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WELT AM SONNTAG: Mr. Chancellor, many of us in Germany do not want to abandon hope. So I must first ask you: are the chances of the UK remaining in the EU beyond March 2019 greater than zero?

Philip Hammond: I would advise those people who value a close relationship between the UK and Europe to stop harking on about this illusion. We should focus instead on the new relationship and ensure that the UK and Europe continue to work closely together in the future. Those of us who campaigned against Brexit before the referendum have moved on. We are now entirely focussed on trying to get the best future partnership with the EU. That’s where the future lies.

WELT AM SONNTAG: So could Britain, in one way or another, still remain part of the Single Market and the Customs Union despite Brexit?

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Hammond: The moment we leave the European Union, we will automatically cease to be part of the Customs Union and the Single Market. But that does not mean we can’t agree on new partnerships which replicate some of the features of the Customs Union and the Single Market. And that’s what we should be discussing.

WELT AM SONNTAG: There is a new buzz word: “Bino”, standing for “Brexit in Name Only”. Could that be where things end up?

Hammond: No, I don’t think so. We have a conscious decision by the British people to leave the EU. To leave the political structures of the European Union. The European Union has a clear aspiration for deeper integration and the British people don’t share that aspiration. So the right way forward is for the UK to be outside the structures of the European Union. But we are and remain a large European economy. We remain an integral part of the Continent of Europe – in many ways, not just economic but also security and cultural areas. We should seriously attempt to find ways to work as closely as possible together – and at the same time allow the British people to go their own way. And we should allow the European Union to carry on with its process of integration unhindered by a large Member State that really does not want further integration.

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WELT AM SONNTAG: Are you optimistic that this balancing act will succeed?

Hammond: There’s a discussion going on amongst the public in the UK, and you will know this from reading the UK media, about what type of Brexit we want – on a scale of a very close relationship with the European Union through to new trade deals and new relationships with third countries. We hear a willingness and enthusiasm in the USA and from many other countries around the world to make new trade deals with us. But we don’t hear that from Europe. We hear from Europe only backward-looking stuff. “Are you sure you want to leave?” Or “It’s a bad decision to leave.” Or “You must be punished for deciding to leave.” Well, we are leaving and we want to retain the closest possible partnership with the European Union. But we can only have that if the European Union also wants it. And the British people need to hear from their neighbours in Europe: “Yes, even though you’re leaving, we want to continue working closely together with you. We don’t want there to be a large country, a large economy in Europe which is drifting away from the European mainstream. We want you to be close to us.”

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WELT AM SONNTAG: Brexit cannot be too soft, otherwise it might offer an incentive for the people in other countries to leave. Can you not understand this widespread attitude in Continental Europe?

Hammond: I can understand that paranoia. But imagine you are running a successful, thriving club. If one member leaves, you don’t immediately panic that all the other members might leave, but are confident they will want to remain. You cannot really run a club if you are constantly threatening members who decide to leave. You should rather redouble your efforts to remain attractive for new and existing members. The political structures of the European Union may not be right for Britain. We have a different culture and a different history. We’re an island. That is not an insignificant fact. But the European Union has delivered a great deal for its member states.

WELT AM SONNTAG: But the fact is that the EU is asking the British: “Tell us what you want?” To which you reply to the Continental Europeans: “No, you tell us first what you want?” Meanwhile, the clock is ticking and businesses on both sides of the Channel are growing uneasy because no one knows what adjustments they must make for the period after March 2019.

Hammond: It’s a courtship. We have to show a little of what we’re thinking and then we find out a little about what our partners in Europe are thinking.

WELT AM SONNTAG: To us that sounds more like a poker game where one tries to pull a fast one on the other.

Hammond: You can describe it that way (laughs). I would stick to my analogy of a courtship. As I told the participants in the WELT Economic Summit: You in Europe must develop an idea about what the future looks like. And I don’t mean just governments, but also businesses, academics and civil society. We want to know: What’s your vision?

WELT AM SONNTAG: Why is that so important?

