ALEX BRUMMER: Germany’s sinking feeling

The knee-jerk reaction to any negative event for the British economy is to blame for leaving the European Union. It would be foolish to pretend that Brexit has had no impact. It has clearly led to a short-term hit in trade as customs and border systems adapt. It also added to the stress of tight labor markets.

What critics are underestimating is the shifting of the geopolitical tectonic plates that affect not only the UK, but also our former partners in the EU.

In the longer term, it looks like Germany, Europe’s locomotive economy, will be hit harder than the UK or anywhere else.

After chasing Chinese markets for two decades or more, the strategic and economic focus changes dramatically.

Germany has already been punished for its energy dependence on Russia, negotiated by Angela Merkel, and has taken swift action to find replacement sources. The prosperity of the country is highly dependent on technology, making things and exporting to China. Both the dependence on Russian energy and the Chinese market for high-end cars are starting to hurt. The latest manufacturing data from Germany reflects Berlin’s struggle with zero growth in the first quarter after a 0.5 percent decline in the final period of 2022.

You can whisper it softly, but despite all the negativity about the UK, we are doing a little better. Our service economy and skills in high tech and life sciences are a great support in difficult times.

Inflation in the EU may be calmer than in the UK, but pressures on incomes and higher borrowing costs as the European Central Bank tightens policy are hurting. Germany – as Constanze Stelzenmuller of the American think tank Brookings points out – is at a strategic crossroads. It has placed too much trust in Moscow and Beijing. But it never anticipated China’s President Xi would leverage Russia as Western sanctions bite. Nor did anyone see the People’s Republic flex its muscles – first over Hong Kong and now Taiwan.

China is Germany’s most important trading partner ahead of the United States. As Brooking’s colleague points out, breaking ties would be even more difficult than breaking up with Vladimir Putin’s Russia. It would be a ‘meteorite’, aimed not only at the German economy, but at the entire EU.

The breakdown of Germany’s relations with Russia and China will potentially be far more damaging to Europe than Britain’s departure from the EU.

The International Monetary Fund has warned of a second Cold War already being fought over the economies of the world’s most indebted countries.

To add to the fear, America has turned in on itself as it also seeks to break dependence on China with its massive green energy and chip subsidies.

It has become an axiom in Britain to mock the dozens of trade deals signed since we left the EU, many with new partners such as Japan and Israel, and others that undermine existing relations in the Pacific with Australia. deepen. The real prize would be a trade deal with fast-growing India, including financial services.

That would leapfrog the UK and City over competitors including Germany.

Small world

When discussing Germany, Deutsche Bank’s attack on City broker Numis for £410m feels a bit like a throwback to the 1990s.

At the time, US, Swiss and other big money lenders – such as HSBC – were diving into the most respected names in stock brokerage and investment banking. Traditional brokers like James Capel, Simon & Coates, Phillips & Drew, Smith New Court and bigger beasts like Flemings and Warburg (now part of UBS) disappeared. The blueblood of them all, Cazenove lasted through 2019 before becoming part of JP Morgan Chase.

Deutsche never managed to make the leap from Frankfurt-based “money lender” to a world-class investment banker. Numis has useful technology and media clients, and may offer the start of a route back to brokerage glory. History is not encouraging. Some broker clients value the personal connections and service of the smaller financial groups and quickly lose their identity as part of a financial behemoth.

Space is also being created for challenger brokers and investment bankers who recognize the value of nurturing clients.