German business condemns the EU’s game of chicken

We bring news from Germany, where German business representatives have criticised the EU’s intransigence in negotiations and urged its leaders to come to an agreement with the UK. This briefing draws on a much longer report on the German website www.german-foreign-policy.com, with thanks to its editor Horst Teubert.

The EU’s apparent unwillingness to negotiate a mutually-beneficial agreement with the UK has understandably been much criticised in Britain, with their tactic of weaponising the Irish border a particular point of opprobrium.

What is less well known is the criticism that the EU’s intransigence has drawn from business representatives on the continent – and Germany in particular.

German business representatives have recently stepped up their pressure on the EU to reach a mutually-agreed solution with the UK, fearing that a lack of an agreement could mean billions in losses.

“A hard Brexit would be a disaster that would bring great difficulties to tens of thousands of enterprises and hundreds of thousands of employees in Europe,” recently warned Joachim Lang, Director General of the Federation of German Industries (BDI). “A massive crisis would result.”

Lang called for “a greater amount of flexibility” from the EU, demanding that, “the political deadlock in negotiations must be overcome.”

The President of the Federal Association of Wholesale, Foreign Trade and Services (BGA), Holger Bingmann, echoed this demand, stating that the entire EU and its institutions’ main task must be “to finally come to an agreement.”

The EU’s negotiating tactics have been strongly criticised in German business circles. Joerg Kraemer, head economist of Germany’s fourth-largest bank, the Commerzbank, complained that Brussels is too inflexible. “They are sticklers for principles in the negotiations with Great Britain,” complained Kraemer, but the EU itself has “stretched the rules of monetary union to the point of being unrecognisable.”

Kraemer wrote that there is “ample leeway for finding common ground with Britain.” The insistence on a customs border between Northern Ireland and the British mainland is incomprehensible, he said. “No nation in the world would accept a customs border on its own territory.”

The German automobile sector would be particularly hard hit by a no-deal Brexit. The Cologne-based German Economic Institute has predicted a catastrophic scenario in which German exports to the UK would plummet to just 43% of present levels.

There have been occasions when the British negotiating stance has also left much to be desired. An arrogant attitude of “having our cake and eating it” was a pretty stupid negotiating ploy.

But we are now reaching the point on both sides where the posturing and points-scoring has got to stop. It is no longer an opportunity for politicians to turn clever phrases and strike attitudes.

German businessmen, bankers and industrialists are concerned that the EU authorities are using the negotiations to punish the UK for leaving. But, they point out, the effects of that punishment will rebound on their own people too. If such a thing comes to pass, it could only further discredit the EU itself amongst the German people.

For the UK, the fact that the EU’s leadership is so obsessed with its political agenda that they ignore the economic interests of their own peoples – even the usually highly-favoured German economy – provides further evidence of why it is essential that we leave.

The origins of the EU – a new booklet by our Chairman

Because of my work, it was the European Common Agricultural Policy which puzzled me from 1972 onwards. The whole thing was so utterly strange in comparison to the common sense system we had before. It was not until 2002 when I received a copy of “European Economic Community”, published in Berlin in 1942, that I really grasped the ideological framework behind it. I translated the introduction and lead papers which form part of this pamphlet.

In 2017 I recorded an interview with Lord Walsingham, who was a Third Secretary in the Foreign Office of 1950 when Britain stayed out of the European project. He revealed that British Intelligence then knew of the hostile intent towards Britain of former fascists and Nazis in the post war French & German governments – their plan of subsidising each other’s heavy industries when in competition with Britain, to weaken our defence capability and assure their eventual ascendancy over the continent of Europe.

Like Lord Walsingham, the perspective of years leads me to the view that today’s EU is not “all a Nazi plot” but that it was heavily influenced from its beginnings  by such authoritarian ideas and that has contributed to  the alien ethos with which British people have never really been at home.

On a recent visit to Greece, I found that all sorts of people blamed Berlin rather than Brussels for the terrible austerity which EU policy has forced upon them. Back home, I wrote about  this to a Greek colleague, a business executive, pointing out the ideas of the German government of 1942 about management of European currencies in the post war era. The exchange rate of the euro gives Germany the export advantage of a currency of relatively low value, compared with  Germany’s highly capitalised, productive economy. For Greece and other “Club Med” countries with smaller, less developed resources, the euro exchange rate is far too high for them to be able to export their way out of their predicament.

My Greek friend replied “It is clear now to many Greeks and Europeans that Germany is responsible for the economic plunder of Greece. What happened to Greece was not an accident but a carefully made plan on the part of the always patient, ruthless and very scholastic Germans. It seems that they learned well their lessons from the two previous World Wars. This time Germany managed to conquer Europe without firing a single shot. Unfortunately Greece now (as it was then too) is suffering more casualties than any other European country….”

That is how things are seen in Greece today.