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Hammond: The British people are genuinely having a discussion about where our future lies. Should it be closer to the USA or the EU? That was also important for me at the WELT Economic Summit: I wanted to make sure that people in Germany in particular and in Europe in general understand: At the moment we in Britain are hearing voices from the US saying “We welcome you, we want to be closer to you.” But we’re not hearing any voices with positive messages from Europe.

WELT AM SONNTAG: There could at least soon be an agreement on the two-year transition phase.

Hammond: Yes, we need it to give businesses the planning certainty they require, ideally before the March Council. But I am confident that will work.That is why we have deliberately and consciously accepted the EU’s suggestions on transition on current terms. That is the only way to get it done quickly and it needs to be done quickly.

WELT AM SONNTAG: Have you received any signals at all from Chancellor Merkel? There are rumours that she is not really in favour of a bespoke trade agreement which your government is seeking?

Hammond: There are a lot of rumours. My observation of Chancellor Merkel is that she is very pragmatic and that she is a problem solver. Of course the Chancellor has strong principles to which she feels very committed. And I wouldn’t expect her to take any risks which might undermine the European Union. But I think as we go into the negotiations of a future partnership, the German voice will be a pragmatic voice, seeking solutions and attempting to find ways around the problems.

WELT AM SONNTAG: We may not have a new Federal Government in place before April. Can you wait that long?

Hammond: Well, the government here in Germany is functioning. But we would obviously prefer that the German voice was being heard more loudly in this debate. The fact that there isn’t a full government in operation here in Berlin means that the voice of others is carrying more weight than it might otherwise do. Of course, when we move into the substantive talks about the future partnership, having a clear German government position will be vital.

WELT AM SONNTAG: Last year you said Britain might be forced to change its economic model if it received insufficient access to the European market. Does that still apply?

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Hammond: We’ve had an election in the UK in the meantime which made it very clear that the British people have no appetite for changing our economic model. Whatever people say, in practice they have a strong attachment to a European-style market economy, with strong social welfare, strong labour protection and strong environmental rules. All the things we take for granted. And I hope very much that our European neighbours will want to keep us close and ensure we retain a European approach across Europe.

WELT AM SONNTAG: What is then your vision for the post-Brexit UK, in say 2025? How will it compete?

Hammond: The principal reason why I campaigned to remain in the European Union is that I think that the UK economy would have benefitted from a completion of the Single Market in the services sector where the UK has a very strong position. But even without EU membership, our growth will be driven by the expansion in global trade in services and the tech industries. In the new industrial revolution, many UK companies and foreign companies based in the UK are leading. Big data, artificial intelligence, autonomous vehicles, genome analysis, synthetic biology: in many of the technology areas which will transform the way we live, companies based in the UK are leading.

WELT AM SONNTAG: Would the UK be willing to accept a free trade agreement with the EU that does not include services?

Hammond: I don’t think that’s realistic proposition for us. More than 80% of our economy is services. Services is the fastest growing area of global trade. And it is the area where we have our biggest comparative advantage. In our goods trade with the rest of the EU we have an annual deficit of 100 billion euros whilst we have a surplus of 40 billion euros in our trade in services. To enter into an agreement on goods with no agreement on services would be a very one-sided arrangement and I don’t think that could be attractive for us.

WELT AM SONNTAG: But what do you have to offer in return?

Hammond: That’s a very mercantilist question. (laughs) The benefits of trade accrue to both parties or it wouldn’t happen. The British consumer also benefits from a BMW sold in Britain because he gets a good car at a reasonable price. Things are no different with our services. We are world market leaders in financial, legal and other high-quality services and play a hugely important role in the competitiveness of European business. Every time European firms raise capital through the City of London and do so more cheaply than they could raise it elsewhere in Europe, that makes those businesses that little bit more competitive. Why should you cut yourself off from the world’s leading financial centre right on your doorstep and find yourself beholden to other centres like Hong Kong, Singapore, New York or Tokyo.