Germany dismisses Hammond's protectionist Brexit threats
Germany dismisses Hammond's
protectionist Brexit threats
Britain's finance minister has
suggested that the UK might be forced to "change its economic model"
if it were shut out of the EU market. German politicians took the threat with a
mixture of derision and consternation.
German politicians have rebuked
British Chancellor of the Exchequer Philip Hammond for implying that the UK
might lower corporation taxes and raise tariffs to offset the effects of a hard
Brexit from the European Union.
"If we have no access to the
European market, if we are closed off, if Britain were to leave the European
Union without an agreement on market access, then we could suffer from economic
damage at least in the short term," Hammond told the German newspaper "Welt
am Sonntag." "In this case, we could be forced to change our economic
model and we will have to change our model to regain competitiveness. And you
can be sure we will do whatever we have to do."
Immediate reactions in Berlin were
either withering or nonplussed. "Britain's two big economic weaknesses are
the considerable trade deficit and the large budget deficit," the
conservative MP Norbert Röttgen told "Die Welt" newspaper.
"That's why Hammond's threats with tariffs and tax reductions are threats
of self-harm, and as such expressions of British helplessness."
Alexander Graf Lambsdorff, a member
of the European Parliament representing Germany's free trade-friendly Free
Democratic Party, was equally dismissive: "Hammond obviously wants to
impress Brussels with a horror scenario right at the beginning of the
negotiation process. We intend to calmly ignore it," he said. "It
would make more sense if Britain would finally put a coherent concept on the
table of how it sees future relations."
Röttgen called Hammond's threat an
"expression of helplessness"
Meanwhile Markus Ferber, MEP for the
conservative Christian Social Union (CSU), pointedly reminded Hammond that both
the G7 and the Organization for Economic Co-operation and Development
(OECD), which Britain has not yet voted to leave, have clear rules on taxing
corporations.
Fear and caution
There was similar consternation from
German economists. Jürgen Matthes, head of the international economics team at
the Cologne Institute for Economic Research, was unsure how seriously Germany
should take Hammond's threat.
"Britain will likely suffer
economically from the consequences of a hard Brexit," he told DW.
"The question is to what extent the British can afford to lower their
taxes, because their budget deficit is already relatively high."
There are a number of uncertainties
to iron out, as Matthes points out: The British government's capacity to lower
taxes will depend on how well the country's economy will develop in the next
few years, which in turn will depend on how hard the consequences of Brexit
turn out to be.
On the other hand, Britain would
certainly not be alone among European countries with lower corporation taxes.
"But, given that Britain isn't necessarily in a position of strength in
the Brexit negotiations, the question is whether it's such a clever negotiation
strategy to just threaten the other side with something that they don't want at
all," said Matthes. "The statements from Brussels and Berlin so far
have suggested that they want to talk fairly and constructively with the UK,
but and merely want to prevent cherry-picking to avoid bandwagon effects."
"There could be room for
constructive compromises which would be beneficial for both sides,"
Matthes said. An IW Köln study has shown that free access to each other's
industrial goods markets - i.e., for UK firms, export products would not need
additional testing in the EU - could involve concessions that the British
government might be able to deliver, particularly regarding the continued
harmonizing of product standards.
Germany is more dependent on exports
than other EU countries
But, because the EU has a much larger
market to offer than the UK, the bloc would have to agree to such a valuable
market access concession. "If the EU is threatened with a tax dumping
strategy, which erodes the level playing field in industrial products, free
access to the EU's industrial goods market is likely to prove elusive,"
Matthes said.
Lingering fears in Germany
There was some concern about
Hammond's rhetoric in Berlin. Volker Treier, deputy director of the Association
of German Chambers of Commerce and Industry (DIHK), was no longer holding out
much hope for a "soft" Brexit. "And, of course, if it will be a
hard Brexit, the UK will have to do something to increase its
competitiveness," he told DW.
The UK is well-aware that some of its
key economic sectors - for example, financial services - will be under threat,
and, as Treier pointed out, German companies are more dependent on open markets
than those in other economies.
But Treier was keen to draw a
distinction between protecting domestic markets and making markets more
attractive - introducing duties or tariffs is not necessarily the same thing as
lowering corporate taxes. "The latter is less harmful for the development
of Europe and other regions worldwide than the former," he said. "The
first would be another brick in what German companies are experiencing right
now: growing protectionism."
The DIHK has noticed this trend in a
series of surveys of German companies over the past few years. "It started
in the emerging markets a few years ago, since the financial market
crisis," he said. "Now we have this trend in industrialized countries
as well. The rhetoric of the president-elect (of the US, Donald Trump) shows
that industrial markets are trying to copy what some emerging markets have
introduced. And the UK would be another brick in that."
This, as far as Treier is concerned, will only
leave normal households worse off, because history has shown that protectionism
means that competition within domestic markets suffers while increasing costs
caused by tariffs get passed onto the consumer.
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