Merkel’s Brexit crisis: German exports already plummeting despite UK-EU ties not yet cut

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The UK remains tied to the EU’s customs union and single market rules as the two sides desperately attempt to thrash out a lucrative trade deal before the transition period deadline on December 31. The EU’s chief Brexit negotiator Michel Barnier has continued talks with UK counterpart David Frost in London this week, but a significant breakthrough seems unlikely, despite progress needing to be made if a new agreement is to be in place when current arrangements expire. Brussels wants a trade deal signed by mid-November in order for it to be ratified by EU leaders before Britain leaves the customs union and single market, but Boris Johnson has insisted the UK is prepared to walk away with no deal.

If Britain does leave with no deal trade between the UK and EU will be subject to potentially huge tariffs set out by the World Trade Organisation (WTO).

But a report from Jörg Krämer, Chief Economist at German banking giant Commerzbank, shows the country’s exports have already suffered significantly – before the full ramifications of Brexit hit.

According to the report, the value of German exports to Britain in 2019 – before the huge slump inflicted from the coronavirus pandemic – had plummeted by 11 percent from four years earlier in 2015, which was the last full year before the historic Brexit referendum.

In comparison, Germany’s total nominal exports of goods increased by more than 15 percent during this period.

The largest contributor to this slump was made by the struggling motor sector, with exports here accounting for almost a third of German exports to the UK.

Mr Krämer explained: “However, the minus of a good 25 percent is, to a (smaller) part, also due to the general problems in the sector and the relocation of production from German manufacturers to other European countries.

“Because the total German exports of motor vehicles and motor vehicle parts also fell slightly between 2015 and 2019.

“With a decline of almost half, the biggest minus was in the pharmaceutical sector. Here, total German exports have increased by almost 20 percent.

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“However, there are also sectors such as mechanical engineering, the metal sector and the manufacturers of electrical equipment, which were even able to increase their exports to the island in these four years.

“With the exception of the metal sector, the plus on average for the other foreign markets was greater, so there is reason to assume that the upcoming Brexit has made business more difficult in these sectors as well.”

A hard Brexit could be particularly damaging to Germany, which is home to the EU’s biggest economy and some of the world’s largest car manufacturers, including Audi, BMW, Mercedes-Benz, Porsche and Volkswagen.

Last month, German Chancellor Angel Merkel urged Boris Johnson not to abandon post-Brexit trade talks as tensions between the UK and EU threatened to boil over after negotiations nearly collapsed.

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She said: “In some places, things have moved well, in other places there is still a lot of work to be done.

“We have asked the United Kingdom to remain open to compromise, so that an agreement can be reached.

“This of course means that we, too, will need to make compromises.”

But a post-Brexit trade deal between the UK and EU remains on a knife-edge, with little progress apparently being made during intensive talks between the two sides over recent days and weeks.

Several stumbling blocks remain in negotiations, including the “level playing field” measures aimed at preventing unfair competition on issues including state subsidies, the ongoing row over fishing rights, and how any UK-EU deal will be governed.

On Thursday, Downing Street continued to warn “significant gaps” remain between the UK and EU negotiating teams.

The Prime Minister’s official spokesman said on Thursday: “Talks are continuing in London and the negotiators are working hard to bridge the still significant gaps that remain.

“Time is in short supply and there are still significant gaps that remain.”

Additional reporting by Monika Pallenberg.

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