German industry warns UK not to expect help in Brexit negotiations

Bosses say the priority is to protect the single market, dashing hopes that exporters will put pressure on Merkel for a favourable trade deal

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 are 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 told the Observer 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.”

And Ingo Kramer, president of the confederation of German employers’ associations (BDA), told the Observer: “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 told the Observer 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 thinktank, 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.”

9th July, 2017: The Guardian