Trade between Poland and Germany reaches record levels

(Tristan Taussac, CC BY-ND)

Despite some political debates between Poland and Germany the value of Polish-German trade in 2016 probably exceeded EUR100bn for the first time in history.

German Chancellor Angela Merkel assured, during her latest visit in Warsaw in February, that Polish companies are welcome in Germany. Poland’s Prime Minister Beata Szydło stressed that “The good climate for entrepreneurship introduced by the Polish government as part of the Plan for Responsible Development will allow more companies from Germany to find growth opportunities in Poland”.

Both governments want the further development of economic relations. Besides the current security issues and challenges facing the EU, it is the economy that forces the governments in Warsaw and Berlin to pursue actions consistent with the logic of realpolitik.

“It will be an opportunity to show the strength of the Polish economy and to strengthen the economic relations between Poland and Germany,” said the head of the Hannover trade fair, Jochen Köckler, in autumn last year, when he announced that Poland would be the partner country at the Hannover Messe 2017. As a result, in April this year Poland and Polish companies will receive additional promotion at this event, which is one of the most important trade fairs in the world.

FDI and trade

Poland certainly needs positive marketing. In last year’s study of investment attractiveness that the Polish-German Chamber of Commerce conducted among German companies active in the region of Central and Eastern Europe, Poland dropped to second place, behind the Czech Republic, after leading the ranking for three years. This was mainly because some entrepreneurs feared that political tensions could affect their businesses.

Second place is still a good result, and the German partners have not retreated from Poland’s market. The automotive company Daimler invested EUR500m in a factory in Lower Silesia, and trade between Poland and Germany has reached record levels. It is now almost twice as high as trade between Germany and Russia. Poland has become the seventh most important trade partner of Germany.

“Angela Merkel’s visit was not a breakthrough in Polish-German relations, but it was an important step in consulting positions concerning the shape of Europe before Brexit. It is also the proof of the fact that the Chancellor is serious about Polish-German cooperation,” believes Dr Agnieszka Łada, an expert of the Institute of Public Affairs.

The after Brexit landscape

The question of the conditions of the United Kingdom’s withdrawal from the EU, and possibly also the single market, is one of the most important challenges faced by Germany. In 2015 Germany’s surplus in trade with the UK reached over EUR50bn and was only slightly lower than its trade balance with the United States. Brexit, however, is in no way an exclusively German-British concern. After all, the United Kingdom is the second largest business partner of Poland in terms of turnover, and also for this reason Warsaw and Berlin must look for common ground in their policy towards London.

“There are still many common Polish-German economic interests. Frankfurt and Warsaw want to become the new centers for the financial industry after Brexit. Because Polish industry is closely linked to the German industry, no one in Poland would be interested in increased protectionism and new barriers to the world trade,” wrote Sven Astheimer, a commentator of the conservative daily Frankfurter Allgemeine Zeitung, before Merkel’s visit to Poland.

American politics

Pragmatism will also be required in shaping the new relations between the EU and the USA. Statements made by president Donald Trump herald future tensions in matters of trade, possibly including an increase in tariffs on cars imported to the United States. This would mainly hurt Germany, which sells 4.5 million cars abroad and for which the United States is the most important trading partner. In 2015 the value of their trade amounted to USD174bn, and the value of exported German cars alone reached EUR34bn.

Germany’s troubles in its relations with the Americans will not be without consequence to the remaining EU member states, including Poland. This is associated, among others, with German automotive investments in Poland.

“The scenario of a trade war with the United States is unlikely, but the question of whether it will be possible to find a consensus among the 27 countries in the event that some member states want a sharper response to the actions of Washington, seems justified,” says Piotr Buras, the Head of the Warsaw think tank “European Council on Foreign Relations”.

In his opinion, Poland should reject the temptation to strike bilateral or regional agreements with the United States, because the Atlantic Alliance and the “real and measurable nature of Poland’s links in Europe, and particularly with Germany, determine their priority importance.”

