There have been some conciliatory signals from Germany, the most powerful member state, which will likely play a key role in shaping any final agreement. Sigmar Gabriel, the vice chancellor and economic minister of Germany, captured the attitude in Berlin to the U.K. referendum with his tweet: “Damn, terrible day for Europe.” German Chancellor Angela Merkel, characteristically, had a somber response calling it a “cut in Europe” and called for continued “close” relations with the U.K.
Diffuse expressions of sympathy aside, British politicians hoping to get a special deal with Europe in the wake of Brexit will face strong headwinds. Merkel’s primary short-term concern is to stop the chain of dominoes from collapsing. For Berlin, the real risk after Brexit is that countries from Sweden to Hungary might call for their own exit referendums. If other countries started to peel away, Germany would fear enormous damage to the internal market that it relies on for its exports and the political project that it has spent the last 70 years building. The risk of a train of dominoes also casts uncertainty over European decision-making on a host of critical issues to Berlin, from migration to banking union.
In order to shut down this threat, the chancellor will have to deal with the U.K. as it has dealt with Greece — with a stern and uncompromising hand. This will allow it to avoid the death by a thousand cuts, where each U.K. concession produces similar demands by other member states. Germany can use negotiations with the U.K. to shut down contagion. Wolfgang Schauble, Germany’s finance minister, made this clear in an interview earlier this week when he said, “In is in. Out is out.”
In the mid-term, German bankers might indeed see Brexit as an opportunity rather than a disaster. Frankfurt has been working for the last two decades to modernize and internationalize its financial services sector. Nevertheless, it has continued to play second fiddle to London. In fact, a lobbying organization for Frankfurt’s financial sector opened a hotline today for London bankers interested in moving across the Channel. Hubertus Vath, the managing director of the body, was in a giddy mood, “The welcome banner is hung and Frankfurt’s doors are wide open.”
Major banks have been exploring such a move. Morgan Stanley has been forced to deny that it is exploring moving 2,000 jobs from London to Dublin and Frankfurt. The German banking community, which has long had close ties to the Chancellery, will be a powerful voice for limiting concessions. Over time, Brexit might help Germany become a global financial services hub as well as a manufacturing powerhouse.
Ironically, Berlin could stand to gain from Brexit both politically and economically. It provides Germany’s leaders a powerful moment to whip other member states into line and potentially consolidate integration in the core. At the same time, it could further consolidate Germany’s position as the economic powerhouse of Europe.
Abraham Newman is associate professor of international politics at Georgetown University.