Brexit is No Easy Task

Now that the German economy is firing on all cylinders, Angela Merkel heads toward a comeback after support for her rival fades away. And with the election in France of Emmanuel Macron, the omens of a close cooperation between the two countries looks likely to strengthen.

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On the home front, the German economy picked up speed in the first three months of the year, expanding at twice the pace of the UK and France amid higher spending and robust exports.

Europe’s largest economy grew by 0.6% in the first quarter following growth of 0.4% in the final three months of 2016 according to Germany’s statistics office. This is double the 0.3% growth in the UK and three times the quarterly pace of expansion seen in the US in the first quarter.

Growth was led by higher investment and exports, while consumer spending also rose at a robust pace. Stefan Schilbe, an economist at HSBC, said the German economy was firing on all cylinders. ‘The first quarter should have marked the beginning of a more sustained recovery of business investment especially if exports stay strong,’ he said.

In a boost for the incoming French president who took over last weekend, separate data showed the number of French workers in the private sector rose for the eighth consecutive quarter to its highest level since the financial crisis in the first quarter of 2017.

Mr Macron has vowed to reduce the country’s unemployment rate from 10% to 7%. His victory against Marine Le Pen triggered the biggest inflows into European equities since records began in 2002 according to analysis by Bank of America Merrill Lynch (BAML).

Ronan Carr, European equities strategist at BAML, said $6.1 million inflows would mark the beginning of an ongoing revival of European equities. ‘Anecdotally our conversation with global, especially US based investors, suggests interest in European equities is just picking up.

‘Many are starting from a very low base.’

As for Angela Merkel’s’ prospects for winning yet another election in Germany, the man who would dethrone her, Martin Schulz, the former European parliament president, and staunch Brexit critic is now losing ground in his campaign to oust her.

If the polls are to be believed, the woman they used to call ‘Queen of Europe’ is on course for her most stunning comeback yet. North Rhine-Westphalia which goes to the ballot box in the last regional vote before September’s national election is no ordinary state. With 18 million people it is home to almost quarter of the country’s population.

In Germany they call the vote the ‘mini general election’ and North Rhine-Westphalia (NRW) is a stronghold for his Social Democrat Party (SPD), which has governed the region for all but five of the past fifty years.

But Germany’s economic success under Mrs Merkel has passed much of the state by and former mining town such as Duisburg have some of Germany’s worst unemployment. It was in NRW that the most visible effects of Mrs Merkel open door refugee policy took place – the Cologne New Year sex attacks.

Yet the final polls have been an upset for Mr Schulz.

Two have put Mrs Merkel’s Christian Democrat Union ahead of his party with 32% to SPD’s 31%.

The Schulz mania that briefly took hold after he took over the SPD seems to have evaporated. If he cannot hold NRW conventional wisdom goes he has no chance in September.

In Cologne Rudi Hanner, a 51-year-old engineer said, ‘Everyone here is for Merkel, Schulz is nothing to me. He has no personality. In a world of Putins and Erdogans, Merkel is different.’

The Chancellor’s refugee policy is not a problem for Mr Hanner. ‘I think it’s good what she did. The New Year attacks were exaggerated.’

Wolfgang Gaerbner, a volunteer for CDU, said ‘People are more worried about the global situation with Trump and Putin. They see Merkel as an anchor of stability in difficult times.’

Many predicted Mrs Merkel’s downfall in Germany’s last election in 2013 only for her to come close to winning an absolute majority – a rarity under the proportional system. The signs say that she has sensed the wind is in her favour. A year ago her party kept her away from regional elections as a potential vote loser. Recently she has broken off business in Berlin to dash to NRW four times.

It appears she has already seen off the challenge from the far right: Alternatives for Germany Party (ASP), her main threat last year.

Mr Schulz did not betray any doubts about his popularity but a regional election that should have been a coronation for him has become a vote he must win just to stay in the contest.

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Theresa May should take heed. Her recent political stance vis-a-vis the European Union could cost her dearly if she does not tone down her rhetoric. Angela Merkel is a powerful and canny politician who could turn out to be a powerful adversary if Britain takes the view that Europe can be pushed around at will. Brexit will have no easy path and could spell disaster unless we use common sense and stop this semi- war of words before negotiations begin. It is simply the wrong strategy.

 

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