The Greek tragedy deepens

Retired Greek Diplomat Leonidas Chrysanthopoulos spoke at CIB’s 2017 rally. This is a translation of an interview he recently gave to Afrique-Asie of France. Ambassador Chrysanthopoulos was the Secretary General of the Black Sea Economic Cooperation Organization from 200 to 2012. He represented Greece at the U.N.,was director of the diplomatic cabinet of the Minister of Foreign Affairs and Director general of EU affairs. His diplomatic experience extends from Toronto to Warsaw and from Erevan to Beijing. He is fighting today against the policy of reducing the sovereignty of his country by the EU and NATO.

1) Last January and February massive demonstrations were held in Greece in support of the return  of national sovereignty and the protection of territorial integrity of the country. After almost two centuries from the uprising of Greece against the Ottoman occupation, it seems that your country remains to be decolonised. How have we reached this point?

The issue is that we liberated ourselves from the Ottomans only to find ourselves under the influence of the great Powers of the time. Our first leader of independent Greece was Ioannis Kapodistrias, who as foreign Minister of Russia played an important role in creating the Swiss constitution. However we assassinated him and was replaced by a Bavarian king. Our first political parties were called the Frenchofile,the Russianofile and the Englishofile – all under the influence of the country they were named after.

During WW1, Athens and Piraeus were bombed by the French fleet in order to force the pro-German king to abdicate and Greece to join the allies. Then the fascist pro-German prime minister of Greece Ioannis Metaxas on October 28,1940 opposed Mussolini when he wanted to march through Greece. Greek armed forces threw the Italians back to the sea from Albania.

All through WW2 our resistance was under British domination until the USA took over in 1947.The NATO-supported military dictatorship collapsed after seven years in 1974 but at a tragic cost since almost half of Cyprus was and still is occupied by Turkey.

In 1976 we opted to join the EEC mainly for political reasons-to protect our fragile democracy and Greece from Turkey. We joined the EEC in 1981 and right after PASOK of Andreas Papandreou came to power, for a few years Greece enjoyed an independence that it never had before. The US bases were removed, Greece  became an important actor in international politics respected by the Non-aligned movement .

Papandreou had made world headlines by organising in 1983  a meeting between Mitterand and Gadaffi  in Crete.

From the 90s onwards a united Germany became gradually the driving force of the EU  which from an EEC of the people became the EU of the bankers. And as the EU supported the bankers, Greek politicians became professional liars and were elected on programs that were never  kept. George Papandreou  was elected in 2009 with the slogan that there were sufficient financial resources to allow the country to progress, only to put Greece under IMF and EU control with the Memorandum of 2010 which never was voted by Parliament and was instrumental in bringing financial and social collapse.

 The left party SYRIZA was elected with the slogan  we will denounce the Memorandum and thus save Greece. When Brussels started blackmailing the Tsipras government ,he called for a referendum which by a large majority – 62% – rejected further austerity measures. During a Summit in Brussels right after the July 2015 referendum, Germany blackmailed Tsipras by telling him that if he did not do what Berlin wanted, then they would create a bank run in Greece and further chaos. Tsipras got scared and instead of cutting off diplomatic relations with Germany for a period, he succumbed and since then has been following orders from Brussels to the detriment of Greece and its people.

2) Why is the Turkish army once again displaying aggression towards the Greek islands of the Aegean? Do you see a link between between the Turkish officers that have asked for asylum in Greece and the Greek officers being held in Turkey?

Erdogan is taking advantage of the fact that Greece and its people are exhausted by the austerity measures imposed upon it. Furthermore he is going through a phase of illusions de grandeur and wants to recreate the Ottoman empire. Statements like “We had territories that we lost but that we may get back, we will shed our blood to make Turkey a great country again and if necessary we shall shed the blood of others” are not helpful for consolidating  peace and stability. I do not see a link between the Turkish officers who have applied for asylum and the two Greek officers that were apprehended, but I cannot exclude the thought that the Turkish authorities make such a link. The issue of the Greek islands was first raised by Turkey in 1973 when oil was discovered in the Aegean. From 1923 until then it had never been an issue. Now this aggression is within the policy of taking advantage of an exhausted Greece.

3) Why is President Erdogan opening the issue of the Lausanne Treaty by threatening directly his Greek neighbour? Is it a simple populist manoeuvre?

I think that my answer to the previous question covers this question. It is not a populist manoeuvre. The Lausanne Treaty has been violated ad nauseam by Turkey mainly as far as the minority issues are concerned. The recent invasion of Syria also constitutes a violation of this Treaty which defines the eastern borders of Turkey. Turkey thinks that by reopening the Lausanne Treaty it may get a better deal than now. A few islands for example.

4) What is the situation of the Greek Armed Forces 10 years after the gradual descent of your country to hell? Do you think that they are in a position to defend the integrity of national territory?

It is true that the eight years austerity measures have taken a toll on the Greek armed forces but not to the extent that it cannot fight. Our air force is one of the best of NATO since we have been practicing everyday chasing away Turkish warplanes violating Greek air space and our Navy is in good condition. Overall the Greek Armed forces are in a position to defend  the territorial integrity of our country.

