German business leaders urge Tories to…

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Head of employers’ federation says integrity of single market more important than making good business with Britain

German industrialists have warned that British hopes of their support in Brexit negotiations are misplaced and could backfire with dangerous

consequences for international trade.

Business leaders in Europe’s biggest economy are instead calling on Conservatives to rethink their commitment to leaving the single market, even

though the party has doubled down on this promise in its election manifesto.

David Davis and Boris Johnson have repeatedly cited likely pressure from German exporters, such as carmakers, as a reason for thinking they can

persuade European negotiators to maintain free trade access after Britain leaves.

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But the theory is increasingly rejected by those whose support they need most – scepticism relayed most forcefully by Steffen Kampeter, the chief

executive of the German employers’ federation, on a trip to the UK this week.

“The top priority of European business is the integrity of the single market; the second priority is making good business with the UK. We will see if

there is a conflict, but the message is: do not harm the single market by cherry-picking deals,” he told a conference of British business leaders in

London this week.

“It’s not the German carmakers that are directing the negotiations,” added Kampeter, who said he knew of no one who thought a trade deal within 18

months was possible and called for “rhetorical disarmament on all sides”.

An independent panel of economists that advises the German government has also intervened by proposing a plan that would avert such a cliff-edge

scenario, whereby Britain would temporarily rejoin Efta – the trading block that consists of Switzerland, Norway, Iceland and Liechtenstein – at the

point when its EU membership runs out and therefore preserve its membership of the single market. membership of the single market

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Making such a “reverse Efta” a temporary stepping stone would avert irreparable damage to the British and German economy and allow Theresa May to

satisfy the tabloid press’s demand for a swift exit, argued Albrecht Ritschl, one of the four authors of the letter.

May appeared to rule out this option in the manifesto by insisting Britain would leave the single market, but it is possible this could serve as the

basis for a transitional deal that some Tories still support.

Ritschl said some leading Brexit advocates’ hopes of Angela Merkel forcing the EU to agree a free-trade deal before Britain officially dropped out of

the EU in 2019 was based on a misunderstanding of the relationship between German politics and industry.

“Of course Germany has a strong export industry, but even in Berlin people have over the last two years come to realise that an enormous export

surplus can be a weakness as well as a strength”, he told the Guardian.

“Above all, German industry knows that when it comes to dealing with international politics, you sometimes have to go with what the government

decides. In any case, if businesses had to choose between maintaining exports to the UK and keeping the European Union together, it’s obvious they

would go with the latter.”

Andreas Meyer-Schwickerath, director of the British Chamber of Commerce in Germany, said: “My impression is that German companies are getting very

concerned about the tone that has been whipped up by the election campaign in the UK. If we don’t start tackling problems swiftly and pragmatically,

then the whole debate could escalate beyond repair.”

Some Whitehall veterans fear a lack of understanding of European commercial thinking is a major handicap for British negotiators.

“I worry about the lack of European experience in our team,” said Jonathan Powell, a former Downing Street chief of staff. “They do not have that

granular experience of difficult negotiations and we will be really struggling to catch up with them.”

At a speech on Wednesday, Merkel, the German chancellor, repeated her warnings about the economic cost of leaving the trade bloc.

“This is not meant maliciously, but you cannot have all of the good things and then say there’s a limit of 100,000 or 200,000 EU citizens allowed to

enter the UK,” she said. “That won’t work. At that point, we’ll have to think about which restrictions we make on the European side to compensate for

that.”

A recent poll in Germany and other EU countries showed that eight in 10 people thought that the interests of the EU should be more important during

negotiations than keeping intact economic ties to the UK.

The German economists’ letter, whose receipt was acknowledged by the economic ministry in Berlin on Thursday, warns that without a transitional

solution such as the one offered by Efta, Germany would “risk causing unnecessary damage to economic ties”.

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The Efta proposal comes at a time at which it is increasingly clear that concerns of German industry are not cutting through to German politics in

ways in which British advocates of a hard Brexit have predicted.

“A phased Brexit using Efta as a stepladder to put integration with the EU into reverse would give Theresa May a symbolic clear break with the EU at

an early stage of the exit process, since Britain would no longer be subject to the rulings of the European court of justice”, said Ritschl, who is

also an economist at the London School of Economics.

“At the same time it would protect a legal framework for the further negotiating of a free trade deal, since Efta has its own court of arbitration in

Berne.”

The entry of the the UK and its 65 million people would be a radical change for Efta, a 13.5 million trading bloc of which the UK was a co-founder in

1960 until it joined the European Economic Community in 1973.

Frank Bakke-Jensen, Norway’s minister of EU and European Economic Area affairs, said on Tuesday Efta took an open approach to the question of UK

membership, in contrast to doubts voiced by Norwegian ministers last year. “We would like to be open-minded and find the best solution,” he told

journalists in Brussels.

Questioned about how long it could take Britain to join Efta, he said: “International cooperation is not a button you can turn on and off. It is

complicated, so we will have to see. For the time being the question is not on the table, the UK has said ‘no thank you’.”      business

 

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