The prospect of Britain leaving the European Union has been a background influence adding to the New Year factors disturbing financial markets. None of this has been lost on the principal actors in the German government, which is currently digesting the implications of a collapse in Chancellor Angela Merkel’s political status over her errors of judgement in the refugee crisis.
Losing Britain as an ally in Europe at the same time as she is losing her grip in Germany would not be good news for the embattled chancellor. In forthcoming horse-trading, the clear dismay with which Berlin regards the prospect of bidding farewell to a major strategic and economic player from an already weakened EU gives British Prime Minister David Cameron some important negotiating cards. So long as he does not overplay them, his hand in the UK’s referendum on EU membership – likely to take place this summer – is strengthened.
If Cameron’s legionary luck holds, he has a good chance of winning concessions from other European partners on the issues that matter most to UK opinion – safeguarding Britain’s borders, curbing immigration by ‘welfare migrants’ and securing value for money from Britain’s European contributions.
All this would produce what I still consider the most likely outcome: a small referendum majority in favour of staying in the EU.
One positive sign is that Berlin appears willing to allow the UK to affirm that the EU is a ‘multicurrency bloc’ – certifying that several EU currencies circulate as well as the euro, including sterling and monetary units of other countries with no intention of promptly (or ever) acceding to the monetary union.
An important political principle lies behind this apparently technocratic issue, namely that the UK and other non-euro counties would be guaranteed political and commercial safeguards in the single market – a key issue for the Cameron government. Germany and other countries also appear willing to accept some British strictures over immigration controls.
One overriding reason for the UK’s desire for some form of separation from the EU is the belief that the euro area needs a much greater degree of political integration to enable the single currency to function properly – a step in which Britain would take no part. On the other hand, it is clear that, whatever the pretensions of the so-called ‘five presidents report’ last year, the euro area is not going down the route of significant additional integration any time soon. The implications are two-edged: on the one hand, Europe’s inefficiencies and shortcomings will continue; on the other, British fears of a European ‘super state’ are unfounded.
Complicating the issue, but also giving Cameron potential leverage, Merkel is coming under fire from domestic political heavyweights who scent blood and are anxious to capitalise on the serious (and possibly terminal) undermining of a woman who has presided over Germany and Europe for the past 10 years.
Those applying pressure range from former chancellor Gerhard Schröder and Sigmar Gabriel, the Social Democrat vice-chancellor (and, from within the grand coalition, the not-so-secret leader of the opposition ahead of the September 2017 elections), to the sharp-voiced helmsmen of the Bavarian Christian Social Union. And, perhaps most dangerous of all, Wolfgang Schäuble, the wily, well-seasoned, wheelchair-bound finance minister. He will do nothing overt to dislodge Merkel, but could take over as an interim leader should her haemorrhaging of support become unstoppable.
The next two months will be crucial for Germany and for its chancellor. That is precisely the time that UK negotiations on a new compact with the EU will come to a head. For both Cameron and Merkel, there is much to play for.