The future of the EU

Polish-German relations are also important for the future of the European Union as a whole. After the United Kingdom leaves the EU, the role of countries remaining outside the euro area will significantly decline. There will be only 8 such countries left (who are, moreover, economically weaker) against 19 that use the common currency. In many European capitals (among others, in Rome and in Paris) experts say that this will be a good opportunity for the creation of a “Union of different speeds”, or a “flexible Europe”. In the case of Eurozone countries, this could mean further harmonization of their labor markets and social policies, a common budget and perhaps even Eurobonds. According to Piotr Buras, this would mean negative consequences for the remaining EU states.

“These would include, among others, the reduction of financial solidarity with the countries remaining outside the Eurozone, the relative reduction of their credibility in the financial markets, deterioration of the position of their banking systems in relation to the Eurozone, or an increase in the cost of borrowing on the financial markets,” writes Buras.

There are many indications, however, that the current government in Germany does not intend to leave Poland on the margins of the EU. In Warsaw the Chancellor assured that the possible closer cooperation between some countries in some areas would not be closed to other EU member states.

“Both countries want to avoid divisions in Europe, including, among others, a greater separation of the Eurozone, proposed by French politicians. Germany and Poland have shared a similar opinion on economic mechanisms. The Chancellor is also a supporter of maintaining sanctions against Russia. German diplomats, politicians and experts are stating openly – we are counting on Poland and we want to cooperate,” says Agnieszka Łada.

Energy is the most difficult topic

The Polish and German pragmatism in economic policy will be tested on the issue of energy. The government of the CDU/CSU-SPD coalition has a rather favorable view of the project of construction of a second line of the Nord Stream 2 gas pipeline. Although it is criticized by some CDU politicians, including Chancellor Merkel’s closest associates, it is supported by the Social Democrats, who control the ministries of economy and foreign affairs. The EC’s approach to the project has been very shaky, even though Gazprom’s expansion would result in this company’s increasing domination on the European market. The warnings coming from Poland and other countries about the increasing energy dependence on Russia have not convinced the German authorities so far.

“When Nord Stream 2 is completed and the transit of gas through Ukraine stops, Germany will become virtually the only entrance point of Russian gas to the EU. Then Germany will be in the same position as Ukraine in 2009, when Moscow simply turned the gas tap off during a dispute with Kiev,” Andriy Kobolyev, head of the Ukrainian Naftogaz, recently warned in an interview with the weekly “Welt am Sonntag”.

The interests of neighbors and partner countries on the one hand, and the interests of German energy companies on the other – which will prevail? In Warsaw, Beata Szydło told Angela Merkel that Nord Stream 2 is unacceptable for Poland. The head of the German government did not refer to this directly during the press conference, but stated that “we have a partly shared opinion on the single market and energy policy”. It’s hard to tell what this could mean for the project pushed by Gazprom. It is possible that Angela Merkel will not want or be able to make a clear stand on this issue, at least until the autumn elections to the Bundestag?

Right before Merkel’s visit to Warsaw there were a number of publications in the German media criticizing “the Poles’ attachment to coal” and alarming about “the dark future of Poland”, that is, the problems associated with air pollution. The positions of Poland and Germany in this regard have long diverged. However, it seems that the intergovernmental talks were carried out in a businesslike atmosphere, as they will result in the establishment of a joint committee that will deal with the so-called Winter Package. This will involve a Polish-German discussion with the participation of experts on the proposals of the European Commission that were published in autumn 2016 as a list of ideas for providing clean energy to all Europeans (the “Clean Energy for All Europeans” legislative proposals).

According to the representatives of the Polish energy industry, the proposals put forward by the EC could significantly hamper the activity of coal-fired power plants. It will certainly be easier to find solutions satisfying the energy sector in Poland with the participation and possible support of Berlin.

The heads of governments of Poland and Germany will probably meet again in April, during the fair in Hannover. This will be an opportunity to expand the economic topics discussed in Warsaw. According to many German commentators, both parties need each other more than ever before. They have no other option but to cooperate.

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