German industry has warned Britain not to rely on its help in securing a good Brexit deal, in a stark intervention that strikes a blow at the government’s EU departure plans. Senior ministers have repeatedly claimed since the election that Germany’s powerful exporters will exert pressure for a deal handing Britain substantial access to the EU’s markets.
However, ministers were told that
it is up to the British government to limit the economic fallout from its
decision to leave the single market. With the government facing new pressure
from business to soften its Brexit plans, German industrialists also warn that
Britain will struggle to avoid economic damage as a result of exiting the bloc.
Two of Germany’s biggest industry
groups have said that their main concern during
the Brexit process is protecting the single market for the remaining 27
members, even if this harms trade with Britain:
Dieter Kempf, president of
the BDI,
the federation of German industries, said: “Defending the single market, a key
European project, must be the priority for the European Union. Europe must
maintain the integrity of the single market and its four freedoms: goods,
capital, services, and labour. It is the responsibility of the
British government to limit the damage on both sides of the Channel. Over the
coming months, it will be extraordinarily difficult to avert negative effects
on British businesses in particular.”
Ingo Kramer, president of the
confederation of German employers’ associations (BDA), said: “The
single market is one of the major assets of the EU. Access to the single market
requires the acceptance of all four single market freedoms. The UK will remain a very important partner
for us, but we need a fair deal for both sides respecting this principle. The
cohesion of the remaining 27 EU member states has highest priority.”
Their comments come just weeks
after David Davis, the Brexit secretary, said his claim before the referendum,
that German industry would put pressure on Angela Merkel, the chancellor, to
hand Britain a good Brexit deal, was “where [the negotiations] will end up”.
A government spokeswoman said:
“While we will be leaving the single market and the EU customs union, we want
to achieve a comprehensive free trade agreement that allows for the most
frictionless possible trade. The government has been clear that we want to
ensure a smooth implementation of our new partnership with the European
Union that is in the interests of businesses in the UK and
across the EU.”
British business has called on
the government to consider a transition deal allowing the UK to remain in
the single market and customs union for the time being. The call was rejected
but several sources have said that key ministers
are warming to the idea of a much more comprehensive transition deal than was
previously envisaged.
Under one plan being pushed
inside government, Britain would demand a broad agreement for a final Brexit
deal and a specific date on which it would kick in. It could then accept a
comprehensive transition deal in which the UK stayed in the single market and
found a compromise on the customs union, allowing it to negotiate its own trade
deals.
Several sources said that Davis was taking an increasingly “pragmatic
view” on the idea – but that the transition period must last no more than two
or three years. However, a source close to Davis said his thinking had not
changed significantly.
European businesses are also
pushing Britain to stay in the single market and customs union until a final
Brexit deal is hammered out.
Markus Beyrer, director general
of the BusinessEurope group
that represents companies in 34 European countries including the UK, said: “We
want a good deal for business, which means an orderly Brexit and an orderly
transition to the future relationship, while fully protecting the integrity of
the single market. A solution that ensures the UK will remain in
the customs union and the single market for the duration of the transition
period, with all appropriate rights and obligations, would help provide
citizens and business with more certainty and predictability.”
While German industry remains
firmly behind Merkel’s insistence that Britain cannot retain the benefits of EU membership from
outside the bloc, Brexit campaigners believe that it will shift its
position when the details of a deal are actually hammered out.
John Longworth, the former
director-general of the British Chambers of Commerce who campaigned for Brexit,
said: “The European project is so important to the Germans politically and
economically, that the German political establishment are prepared to sacrifice
even their own car industry for that outcome. That may not stand up to
scrutiny when it begins to bite, however. We are their biggest export market.
And many businesses in countries outside Germany won’t
share their view, either. There will be pressure on governments to compromise.”
Charles Grant, director of
the Centre for
European Reform think tank, said that even if German business
did agitate for a good deal for Britain, there was little evidence Merkel would
listen. “Many of the key policy-makers in
Germany do not care what the business lobbies say,” he said. “They care about
the principles. One of their principles is that the single market is
indivisible. Another is that the British must be seen to pay a price for
Brexit, doing less well outside the EU than in it.”
Albrecht Ritschl, an economic
history professor at the London School of Economics who has advised the German
government, said: “One thing German industry is clearly worried about is the
potential disruption on the way to a free trade agreement because it cannot be
negotiated within the two-year timeframe. That said, German exporters would also
benefit from the harm that a crash-out Brexit would do to UK exports to the EU.
The net damage would perhaps be quite small.”