dr_g40865_k2 WebsiteA British exit from the EU would be a desaster for Britain and Germany, and it would profoundly change the nature of the EU.  In this essay, Jürgen Grossmann, owner of the steel holding Georgsmarienhütte and treasurer of United Europe, pleads for cooperation between both countries to prevent any such step. He calls on today’s leaders to adapt Europe to the era of global competition and emerging economic powers.

What is to become of Europe? More particularly, what is to become of Britain and Germany and their respective roles within the EU?

For different reasons, these questions are being posed today with more urgency than at any time in recent decades. Germany faces a profound debate – both domestically and with its European Union partners – about the changes in governance, rules and economic power-sharing required to underpin the successful functioning of the euro. The direction of travel seems broadly clear – towards greater fiscal, financial and ultimately political integration. But the precise destination is as obscure as the likely means of getting there.

Britain faces a debate that is no less searching or fundamental, and is considerably more acrimonious, on the question of whether to stay within the club at all. Driven by deep divisions within his own Conservative party and a rabidly hostile British press, David Cameron has promised UK citizens an in-out referendum on their EU membership – but not until 2017, and only after the terms of Britain’s engagement in Europe have been revised. Here, too, the Prime Minister’s desired direction is clear – as he put it in his landmark speech in London, towards “a flexible, adaptable and open EU…with Britain in it”. But precisely how that is to be achieved remains deeply uncertain – a state of affairs that is likely to plague Britain and its relationships with Germany and other EU partners for years to come.

It is easy to caricature these differences in national attitudes and circumstances as a flat-out contradiction. The common currency of German politics is to call for “more Europe” as the solution to most problems. Chancellor Merkel expresses an article of German post-war faith when she calls for establishment of a “federal Europe” – though always in the middle distance, never in the here-and-now of EU negotiations. In Britain, the conventional wisdom poses a choice between “less Europe” and “no Europe at all”.

Disparate Rhetoric Hides Similarities

British leaders call for a repatriation of powers from Brussels and a reduction in onerous EU regulation. They often talk, misleadingly, as if the single market is the sole worthwhile purpose or achievement of the EU since the signing of the Treaty of Rome. German politicians focus on the broad goal, endorsed in successive European treaties, of “ever closer union”. It follows, they insist, that it cannot be treated as an a la carte menu to suit the different tastes of individual member states.

Look closer, however, and this black-and-white picture starts to seem a lot more nuanced. There has always been a wide gap between the federalist rhetoric of politicians and the grubby reality of day-to-day European decision-making. Every EU government takes from Europe what it wants and ignores the imperatives of the club when domestic political imperatives dictate. The most oft-cited example is France’s perennial and ferocious defence of the Common Agricultural Policy. But Germany is no exception: how much attention did Frau Merkel pay to EU energy policy when she announced her sudden Energiewende away from nuclear power? How much “more Europe” will the German electorate stand if it turns out to mean mutualising the debts of Mediterranean countries and allowing other nations an influence over German Ordnungspolitik?

The EU’s Existence at Stake

I would suggest there is a similar gulf in Britain between the sound and fury of political debate on Europe and the reality as experienced and determined by ordinary citizens. Are British voters beyond the die-hards in the Tory party and the demogogues in the press really incensed enough about Europe to overturn four decades of increasing prosperity within the EU and seek an uncertain future on the outside? Opinion polls show fluctuating opinions on the merits of continued membership – but as importantly, they also show consistently that Europe barely makes it into the list of voters’ top 10 concerns.

Nevertheless, the fact remains that Britain and Germany each face a moment of truth on Europe in the coming years, and that the decisions their politicians and voters make in this period will profoundly influence the shape and nature of the European Union for decades to come. At worst, if either or both get it badly wrong, they could call the continued existence of the EU itself into question. That is why I believe it is fundamentally in the interests of the leaders of both countries to co-operate closely in finding the right way forward.

Ever Closer Euro-Zone

For Germany, getting it right involves fixing the euro crisis – and more broadly, correcting the design flaws afflicting the single currency, from the fragmentation of European financial markets to the dysfunctional decision-making on fiscal issues and sovereign debt. This will involve a delicate and arduous balancing act between the demands of southern members of the single currency that Germany takes steps to ease their debt burden on the one hand, and the deep reluctance of German voters to sanction such relief on the other.

These tensions seem unlikely to be resolved any time soon. I fear the result will be that Europe continues on its current muddled course for years. I have long believed, and still believe, that this is a much less desirable state of affairs than would arise in a genuine attempt to turn Europe into a federal union featuring shared sovereignty and common institutions with enough political authority to make them work.

But behind the current mess and confusion, a new reality is starting to impose itself on the 17 countries that have adopted the euro. They find themselves moving ineluctably in the direction of greater fiscal integration – more shared decision-making over national budgets, more central control over taxing and spending. That is the price Germany and the other northern euro member states will demand in exchange for continued support for their debt-stricken southern partners, including France.

Britain Cannot Expect Rollback of EU Laws

For the euro countries, then, progress towards “ever closer union” has moved beyond a rhetorical commitment to a practical necessity. The only alternatives to making progress towards pooled economic sovereignty are deeply unpalatable – a relapse back into chaos, crisis and the possible disintegration of the euro. Sceptics, including those in Britain who repeatedly predicted the demise of the single currency during the acute phases of the crisis in 2011-12, seriously under-estimated the political commitment to preserving it, especially in Germany. No German chancellor will want to risk blame for the failure of Europe – and as Mrs Merkel has often said, the failure of the euro would indeed mean the failure of the entire EU project.

