Stay cosy. You'll both benefit.

Photographer: Guido Bergmann/Bundesregierung via Getty Images

Is EU Good for Britain? That's Up to Germany

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
Read More.
a | A

I was in the audience a few rows in front of U.K. Prime Minister David Cameron when he delivered his seminal 2013 speech pledging a referendum on Britain's membership in the European Union. At the time, I couldn't decide whether it was a political masterstroke that would finally quiet Britain's most strident euro-skeptics, or a suicidal concession to the anti-European elements in Cameron's Conservative Party.

Will Brexit Happen?

I'm still not sure his gamble will pay off. But, now that the British public has effectively endorsed Cameron's proposal by re-electing him as prime minister, it's increasingly clear that responsibility has shifted to his peers on the continent. If European leaders -- especially those in Berlin -- are serious about wanting Britain to stay in the club, as they claim, they need to find common ground with him on the thorny issue of EU reform. Cameron needs to bring home some bacon to show a skeptical U.K. electorate that EU membership pays off, and it's up to German Chancellor Angela Merkel to ensure he's not left trying to sell Spam.

Cameron isn't compiling a public shopping list of demands, because he doesn't want to become a hostage to fortune. But two of the reforms his anti-European colleagues are baying for -- more opportunities for Britain to opt out on issues where it disagrees with Brussels' directives, plus a cooling-off period before citizens of European member states can claim benefits as working migrants in the U.K. -- need to be addressed by the community.

To be sure, the sorts of reforms that the United Kingdom seeks aren't simple tweaks. They will likely require changes to the EU's foundational treaties, which would require, in turn, ratification from each member state. But as Europe's de facto leader, it's in Germany's power to put such treaty changes on the continental agenda.

Unfortunately, the smoke signals Berlin has sent so far are mixed at best, and downright unhelpful at worst. On the optimistic side, Merkel met with Cameron last week and said she shares some of his concerns about migrants and their welfare entitlements. "Where there’s a will, there’s a way," she said. "If one is convinced about the substance, you can’t say a treaty change is a total impossibility." On the pessimistic side, Norbert Roettgen, head of the foreign affairs committee in the German Bundestag said this week that treating all EU citizens identically is sacrosanct, and that treaty change is an unrealistic aspiration.

Germany, though, has much at stake in Cameron's EU vote, which he has promised by 2017 but which looks increasingly likely to be next year's business to avoid clashing with German and French elections.

As my Bloomberg colleagues Elisabeth Behrmann and Brian Parkin pointed out last week, the U.K. has been the top export market for German automakers for more than a decade, with about 20 percent of the cars made in Germany, at a value of almost 18 billion euros ($20 billion), ending up in the U.K.. (Only the U.S. has a bigger trade deficit with Germany than the U.K. does.) If the U.K. is no longer part of Europe's single market, and thus no longer shares with it a common regulatory framework, Germany's exports would undoubtedly take a hit.

Cameron seems to have learned the lessons of last year's Scottish independence referendum, which he almost lost by doing too little, too late. The prime minister has put his top people on the nine-member committee that will handle the EU negotiations, including Chancellor of the Exchequer George Osborne, Home Secretary Theresa May, and Business Secretary Sajid Javid. And his foreign secretary, Philip Hammond, seemed sincere Monday when he said a "decent package" of reforms can "get the British people thinking positively about engagement."

Hopefully, the EU has learned a similar lesson from its mishandling of the Greek crisis. As that country rolls ever closer to exiting the euro, it's clear that making concessions earlier in the game could have helped everyone avoid this debacle. Enlightened self-interest, both political and economic, should persuade Germany -- and the rest of the EU -- to throw Cameron a bone or three to keep Britain in the club. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net