5) What is NATO doing to help Greece and Turkey, who are both members, to find a peaceful solution to their differences?

Absolutely nothing, since NATO does not deal with differences between its members. It only deals with differences between a NATO member and a non NATO country. We saw that in 1974 when Turkey invaded Cyprus and NATO stayed out of the issue.

6) Do you think that the Greek army can play a role so that your country can recover its sovereignty or it might awaken the old demons of the dictatorship of the colonels?

The Greek Armed Forces should remain vigilant to defend our borders against external threats. And when the Greek people attempt to overthrow the Athens régime, the Greek Armed Forces should refrain from following possible orders to defend the regime.

7) Returning to relations between Germany and Greece, how would you describe them today?

I would say that they would fit more to relations between a colony and a colonial power. With one difference, of course. In the colonial period, the colonial power would defend the colony against external threats which is not the case today. But between Greek and German people there are no problems. At least for the moment.

8) Where are we on the question of German reparations for the damages inflicted during the German occupation of Greece from 1941 to 1944?

There is no movement there also. Germany considers the issue closed, since Athens did not raise it at reunification. The Athens regime does not want to anger its masters by raising it. There is, however, one item that even Germany has difficulty in avoiding .That is the loan that was imposed upon Greece by Germany and Italy in 1942. According to that, Greece was obliged to pay 1.25 billion drachmas per month for costs of occupation to Germany and Italy. In 1964 it was estimated that the total amount that Germany owed to Greece was about 400 million DM. The loan is something separate from reparations which are still outstanding according to Greece. Yet the Athens regime is not doing anything about it. .The value of the loan today, if it were to be repaid by Germany to Greece, would cover the so-called debt amounting to 300 billion euros.

9) You write: “At the moment, capitalism without frontiers is crushing everything in its passage and that our leaders have chosen for a “globalisation” benefitting only the banks and the multinationals, they are presenting the collapse of our countries as a natural phenomena that is unavoidable. At the same time they are constantly repeating to us that the “minorities” (ethnic,national, religious) of Europe “are awakening” and that their claims are legitimate but result in the weakening of the sovereignty of the State to which they belong.”

Once again the Balkans are on the verge of a war, fomented by a reunited Germany. With the objective to strangle Russia, NATO is advancing its pawns, breaking the engagement made to Gorbachev at the moment of the German reunification. The last pieces of former Yugoslavia are being integrated, one by one into NATO. You condemn the breaking up of the Balkans to non-viable client states, while at the same time pointing your finger at Germany. According to you, what is the interest of Berlin in defending such a policy since the collapse of Yugoslavia in 1991?

It is actually the same policy followed by Hitler before and during WW2, to control energy resources. By controlling the Balkans, Germany has easy access to the energy resources in the Middle East, Eastern Mediterranean and Azerbaijan.Not only that but it will be easier for Berlin to transfer the oil or gas to Germany.

10) Do you think that the Macedonian question is on the way to be solved since the leaders in Skopje agreed to change the name of their international airport and their highway?

No. It is more complicated than that. Already there are problems. Greece insists that the Former Yugoslav Republic of Macedonia (FYROM) changes its Constitution so that all nuances of irredentism are removed. Skopje refuses to do it. The vast majority of the Greek people are against ceding the name Macedonia to Skopje, a name that has belonged to Hellenism for the last three thousand years. Then if you give a country a false history, you create the conditions for a failed state. Also the politicians of FYROM do not believe in their “Macedonian” heritage. I have heard the present President of FYROM  Ivano, saying to a Georgian vice president in 2012 that the word Macedonia derives from the Turkish word dunya-which means world!!!!!!.Then why should FYROM enter NATO? What is the danger? where is the danger? Of course the West has so easily forgotten the promises given to Gorbachev in 1991 that Nato will not be enlarged  if Germany is allowed to be reunited. And we saw what happened .All the former Warsaw pact countries are today NATO members.

11)Is the current Greek Government in a position to defend Cyprus givne the ambiguous positions of prime Minister Tsipras on this issue?

Diplomatically it can but militarily it is not easy because of the distance. But that goes for all governments. We saw what happened in 1974. Itt was the coup d’état against Makarios organised by Athens that provoked the Turkish invasion. When the military regime collapsed the armed forces in Greece were in disarray and in no position to defend Cyprus. However if the circumstances were different it would have been very difficult for the invasion to have succesfully taken place, taking into consideration that the Turkish air force sank one of their destroyers.

A thought for Remembrance Sunday – a letter from our Chairman

This letter was sent to a number of local newspapers in the Midlands area.

Sir,

As we approach Remembrance Sunday, perhaps we should consider the words of the German Chancellor concerning the European project –

“ We must create a…European Economic Association to include France, Belgium, Holland, Denmark, Austria, Hungary …Italy, Sweden and Norway….All members will be formally equal but in practice under German leadership and must stabilise Germany’s dominance over central Europe”. (Theobald von Bethmann Hollweg, Imperial Chancellor, 9 September 1914).

