German companies start cutting investments in UK: Study

BERLIN - Many German firms are experiencing the adverse effects of Britain's decision to leave the European Union (EU), a study by Deloitte showed on Wednesday.

Around a third of companies surveyed by the German branch of the management consultancy indicated that they had already cut back investments as a result of Brexit. The majority of companies reported that they would suffer severe damage in the event of a so-called hard Brexit which would see the United Kingdom leave both the EU single market and the customs union.

Just under half of the firms polled said they had restructured their supply chains accordingly, while more than two thirds (72 percent) have taken intensive measures to draw up corporate contingency plans.

The findings were based on responses from 239 major companies in Germany with commercial links to Britain.

According to the study, most German companies (41 percent) viewed a free trade agreement (FTA) between the EU and United Kingdom as the likeliest outcome of ongoing Brexit negotiations. However, only 21 percent and 13 percent respectively had faith that London would retain membership in the customs union or single market. Consequently, firms still face the prospect of serious additional obstacles in cross-border trade under the anticipated new FTA regime.

In a recent report, the Federation of German Industries (BDI) warned that the United Kingdom would itself be most affected by the negative economic impact of Brexit. The country has been the worst performing economy in the EU in terms of gross domestic product (GDP) growth since voting to quit the bloc in 2016.

BDI director Dieter Kempf consequently argued that the United Kingdom would be best advised to emulate the quasi-EU membership models of Norway and Switzerland to avert material damage and protect the current rights which its own citizens enjoy throughout the EU. Norway and Switzerland are both members of the EU Schengen travel area and customs union, abide by its four freedoms of goods, services, capital and people, and are subject to the jurisdiction of the European Court of Justice (CJEU).

So far, London has rejected all of these proposals and instead called for a vaguely-defined "bespoke" agreement with the EU. However, the European Commission and European heads of state are increasingly skeptical about the feasibility and desirability of such an outcome.

A critical point of the negotiations is the situation of the land border between the Republic of Ireland, which will remain in Europe, and Northern Ireland, which is part of Britain, an issue over which the British cabinet is also split internally. Although Britain conceded in an earlier round of talks that it would remain in the customs union if it failed to sign an FTA with the EU to prevent the erection of an inter-Irish border, Prime Minister Theresa May has since backtracked from this commitment.

The study by Deloitte suggested that the domestic difficulties created for the United Kingdom by Brexit have not gone unnoticed in German board rooms. Two thirds of German companies responded that they wanted to see more and deeper cooperation in the EU following the British departure. Additionally, the disintegration of the entire bloc (41 percent) was also identified as the second largest risk posed by Brexit after a prospective fall in bilateral trade (44 percent).