erman car makers and other major industrial lobbies will not be able to insist that Britain gets an easy deal in the forthcoming Brexit negotiations, the German chancellor Angela Merkel has warned.
In a further hardening of the line against Britain, Mrs Merkel told the annual conference of German industrial federations, the BDI, that defending the principle of free movement and the internal cohesion of the European Union would come before defending German exports to the UK.
“If we don’t say full access to the internal market is linked to full freedom of movement, then a movement will spread in Europe where everyone just does whatever they want,” told business leaders in Berlin.
Mrs Merkel, who has faced down German firms before over EU sanctions against Russia, said German bosses must weigh short term hit of a ‘hard’ Brexit to the UK sales against the long term risk of allowing the EU to unravel.
“We have to make our interests align so that European industry federations don’t put pressure on us” during talks with London, she said.
Her stance contradicts assurances given by leading proponents of Brexit, including David Davis, the secretary of state for leaving the EU, that lobbying by German industry would insure that the UK would not be ‘punished’ in any divorce negotiation.
In a speech in February Mr Davis asserted that Britain was “too valuable a market for Europe to shut off” and that within minutes of a vote to leave, the CEO’s German car makers would be “knocking down Chancellor Merkel’s door” demanding no barriers to trading with the UK.
As it turns out, after initially pressing for a non-punitive deal, the BDI – the German equivalent of the CBI – has come into line with Mrs Merkel, warning in London this week that a ‘hard’ Brexit with limited market access was now increasingly inevitable.
Some 7.5% of German exports go the UK, a significant figure but not be enough to force Germany to compromise on the four freedoms of the EU – goods, services, people and capital – according to Markus Kerber, the BDI chief.
“Well 7.5 per cent is a big number but 92.5 per cent goes somewhere else. So, as much as we would like to uphold our very good relations with British customers, it is extremely important for us not to alienate other European markets,” he told the BBC.
Theresa May promised this week to invoke Article 50 and begin EU divorce proceedings by the end of March next year, indicating that she would not compromise over British demands to end EU free movement and restore the primacy of EU law.
British negotiators hope that, notwithstanding these hard demands, the UK can still negotiate and EU-UK trade deal that will contain preferential access for British goods and services entering the European Union.
However Burkhard Balz, a German MEP whose leading role on the European Parliament’s economic and monetary affairs committee makes him influential on financial services regulation, warned yesterday against expecting too much.
“No-one should under-estimate the determination of the German chancellor and the European Parliament to defend the four freedoms. Freedoms of movement is key for us – so key, in fact, that we will take some disadvantages to defend such an important freedom.”
Simon Tilford, deputy director at the Centre for European Reform, a pro-EU think-tank, said that taking a hard line with Britain despite the size of its market reflected European concerns that Brexit posed an existential threat to the EU.
“If Britain could leave but retain the advantages of membership, what would prevent other Eurosceptic countries from pushing for similar deals? Like France and Italy, Germany is desperate to avoid setting a precedent that emboldens Eurosceptic movements in other countries,” he said.
In a slightly more optimistic note, Sigmar Gabriel, the German economy minister, vice-chancellor and junior coalition partner in Mrs Merkel’s government said that while the red line on free movement must be enforced, it should not preclude a healthy deal with Britain.
“We must try to formulate offers in a way so that the Britons remain close to us, also to have the chance that they return some day,” he told conference.
Experts remain perplexed over how Britain will square the circle of opting out of the single market and the jurisdiction of the European Court of Justice that polices it.
Dr Angus Armstrong, a leading Brexit economist and fellow with the UK in a Changing Europe, said that a hard Brexit would leave Britain facing tough political choices if it wanted to retain access to the market via the mechanism of regulatory equivalence.
“This characterisation that ‘BMW or VW would never allow a hard brexit to happen misses the key point – that a WTO arrangement would cover mostly goods, but Britain’s economy relies heavily on services which are not covered that arrangement.”
British hopes that it can negotiate access to the market separately will ultimately depend on the UK’s willingness to subject itself to a regulatory body – if not the ECJ, then the court of EFTA, the European Free Trade Association – which would itself imply membership of the EEA and accepting rule-making from Brussels.
“If you want full access for services you need to be a member of EEA and accept the EU rules – as Norway does – or you join EFTA-court only, but that only applies to largely to goods and not the services that we trade most successfully in. The trade-offs are pretty stark.”
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