The European Union is well-suited to these long-nurtured ambitions. It is noteworthy that the states of Central Europe are today becoming increasingly restive under their predetermined subject role in this geopolitical construct. For home consumption, today’s German politicians occasionally refer to their “benevolent hegemony” over the area. Few would deny that it is exercised in a more enlightened way than earlier attempts – but hegemony means hegemony, just as Brexit means Brexit.

This geopolitical Weltanschauung predates the political unification of Germany and remains influential in academic and political circles. One eminent German businessman broke free from the mental shackles of the past in a rousing speech in the House of Lords on 24 October by  invitation of Lord Fairfax at a meeting arranged by Global Britain. He was Dr. Markus Krall, Managing Director of Goetz Partners in Frankfurt.

He contrasted the top-down, authoritarian rigidity of the EU project with the long-standing tradition of liberty typified by the Britain’s parliament. He said “ Germany is probably the one country in Europe that was emotionally and intellectually least prepared for the news that a majority in the United Kingdom had decided to call it quits with the European Bureaucratic Union…. We Germans – regrettably- have a tradition of belief in the infallibility of government. While the liberal school of Anglo-Saxon origin views the state and its bureaucracy with a healthy dose of scepticism, this is not so between the rivers Rhine and Oder”.

Let us hope that Dr. Krall’s refreshing wind of change will blow through the corridors of power in Germany and Europe. We can then look forward to honouring the sacrifice of our war dead in the reasonable expectation of a happy “Concert of Europe” – something like the “Europe des Patries”, envisaged by General De Gaulle and the association of countries advocated by Winston Churchill.

Yours faithfully

 

 

Edward Spalton

 

 

The Brexit negotiations – a German perspective

This speech By Dr. Markus Krall was delivered at the House of Lords on the  invitation by Lord Nicholas Fairfax on October 24th, 2017 Although rather long, we feel it is well worth reading right through as it is a most helpful explanation of the predominant German mindset. The original was first published by Global Britain and is used with full permission.

Honorable members of the House of Lords, Ladies and Gentlemen,

I Introduction and Summary

Before sharing my perspective on the negotiations of the terms of separation of Britain from the EU, or Brexit, allow me to express my gratitude for the invitation and the opportunity to speak to you at the House of Lords. I feel honoured and privileged to have been invited by Lord Fairfax.

This parliament stands as a beacon of liberty and free speech going back to times when the continent was still subject to the power of absolutist, non-constitutional monarchs. This long standing tradition of liberty lies in my humble opinion at the heart of the decision that

the majority of the British people has made with regards to its future role in Europe and the world. I would like to put my deliberations into perspective:  A German perspective I will deliver to you today,

is not one shared by the German government or mainstream media. It is rather my personal one which is based on a number of discussions with political staff in Berlin, including government officials, members of parliament, and lobby groups.

Based on this I will try to provide you with a brief picture of the German and the Brussels mindset and their interaction regarding Brexit before spending a few remarks on the misguided game theory approach resulting from the underlying ideological edifice. This will lead us directly to what I think to be the German governments, specifically Mrs. Merkel’s, approach and how the gaps in its consistency can provide opportunities for the UK negotiation strategy. Finally I will take the liberty for a very short statement why I am taking an EU-critical position in a debate that is well known to my valued audience.

II  The German State of Mind

Now, allow me to start with some observations about what I would like to call “the German state of mind”. I once stumbled upon a little article in the Economist recounting an anecdote from 19th century France: Emanuel Litrè, the leading French linguist of his time once

Fell prey to an error of judgment and as a consequence was caught by his wife with their housemaid in the conjugal bedroom in flagranti. As his wife entered the room she exclaimed “Dear, I am surprised!” And what did the erring Frenchman reply? “No dear, you are astonished, it’s us who are surprised.” The term “astonished” very neatly describes the state of mind regarding Brexit in Germany, especially among its economic and political leadership. Germany is probably the one country in Europe that was emotionally and intellectually least prepared for the news that a majority in the United Kingdom had decided to call it quits with the European Bureaucratic Union. That has several reasons.

One is that we Germans – regrettably – have a tradition of belief in the infallibility of government. While the liberal school of Anglo-Saxon origin views the state and its bureaucracy with a healthy dose of skepticism this is not so to the same degree between the rivers Rhine and Oder. This is also true for the media, which are toeing the “official line” because 80% of journalists identify themselves as left of centre. There is a resulting lack of democratic control and public debate.

Secondly, very much in line with the undemocratic decision-making the EU has adopted, we have seen a systematic erosion of the rule of law in Germany regarding European matters. This included the illegal bail out of broke €urozone members, Greece among others, the thinly-veiled practice of government funding by the ECB through various programs in contradiction of the treaties and the opening of the borders in clear defiance of the Schengen treaty. It is, by the way, a most deplorable observation that you can cajole my fellow countrymen – or at least a sizeable minority of them – in to going along with the erosion of the rule of law if it’s for a presumed greater moral good. The end justifies the means.

