There was a meeting last week that should make Brexiters sit up and take note. Captains of European business – the European Roundtable of Industrialists - held their annual evening pow-wow with Angela Merkel, Francois Hollande and Jean-Claude Juncker. This year the venue was the chancellery in Berlin. After enjoying white wine on the balcony and a Berlin sunset, the assorted executives (all male) moved to the dining room and a discussion of Europe’s economic future.

Digital issues were the main topic. But of course Brexit could not be avoided. One executive cheekily explained that he had been lobbied by Britain to stress the importance of preserving good economic ties, to make clear that while Britain was leaving the EU, the benefits of the single market should not be totally sacrificed. Leaving aside the “I was lobbied” disclosure, this is the kind of intervention Brexiters had long envisaged would be decisive. German industry would weigh in and Chancellor Merkel would tell the EU to cut a favourable Brexit deal.

The first reply came from the French president and it amounted to a traditional defence of core single market principles. Then the chancellor spoke. Ms Merkel explained that she had at first wavered over this issue. But she was now convinced there was no alternative. She agreed with Mr Hollande. Any special deal would be dangerous. Giving up the union’s principles would threaten the existence of the EU itself. According to one guest at the table, Mr Juncker then intervened in slightly theatrical fashion: “all of you here should listen very carefully to what the president of the French Republic and German Chancellor just said.”  

As we reported last month, the mood on Brexit is definitely hardening in Berlin (and as today's FT interview with Germany's defence minister shows, the annoyance is not just over the divorce). This could all be bravado as the EU-27 prepare for a tough negotiation. But Ms Merkel’s tough private views are emerging in public too. Yesterday at a public meeting of business leaders she said deviating from the four freedoms of the internal market would pose a “systemic challenge for the entire EU”.  If countries are permitted to demand special rights on areas like free movement, the result “is an extremely difficult situation”, she continued. The business audience gave her hearty applause. Brexiters be warned.

David Fuller's view

Evening pow-wows to discuss contentious issues can produce plenty of bluster when tongues are lubricated by drink.  We have heard similar reports following EU gatherings since the UK had the audacity to democratically vote to leave the European project following our Referendum on June 23^rd. 

It is partly a lobbying tactic, and other EU countries, in addition to businesses are watching closely.  EU politicians and bureaucrats were shocked that the UK voted to leave.  They then hoped for a Soft Brexit, in which the UK would mainly remain while paying EU fees and accepting their terms on most issues. 

However, the UK voted to leave the EU, thus choosing to regain its national sovereignty in every respect, not least to make its own laws, control its immigration policy, while also having the freedom to negotiate trade deals with the much larger portion of the global economy which is outside the EU. 

Theresa May’s Conservative government understands this and has no intention of compromising any aspect of British sovereignty following the Referendum. 

Immediately after declaration of Article 50 in 1Q 2017, she would like to negotiate for open trade agreements which would suit mutual economic interests between the UK and EU.  However, if the EU, mainly represented by Angela Merkel offers punitive trade terms for any reason, as some commentators including EU representatives are suggesting, I have no doubt that negotiations will end far sooner than the two years provided by Article 50.

A Hard Brexit would be challenging in terms of reciprocal trade tariffs, not least for EU countries such as Germany which sell far more to the UK than they import.  Moreover, Sterling’s devaluation to date (EUR/GBP) leaves the UK in a very competitive position, not least because it has more than offset potential EU tariffs.  Corporate leaders may have been flattered by invitations to join Merkel, Hollande and Junker for dinner at the chancellery in Berlin, but they will protest if punitive and senseless trade terms for the UK result in tariffs on their exports to our shores.