Ministers warn EU against trade barriers in Germany charm offensive

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The European Union has been warned not to put "unnecessary barriers" to trade in goods and services between the bloc and the UK after Brexit.

Chancellor Philip Hammond and Brexit Secretary David Davis are launching a charm offensive targeted at German business leaders in an attempt to build support for a post-Brexit trade deal with the EU which would be the "most ambitious in the world".

The two senior ministers are visiting the EU's major economy after Brussels' chief Brexit negotiator Michel Barnier urged European companies with commercial links to the UK to start preparing for increased "friction" in trade.

Mr Hammond is due to address an economic summit in Berlin on Wednesday while Mr Davis will meet chief executives in Munich.

Their visit comes amid reports of German opposition to Theresa May's plans for the post-Brexit relationship between the 27 EU members and the UK.

In a joint article for the Frankfurter Allgemeine newspaper, Mr Hammond and Mr Davis said: "As two of Europe's biggest economies, it makes no sense to either Germany or Britain to put in place unnecessary barriers to trade in goods and services that would only damage businesses and economic growth on both sides of the Channel."

The Government wants a bespoke trade deal covering both goods and services after Brexit, with the UK leaving the single market and customs union.

Mr Davis has previously told MPs that he wants the deal to deliver the "exact same benefits" that the UK has as a member of the EU.

In the joint article the two Cabinet ministers acknowledged that Germany and other EU members want to protect the integrity of the single market "and that without all the obligations of EU membership third countries cannot have all the benefits".

But they insisted that "those priorities are not inconsistent with ours, a deep and special partnership with our closest trading partners and allies".

There were still "important choices to be made" about the new relationship and "we should not restrict ourselves to models and deals that already exist", they said, rejecting the EU's view that a Canada-style free-trade deal was the only option open to the UK outside the single market.

The Daily Telegraph reported that German Chancellor Angela Merkel is strongly opposed to a British plan for so-called "managed divergence" from the EU after Brexit.

A senior official working on preparations for the next round of EU negotiations told the paper that the plan was viewed as the "latest episode in the 'cake and eat it' sitcom series" and Germany viewed it as a "serious risk to the integrity of the EU and its single market".

Mr Hammond and Mr Davis said they wanted financial services to be covered by the new "economic partnership", with a deal that "supports collaboration within the European banking sector, rather than forcing it to fragment".

The UK and EU should "maintain our common principles" and continue the "intelligent co-operation of our regulators", the pair said.

EU chief Brexit negotiator Michel Barnier
EU chief Brexit negotiator Michel Barnier (Liam McBurney/PA)

In a speech in Brussels on Tuesday, Mr Barnier warned that, while a trade deal could include regulatory co-operation on financial services, the EU would not be willing to give up the Single Rulebook drawn up in the wake of the 2008 financial crisis.

Rejecting any suggestion that he was seeking "punishment or revenge" of the UK, he said: "A country which withdraws from this very specific framework and from its consistent application by national authorities takes on the ability to diverge, but at the same time loses the benefits of the single market.

"Its financial services providers will not be able to benefit any longer from a passport into the single market, nor from a system of general equivalence of norms."

The EU will have the power to deem UK regulations "equivalent" to its own if it is confident they do not threaten financial stability, said Mr Barnier.