The EU is a clear beneficiary of this attitude as Government and Brussels have become interchangeable terms for good reason. So for a majority of Germans as well as of officials in Berlin it was simply an unthinkable heresy when British voters said “we leave”. As it actually happened, they were completely astonished, and intellectually unprepared.

Thirdly, in the past, Germany and Britain have often been aligned in efforts to tame the Brussels bureaucracy, and push the EU towards free trade and open borders. The common market in its original free trade design was largely the result of Margaret Thatcher’s pressure. The Germans, who didn’t have the same political weight as a result of well-known historical developments gratefully took this for granted. The presence of Britain in the EU was in the German view a necessary counterweight to the school of étatisme, the primacy of the state bureaucracy coming from Paris. Now this balance of power in the EU is damaged. To put it bluntly: You guys are leaving us alone with a bunch of socialist Latin-European nut-heads. We are not delighted.

III The Brussels Attitude

The EU bureaucracy immediately adopted a hostile attitude towards your country’s democratic  decision. It was viewed as a dangerous precedent, especially in the light of the frictions caused by the Euro and the widening cultural divide between what Donald Rumsfeld once called the old Europe versus the new Europe.

In the bureaucrats’ view, nobody should be incentivized to leave the club or even to think about it. He must not go unpunished. This attitude makes it impossible, by definition, to tolerate an economically successful United Kingdom outside the Brussels sphere of hegemony. Because if Brexit is a success, economically, politically and socially there is proof to the pudding that prosperity s possible without them. The plethora of Europe’s presidents from Schulz (now ex-President) and Juncker to Draghi and Tusk would be walking naked –  emperors without clothes.

The resulting reaction has several elements:

  • Accusations of the vote being undemocratic because the British voters are not adults, and therefore presumably followed liars
  • Meting out punishment in the form of an extortionate “Brexit Bill”, and
  • Propagating fictional beliefs as facts which don’t stand the test of reality.

The result is what I call a Brexit trap consisting of a prisoner’s dilemma to be solved in a timeframe that is insufficient if one follows the Brussels script.  From all this brouhaha guiding negotiation principles were derived with the aim to let those little warm-beer-drinking and on the wrong side of street of history (let alone real roads) driving inhabitants on a chilly European archipelago understand their political heresy: “Turn back and repent, you English fools!” The indulgence selling priest Johan Tetzel would have loved the drama.

Let us take a closer look at the parts:

  • Liar’s Poker:

The accusation that the voters fell into a trap of lies originated, of all places, in the EU Commission whose bibulous president Juncker once coined the telling bon mot “if things get serious you have to lie!” Well, let me cautiously put it that way: This is difficult to beat in terms of irony, hypocrisy and unintended satirical quality.

  • The 100 BN €uro bill:

The final sip that the subsidy-hungry Brussels bureaucracy and its sycophants would like to take out of the net-contributor bottle that generously used to be provided by the United Kingdom. This is the indulgence receipt for those little black souls on the banks of the River Thames. Just to imagine Britain could ever be willing to continue the huge transfers which were one of the main reasons to leave the club is totally bizarre. However, bizarre and Brussels are compatible. The British tolerate this kind of thing by calling it “eccentric” which means several standard deviations away from the norm of mental sanity.

  • What are those fictions being mixed with facts?

Fiction No 1: “We must not allow cherry picking”

This statement insinuates it is an altruistic act towards others to open your own borders for free trade. The EU which, if the new US President offers himself as a convenient target, presents itself as a champion of free trade and permanently talks of win-win through open borders, yet has no problem whatsoever to ask non-members for entry payments for common market access. That is a kind of protection money in return for not obstructing the free flow of goods and services with tariffs. That doesn’t mean though they will not obstruct it with non-tariff hurdles. They are just giving it a different name. They call it “regulation”, “norms” and “ban” and it’s almost a no-brainer that all the small countries in the Brussels periphery have to swallow these toads and translate everything into their national legislation. Bruxella locuta, causa finite. Trade imperialism at its bes.t

Fiction No 2: “The four freedoms of the common market are indivisible”

This fiction is supposed to give strength to the demand of unlimited immigration and to make it impossible for EU member countries and Great Britain to deflect the storm of badly trained and even worse educated immigrants into their social systems. The claim of indivisibility is pure nonsense of course. No free trade agreement the EU has negotiated with third countries under the flag of TTIP, CETA or any other acronym makes this assumption. The reason is quite simple: Other large countries would tell the EU in unflattering words what they think of this if the demand would ever be brought up.

Fiction No 3: The United Kingdom needs the EU more so than vice versa

Yes, the market for goods and services is larger in continental Europe. So what? If you are running a trade surplus of 120 billion Euros annually, you don’t want to put that at risk, do you?

That though is the EU surplus with the UK. A continent that by design and ignorance, has neglected its infrastructure for security and defence over decades might have an incentive to be friends with a country which didn’t commit that folly. Again Brussels has to look over the Channel. The party that has – with over 3 million – three times as many people working in Brexit country compared to just one million British working on the continent should be interested in not failing on a deal to protect all of them, does it? Who needs whom in this situation? Is that really so clear? I beg to differ.