The stakes – and the risks of an accident – are similarly high in Britain’s debate. Politicians from all sides of the spectrum recognise that the prospect of greater integration among the euro 17 marks a fundamental change for Britain too. The UK’s opt-out from the euro is for keeps, and there is no point pretending otherwise. As the euro countries integrate more deeply it will set in stone the UK’s exclusion from the EU’s inner core. The question is whether it will do more than that and push Britain towards the exit.

David Cameron has raised the stakes himself. By demanding a renegotiation of the terms of UK membership of the EU, Mr Cameron has set himself and his negotiating partners a very stiff challenge. If he is re-elected in 2015 and thus has the chance to enact his declared policy, he will face a bumpy road. For a start, the likelihood of a new constitutional negotiation in the EU as a whole, at least in the next few years, is quite low so he will be asking for a special favour for Britain. But there is no absolutely no chance that other EU members will agree to the wholesale treaty changes that would suffice to satisfy Mr Cameron’s back-benchers – in effect a comprehensive roll-back of EU social and other legislation for one member state, leaving Britain a member of the single market but exempt from most other aspects of the European treaties. Some countries, led by France, will refuse point-blank to contemplate even talking about such changes.

A Disaster For Britain, Germany and Everybody Else

So what happens if Britain fails to secure a new relationship with Europe as demanded by Mr Cameron? The prime minister said in his speech he would campaign to keep Britain in the EU after renegotiation but has studiously refused to say what he would do without one. But it seems quite likely that the result of an EU impasse as described would be an outpouring of rage in the Conservative party and the UK media which would create a real possibility of Britain voting “no” to continued membership in an in-out referendum.

This would be nothing short of a disaster for Britain, for the EU as a whole and also for Germany. For Britain, it would remove the underpinning for the economic revival it has experienced since the dark days of the 1970s, with exclusion from the single market likely to act as a significant deterrent to the foreign investment that has been a driver of the UK economy for decades. Advocates of an exit – or “Brexit” as it has been dubbed in the press – may wax lyrical about Britain proudly reclaiming its mercantile past as an independent island nation and developing special trading relationships in Asia. But this is the stuff of fantasy. With restricted access to its continental hinterland, Britain would be in a weaker position to compete – for example with the industrial and exporting prowess of Germany.

Mr Cameron himself spelt out the advantages of Britain’s EU membership in his speech. “Since 2004,” he pointed out, “Britain has been the destination for one in five of all inward investments into Europe. And being part of the Single Market has been key to that success.” But he went further than paying ritual tribute to the market: “There is no doubt that we are more powerful in Washington, in Beijing, in Delhi because we are a powerful player in the European Union. That matters for British jobs and British security.”

EU Needs Britain as a Force of Economic Reform

These are bold words from a prime minister usually portrayed as a Eurosceptic. But they illustrate the stark reality that the EU is a package deal that has brought Britain great benefits, and that the alternatives – such as emulating Norway or Switzerland, outside the EU but inside the single market – are themselves deeply unattractive.

The British prime minister was also right to say that a UK departure would be bad for the EU. For one thing, any departure from the club would be a novelty, and would shake confidence in the whole European project to its foundations. Over the last 20 years, enlargement of the EU to encompass 27 nations, including many countries that had suffered under the yoke of the Soviet Union, was seen as the greatest mark of its success and of its role in establishing peace and prosperity in Europe. During the same period, the EU has also shown itself to be highly flexible and adaptable – with some members staying out of the euro while others joined, some maintaining their border controls while others adopted the Schengen accord. Allowing a member to depart because of an unduly inflexible approach would be a mark of failure.

Secondly, the departure of Britain would profoundly change the nature of the EU. As Mr Cameron himself said: “An EU without Britain, without one of Europe’s strongest powers, a country which in many ways invented the single market, and which brings real heft to Europe’s influence on the world stage, which plays by the rules and which is a force for liberal economic reform, would be a very different kind of European Union.”

Mrs Merkel’s Interest in Being Conciliatory

That is why a British exit would also be a disaster for Germany. It would leave us bereft of an important ally in favour of free trade, market competition, budgetary discipline and the rule of law. In effect we would be even more exposed to pressure from the Mediterranean countries to relax reform efforts and adopt protectionist policies that would be contrary to our fundamental economic interests. I have no doubt Mrs Merkel received Mr Cameron’s message loud and clear, which is why her response to his speech was studiously conciliatory.

So the stage is set for fundamental debates in both Germany and Britain which together will shape the future of Europe for many years to come. Neither of them involves the kind of progress towards a federal Europe which idealists like myself would have wished. Both debates reflect instead a pragmatic adaptation to reality – in Germany’s case, the requirement for greater fiscal integration to ensure the euro can succeed; in Britain’s the need to secure political consensus on a life inside the EU but outside the euro.

Follow the Founding Fathers

The desirable outcome of both is clear: a successful single currency in a reforming, open Europe of 27 members or more. Ensuring that outcome is attained will require hard work by political and business leaders alike, together with substantial helpings of a quality which has been in short supply in Europe in recent years: political courage.

The founding fathers of today’s EU showed great courage and vision in setting the continent’s warring powers on a path to lasting peace and prosperity through integration. Today’s generation, not least in Britain and Germany, need to show similar determination in preserving those benefits and adapting Europe to the era of global competition and emerging economic powers in which we live. On that David Cameron and Angela Merkel would seem to be in complete accord.

Jürgen Grossmann, United Europe Treasurer, contributed this essay to the book Common Destiny vs Marriage of Convenience” to be published by the King Edward VII Foundation in 2014.