News analysis

With Brexit more likely, an EU power shift could increase dominance of France and Germany

Britain, which neither adopted the euro as their currency nor joined the Schengen Area, which does not require a passport for travel, had always been critical of European integration. PHOTO: AFP

BERLIN - From the very beginning, the European Union (EU) had to take care that the big members did not become too dominant. For a long time this worked well and was its secret formula for success.

Germany, France, Britain or Italy - they were all careful to include concerns of the smaller members or even advocate on their behalf.

Now, this balance of power may be in jeopardy.

With Mr Boris Johnson as the new British Prime Minister, the likelihood of a Brexit has substantially increased. And with Britain gone, the power could shift.

In particular, states that had been under the Soviet thumb for decades relied heavily on the United Kingdom. London made sure that the process of creating an even closer European Union would not get too far.

Many in the East, especially Poland, Hungary and the Czech Republic, are wary of integration. With their history of having been forced into the communist bloc, they are afraid of being dominated by Brussels instead.

"Brussels politicians live in a bubble. They're creating a Brussels bureaucratic elite, which has lost touch with reality," Mr Viktor Orban, Prime Minister of Hungary said in March.

On a number of occasions, he even compared the European Union with the Soviet Union, an argument that Polish Prime Minister Mateusz Morawiecki also makes. In an op-ed that was published in April, Mr Morawiecki said that the EU risked harming democracy in its push to integrate, calling such an approach "dangerously misguided".

Britain, which neither adopted the euro as their currency nor joined the Schengen Area, which does not require a passport for travel, had always been critical of European integration.

Historically, the roots can be traced to Mr Winston Churchill, who, in a speech in Swiss Zurich in 1946, talked about building the United States of Europe.

By then no longer prime minister, Mr Churchill made clear that as much as he was proposing this idea only one year after the end of World War II, Britain would not be part of this. He saw the United Kingdom's future in developing a "special relationship" with the United States of America.

It actually took Britain quite a long time to eventually become a member of the European Community (EC) in 1973, a precursor of today's EU. Two earlier attempts in the 1960s were blocked by France. Then French president Charles de Gaulle accused Britain of harbouring a "deep-seated hostility" to any pan-European project and vetoed the move.

In 1975, only two years after becoming part of the European project, the UK held its first referendum on whether it should stay in the EC or not.

By frequently putting on the brakes in today's EU, the UK serves as a buffer for other like-minded countries. More integration goes hand in hand with relinquishing parts of sovereignty, whether it's farming, the labour market or foreign policy, to name only a few.

The 19 states which currently form the eurozone have even given up their hold on their national currencies - now being solely dependent on the decisions taken by the European Central Bank. With the exception of the Baltic states as well as Slovenia and Slovakia, none of the Eastern European countries so far has adopted the euro. A loss of sovereignty in many countries is not popular - and fuelling anti-EU sentiment.

A British departure from the EU could also strengthen calls for a "two-tier" or "multi-speed" Europe in which larger states such as Germany and France will push ahead. The integrators may strive for a European Monetary Fund, a banking or a budgetary union. This could create a split within the EU.

The UK is one of the big net contributors to the EU budget. In order to fill the gap created by the Brexit of between five and 10 billion euros (between S$8 billion and S$15 billion) annually, France and Germany may have to shoulder more, which would increase their position in the EU further.

The other option would be to scale down the EU's Budget. For smaller countries, this is a double-edged sword. On the one hand they criticise Brussels for interfering in their domestic affairs; on the other, they gladly receive millions and billions euros in structural and cohesion funds.

But can the big members of the EU indeed easily replace Britain as a net contributor?

Italy economically is in rough waters; France is not doing so well either, accumulating a debt of more than 100 per cent of its GDP. And according to the latest assessment by the International Monetary Fund, even Germany has to adjust its growth expectations downwards to a meagre 0.7 per cent for the current year.

In addition, the impact of Brexit is already being felt. Since the beginning of the year, trade between Germany and Britain has declined significantly.

According to the German Chamber of Industry and Commerce, German companies exported goods worth around 35 billion euros to Britain from January to May, which is a decline of 2.3 per cent compared to the previous year.

Imports from Britain fell even more sharply by 6.1 per cent to 15 billion euros.

With a trade volume of 50 billion euros in the first five months of the year, the UK is currently ranked seventh among Germany's most important trading partners. Last year, it was sixth, and fifth in 2017.

The main reason for that is the continuing uncertainty about Britain's withdrawal from the EU and future economic relations. The German Chamber of Industry and Commerce president, Eric Schweitzer, and other representatives of the German economy have warned Mr Johnson against a disorderly Brexit.

Seventy per cent of companies with business in Britain expect worse figures this year. Every eighth company with business in Britain wants to move its investments to other markets - above all to the countries of the EU internal market.

"The new British government still has a chance to limit the negative impact of the Brexit on the economy on both sides of the channel. Companies finally need a clear roadmap," Mr Schweitzer said.

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