Fiction No 4: 30.000 regulations need to be renegotiated

Smugly the members of the platitude party point out to us that 30,000 EU regulations and laws supposedly need to be renegotiated between Great Britain and the EU27 and that it would be impossible technically to achieve this. In this we can find a misunderstanding and an involuntary confession: The misunderstanding is that Britain and the EU have to agree on all paragraphs of this deluge of laws. Is it not rather a sovereign decision of the United Kingdom to adopt these regulations partly, in full or not at all? If the EU views some of them as conditional for a free trade agreement they should draw up a list and use CETA and TTIP as benchmarks. Then one can discuss if the UK can accept that list or not.

Now to the involuntary confession: We are flooding the continent with so many regulations, laws, executive orders and decrees that it becomes impossible with normal human capacity to comply with the law. Winston Churchill had a comment on this: “If you have ten thousand regulations you destroy all respect for the law”. Exactly! Juncker’s minions have over delivered on this by a factor of three.

IV The EU Chicken Game Theory Negotiation Guide

The political intention behind the use of these fog grenades is easy to discern and one could even have a certain tolerance for it, if it was just about the creation of a rational negotiation strategy. The problem is: Europe’s politicians have told this to each other so often in their echo chamber that by now they really believe it! They have fallen prey to their own propaganda.

The result of this giant echo chamber of mutual self-assurance and stew of self-righteousness is the conviction that the Brexit negotiations are inherently a game of chicken. The one who first

blinks will lose. The concept is completely insufficient to capture the inherent complications of the problem, but also pretty obviously overtaxing the intellectual capabilities of its proponents. The enemies in this game of chicken are not just the insubordinate secessionist rebels in London, but all countries and political forces toying with the thought of following their example; or those just daring to remind the Bureaucratic Party of the principle of subsidiarity in an “ever closer union”. They shall get a preemptive lesson that it will be painful to spurn the intrusive love of those who define their political raison d’être in attaching their tentacles to other people’s fridges.

This game theoretical toxic waste is even articulated by some professors who belong to the close circle of advisors of the German government. It is though pretty obvious that the question as to what game we are playing is far from resolved. This game is not one of chicken. It is not an “I win you lose” game. That is only the case in the thin intellectual reasoning of people who would do well to learn about the assumptions and limitations of game theory before they employ it and turn it into a guide for their political war cry.

Looking at the economic and technological realities mentioned above makes it clear this game rather is a prisoner’s dilemma. Incentives for cooperation will be switched of on both sides as a result of the erosion of trust. This is a sorrow state of affairs that will produce losers only. The ability for critical reflection has been degraded and degenerated by this exercise in such a way that old and proven principles of behaviour and respect in the mutual dealing between sovereign nations have gone overboard.

This is specifically true regarding the respect for the territorial integrity and sovereignty of the United Kingdom. Quotes bubble up from Europe’s capitals about the desire for secession of Scotland, Northern Ireland and Wales, even of London! The NATO ally Spain is encouraged to abuse the opportunity for a Gibraltar debate by giving Madrid a veto over a matter they had not even asked for.

Instead of minding their own business they are minding the business of a sovereign nation in a completely outrageous way. Why? Because they do not view members of the EU as sovereign states with sovereignty embodied in the will of their people. This is the Juncker version of the Brezhnev doctrine. EU member states are viewed as provinces which have to be administered for the advantage of the administrators and whose population (note: not People!) is granted the privilege to occasionally applaud in an acclamatory fashion in order to demonstrate their gratefulness.

In clear denial of the facts it is being claimed that for Scotland there is indeed a new situation after Brexit justifying a new vote on independence. When Scotland voted, the Brexit vote had already been scheduled. Everybody knew it could go either way. So Scotland voted, in the full knowledge of the possibility of Brexit, for the continued Union with England. What then is the new fact on the ground? Would another outcome of the vote also have constituted a reason to vote again? Do we want to turn every democratic decision of political significance in the future into a reason to split up nations after centuries of common history due to regional differences in the voting result?

The whole debate is testament to the abysmal disdain of the Brussels bureaucrats and their satraps for the voter’s will and the expressions of this will by the people. Polls are accepted only if they fit their purpose. Especially with regards to European matters we have seen it more than once that people were called to the polls until the result was compliant. In this sense Ms. Sturgeon is a docile padavan to her Brussels masters: Repeat the vote until you get what you want and then lock that in. This lack of democratic credibility is a central Leitmotiv of the EU`s governance, where the composition of every decision making body is s the result of horse trading instead of universal suffrage.

There is a reason why the term “one man – one vote” originated in the English language. We even use the English term in Germany quite frequently. This reason is the historically developed democratic tradition on the island. And this is the very same reason, why the British have a deep rooted aversion against undemocratic bureaucratic elites. And it will be damned difficult to exorcise it out of them.

