Most Germans are genuinely perplexed by Brexit. They think the Brits are victims of collective insanity.
Didn't they have the best of all worlds? They had their own currency and were not in Schengen, the passport-free zone that covers 26 European countries. They had various opt-outs from European Union treaties, such as the Charter of Fundamental Rights. Yet, in spite of all these conveniences, Britain retained open access to the world's biggest market and a strong say in shaping the EU's economic and security future.
Yet, they threw it all away last year, when they voted to exit the EU. Since then, British Prime Minister Theresa May has flapped around like a cod on a dock on the Brexit file, going nowhere. She tried to make up for lost time on Friday, when, in a speech in Florence, she pleaded for a two-year "implementation period" that would look pretty much like the status quo after Britain leaves in March, 2019.
The EU, meanwhile, has remained steadfast on its Brexit approach: Brexit will be done on our terms – that would be Germany's, not Britain's – and by the way, we're not even going to start negotiating until the Brits put a fat down payment on their Brexit bill of as much as €100-billion ($147.4-billion). Britain is getting "no free lunch," German Finance Minister Wolfgang Schaeuble said early this month.
Yet, some Brits held out hope that German Chancellor Angela Merkel – the "queen of Europe" – would soften her position on Brexit after her presumed re-election in Sunday's federal election. The theory rested on the assumption that Ms. Merkel had to play tough with the Brits during her campaign to avoid alienating the German voters who do not want to cut Britain any Brexit favours.
Britain doth flatter itself too much. "Brexit" has barely been uttered by any candidate during the German election and seems way down the list of priorities in other big EU countries. Italian European affairs minister Sandro Gozi told Bloomberg that "Brexit is No. 4" on Italy's to-do list, after immigration, euro-area reform and social justice.
How to explain the EU's what-me-worry stand? Isn't Brexit an existential threat to the integrity of the EU, as well as a threat to the profits on any EU company with sales in Britain?
Part of the EU's position rests on its new self-confidence. The economy of the euro zone – the 19 EU countries that share the euro, led by Germany, France and Italy – is finally on the trot after a near-decade of misery. In the second quarter, the euro zone recorded year-on-year growth of 2.3 per cent. That's a faster pace than Britain's, although a bit slower than the U.S. rate. Unemployment is sinking as fast as Ms. May's popularity ratings and the stock markets are on fire as overseas investor money gushes in. Germany's Dax index is up 18.3 per cent over the past year, France's CAC is up 17.2 per cent and Italy's FTSE-MIB index is up an astounding 42 per cent.
While Brexit hasn't happened yet, there is a sense that Britain's exodus won't do irreparable harm to the euro zone or the wider EU, even if there is bound to be some damage if Britain fails to secure a free-access deal and the tariffs come in.
The rising euro zone economy only explains part of the story. Almost all of the major parties in Germany, the EU's dominant economy and Brussels agenda driver, and the rest of the EU are exceedingly pro-European Union by British standards. For her part, Ms. Merkel doesn't want to punish Britain for hitting the road, but she does want to protect the EU, which means ensuring that Britain does not enjoy the same benefits outside the EU as those inside. If Britain were allowed to walk with no penalties, some other EU members might do the same. Sophia Besch, research fellow at the Centre for European Reform (CER), says Germans are "adamant that there will be no cherry-picking by the British after Brexit [and] that means no selective participation in the single market."
Corporate Germany has the same view. While they'd much rather see Britain stay put, their priority is to protect what's left of the single market. Even the German car giants, which sell a lot of BMWs, Mercedes and Volkswagens in Britain, are not keen on awarding Britain with an easy out. In a note, the CER said, "To German businesses, which have complex supply chains criss-crossing the entire EU, nothing is more important than the single market. If forced to choose, German business would always choose the single market over tariff-free access to the U.K."
The question is whether the makeup of Ms. Merkel's new governing coalition – her Christian Democratic Union and the Christian Social Union won't win enough votes on their own for an outright majority – could dilute her tough stand on Brexit. Again, unlikely. All of her potential coalition partners favour serving German and EU interests over British interests on the Brexit file.
Ms. May and her hapless band of Brexiters are running out of options. If she wants out of the EU, it will be on Ms. Merkel's terms and that means the interests of the EU will come first. Ms. May's Florence speech didn't change that reality.
Eric Reguly