun. Not only will the election prove a distraction from negotiations, but a divided ruling party in Germany could cause huge problems with regards to exactly what it wants to achieve in negotiations, as Bartsch notes.

Brexit is going to be the hardest negotiation Britain ever does, but Germany looks like it might make things even more complicated.

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