One European ambassador to Brussels told me that Merkel was not alone in her concern, even if few set out the reality of Brexit in such straightforward terms. The diplomat, who asked for anonymity to more freely discuss deliberations in the EU’s de facto capital, said that Johnson had, if nothing else, clarified the stakes of Brexit, something May had tried to hide. Still, the ambassador said, this nevertheless causes significant challenges for the EU, which will have to be “extremely vigilant” in how it negotiates any future free-trade deal with the U.K., wary of a Britain that could look to undercut EU standards while seeking market access to the economies of the bloc’s 27 other member states. (The EU has also diverged over how a future relationship with Britain should look: Whereas Ireland, the Netherlands, and other countries with close trading relationships with Britain are likely to push for close economic ties out of self-interest, France has made it known that it will take a hard-line stance in any future free-trade negotiations.)
In an interview with The Guardian and seven other European newspapers, the EU’s chief Brexit negotiator, Michel Barnier, said that the U.K. would see its market access reduced in proportion to how far it sought to diverge from European standards. The EU’s position ensures that the Brexit dilemma will never go away: How much of a limit should the U.K. place on its sovereignty in exchange for market access?
Merkel’s comments in October were not her first warning about the threat of British competition. In Berlin a month earlier, addressing German lawmakers, she said that the U.K. after Brexit would become “an economic competitor on our own doorstep.” She said this would be the case “even if we want to keep close economic, foreign, and security cooperation and friendly relations.” Implicit in Merkel’s observation was the acceptance that economic, foreign, and security policy cannot be entirely quarantined from one another—that each affects the others.
At the time she made those remarks, it still looked possible that the U.K. could crash out of the EU without agreeing on a divorce deal, and there was a feeling in 10 Downing Street that European intransigence was forcing the U.K. into a corner where it would be left with little choice but a radical change of direction in the economy, including huge cuts to corporate taxes. Indeed, certain EU countries are already bracing for British economic radicalism after Brexit. Ireland, for example, is studying the prospect of severe British tax cuts, which could lure away companies based in Ireland, already a low-tax economy, one Irish official told me.
Thorsten Benner, the director of the Berlin-based Global Public Policy Institute, told me that Merkel was right to be concerned about the “inevitable” reality of the U.K. seeking competitive advantages wherever it can find them. “Merkel is taking it seriously,” he said, arguing that her intervention was largely a message to Europe not to be complacent about the threat, despite the bloc dwarfing Britain in economic size. Benner said that one area Europe was concerned about was in relation to China, with the prospect that, once out of the EU, the U.K. might feel compelled to put immediate economic interests over traditional security and defense concerns, offering Beijing closer trade and business ties that could cause friction with Washington and other European capitals.