V The German Government’s Situation and Position

Let me briefly talk about the German governments political motivations. The first element driving the German government into the arms of Mr. Barnier ́s confrontational approach is the budgetary aspect. The UK is, together with Germany, the only other net contributor of significance to the EU-Budget. The expectation that the sycophants in the Berlaymont will not reduce their subsidization and redistribution schemes because of Britain ́s departure can be taken for granted. Getting a budget under control, let alone reducing one is totally anathema for this “class distributif”.

Germany alone has not nearly enough votes in the EU Commission, the council, or any other common institution to organize cuts in line with the smaller size of the budget available. In every European council exercising power, from the commission to the ECB, the rule of one ountry – one vote leads to the absurd result that the weight of a voter is inversely proportional to the size of his country’s population. In the doubtlessly most influential body on the continent, the ECB council, a Maltese voter has the weight of 204 German voters. That probably reflects the fact that a Maltese understands monetary theory and policy 204 times as well as a German citizen. I dare to call this sorry state of affairs a special form of apartheid. It contradicts democratic principles and traditions and an institution with the ambition to replace democratic nation states cannot claim any legitimacy on such a basis.

And even though Germany does have some leverage, albeit not de jure but de facto, Merkel does not want to use it as a matter of principle – unless forced by circumstances. If the outcome of the recent elections can contribute to this remains to be seen. I would so far say it didn’t. So, not willing to pick a fight over budget reductions and savings in the corridors of the Berlaymont, chancellor Merkel has decided that the Brexit bill is of utmost importance to limit the additional demands directed at Germany. To blow it up to €100BN would imply that Britain’s net contributor position is preserved for a decade or so at current levels. Needless to say, the coalition formed by these interests will not want to give anything back in return to the UK taxpayer.

Deflecting these demands from Britain can only be managed by disputing the components of the bill line by line, demanding value added in return, a quid pro quo, because that was also part of the deal in the past. And free trade is certainly not a quid pro quo in this sense, because both sides profit from it from the start, the EU even more so than the UK.

There is a second element which I believe has a large influence on a number of key decision makers in Berlin, especially on our very powerful finance minister Wolfgang Schäuble. He is part of a generation of politicians with a genuine “faith” in the EU as the central “project of peace” on the continent. This group does not believe that they can succeed in building a new version of the Europe des Patries that the founding fathers dreamed of if the existing institutions are demolished and hence support the misguided idea of an “ever closer union”. For that reason they don’t see the original vision as an option any more. What they see being endangered is no less than their lifetime achievement. This is no weak force for inhibiting sound judgment.

The problem they face is the timely coincidence of Brexit with the €uro-crisis. They know that it is impossible to push the southern European countries towards the market reforms necessary to enable their economic survival inside the €urozone. They have tried and failed repeatedly. However the €uro is of such centrality in the ideological edifice they have erected that it is being defended come hell and high water even in the face of complete absurdity, unsustainable cost and life threatening risks.

The €uro, however, is the time bomb that will likely blow up the European institutions in a single cataclysmic event. I am convinced it will do so during the next German government’s term in office. The reason is simple. The Euro has created huge trade imbalances inside the Eurozone. Goods and capital have been flowing from a super competitive Germany (for which the €uro is undervalued) to a decrepit “Club Med” (for which the €uro is overvalued). As a consequence, unsustainable levels of debt held by Germany through a variety of vehicles have been accumulated. At risk are bonds bought by German institutional investors (€1.8 TRN), the ESM commitments as part of the “Euro-rescue” efforts (€200 BN), and the Target-2 exposure.

Target-2 is an overdraft loan the Bundesbank has handed out at zero interest, unlimited, unsecured, for indefinite time and without any control or discretion to the other central banks of the €uro system. As of September 2017 it added up to €850 BN. I call this combined approximately €2.8TRN exposure my country is running “the biggest hedge fund on the planet with one single bet, namely that the €uro will be saved”. The problem with this sort of policy is that it creates imbalances in the real economy which cannot be kept under the rug forever. Specifically the flat yield curve at zero level erodes the earnings power of commercial banks. Our calculations show that most German and indeed EU commercial banks will start suffering substantial operational losses from 2019/20 onward.

This translates into shrinking risk taking capacity of the banks which in turn leads to shrinking credit volumes, shrinking bank money creation and deflationary pressure. Paradoxically the desperate push for more inflation thus will create deflation.

Furthermore, the zero interest rate environment has kept hundreds of thousands of companies in business that would have gone bust under normal cost of capital conditions since 2007. Thus, it created what I call an army of corporate zombies which infect the banks credit books with junk quality loan exposures. These companies will fail in the event of rising interest rates or a downturn in the business cycle. Their breaking wave of defaults will likely lead to losses north of €1,500BN for the €urozone banking system taking down more banks than the US mortgage crisis did.

While refusing to acknowledge this publicly, the German government has been made acutely aware of these imbalances as the OECD, IMF, BIZ and a number of private institutions have all confirmed the estimate that so called zombie firms are by now making up 9-10% of Europe’s total number of firms. It reinforces the stance of Juncker, Barnier, Merkel and Schäuble that they must avoid cracks appearing on the facade of the remaining EU-27. Politically they cannot afford to lose a single additional country. Not from the EU, and not from the €urozone, as leaving it automatically involves a trigger to leave the EU.

VI The Leverage the UK can apply

Now, how does this play into the Brexit negotiations? Paradoxically, this situation could be leveraged by the UK to the advantage of a constructive negotiation strategy. It might be a winning strategy to put some focus on Berlin in the coming months. This has several reasons:-

It is of utmost interest for Germany to avoid being pushed into an even higher net contribution after Brexit. This can either be achieved by an outrageous Brexit bill for the UK or by savings in Brussels. The UK needs a clear communication strategy to the German public and political decision makers that spending in Brussels necessitates big cuts. A targeted PR strategy  focusing on Germany might be worthwhile to be considered. The EU-27 have a 120 BN €uro trade surplus with Great Britain, much of it coming from the bilateral trade between Germany and the UK, much of it easily substituted from other sources. When I attended a presentation of a Ministry of Finance official to the commission of the Economic council for the Financial Industry a few months ago this matter was brought up in the subsequent discussion. It very quickly resonated with the representatives of companies and banks that were present. However, before the number was thrown into the debate, 95% of the participants were unaware of it.

The resulting question for the UK negotiators is: How can public awareness be built with the effect to create political awareness? The security debate in Germany is heating up. The influx of 1.5 Million refugees from Syria and North Africa, 85% of them young men, into Germany has created a severe public security problem. Germany has dropped to rank 51 in the global travel security index and now trails behind Rwanda, Morocco, Korea, Albania, Azerbaijan and Tajikistan. Cooperation with the one country in Europe that is leading in electronic intelligence is therefore imperative for our security. That fact alone creates a certain level of leverage through mutual interest and it would not hurt reminding Berlin of this.

We are also witnessing an increasing tendency for the Russian bear to flex his muscles. At the same time our American friends are dealing with an internal constitutional crisis. It is clearly of the utmost importance for the European members of NATO to step up their own defence spending and reinforce their mutual defense commitments. Here, realistically there are three, possibly four relevant countries: UK, France, Germany and Poland. The survival of the EU is conditional on the continued willingness of the militarily significant European members of NATO to work together for mutual defense. The critical decisions will be taken in Berlin, Paris, London and Warsaw – not Brussels. Again, it is clear that the UK would not use this as a point of leverage, but Berlin can be obtuse when it comes to issues of defence and it would not hurt to remind the Chancellor of these matters.

Why do I believe this collection of German interests is relevant for the UK? Because while we have seen above what the current drivers of the Merkel administrations behaviour are, it is also clear that she does have a huge leverage over the other key players, namely Macron, Juncker, Barnier and the governments of the southern periphery which she is reluctant to use:- The monetary policy of the ECB which currently accommodates the unwillingness to reform Italy, Greece, Portugal and others could not be conducted without Merkel ́s tacit approval. Draghi wants to continue this as long as he presides over the ECB-council in 2019.

France ́s president Macron has aimed for a mix of timid reforms and more intra-European redistribution. Transfers and socialization of risks through schemes like Eurobonds, etc. are his goals. There will be some sort of deal of money for reforms and although I don’t think it will work, he is looking to Berlin for help. President Macron’s  biggest worry currently is that the liberal FDP opposed to this gains too much strength in a future German government.

Italy needs, apart from the continuation of the ultra-loose monetary policy Berlin’s tacit approval to rescue more of its banks with tax payers’ money in violation of the new treaty regulating failed banks resolution, a move that will create more debt and more target-2 transfers from the Bundesbank to the Banca d`Italia.

To summarize it: Germany is the one country in Europe that can least afford to let the Brexit negotiations fail. And it is the one country with the largest leverage over the negotiations while at the same time refusing to use it. This may have some implications for the UK`s negotiation strategy. I also think any discussions need to take place at the very highest level, power is concentrated in my country and it would take a rare courageous minister to buck the line coming from the Kanzleramt.

However, make no mistake with regards to Chancellor Merkel’s attitudes. She will not be helpful to the UK without the application of what I would call “constructive pressure” changing her European equations in favor of a balanced result of the negotiations!

VII Concluding Remarks

Honorable members of the House of Lords, Ladies and Gentlemen, The Prime Minister of the United Kingdom during its finest hour, Sir Winston Churchill, whom I regard as the greatest statesman of the 20th century, and whom I hold in the highest esteem for liberating Europe and my home country, once coined the immortal phrase: “The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.”

For me in this matter there is one simple truth: The British people have made a democratic decision in line with your best traditions, values and a vision of Britain that recaptures and preserves its state of liberty, freedom and democratic patriotism, a role model for a free and prosperous Europe. They have done this because they observed that those values collide with the direction the EU has taken. This decision is to be respected and this is a truth that is currently attacked by malice, derided by ignorance, but in the end, there it is.

I thank you very much for your kind and patient attention