In Germany's New Finance Minister, Hammond Has a Brexit Ally

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As the U.K. seeks Brexit allies in Europe, Germany’s new finance minister may be one of its best bets.

Photographer: Krisztian Bocsi/Bloomberg

Olaf Scholz, a former mayor of Hamburg, has a history of trying to keep British-European ties intact, including back-channel diplomacy with David Cameron a few months before the Brexit referendum in 2016. After Britons voted to leave the European Union, Scholz cited Elton John’s tune “Friends Never Say Goodbye” as an expression of his stance.

Hailing from Germany’s biggest port city, whose British trade links date back to the Middle Ages, Scholz is an Anglophile among the 27 European finance chiefs dealing with Brexit. While he’s unlikely to budge on Germany’s red lines, his outlook set the tone for his first meeting with U.K. Chancellor of the Exchequer Philip Hammond in Berlin on Monday.

“Hammond and Scholz want the British government to change its course to seek a soft Brexit,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said in an interview. They’re united by the goal of trying to keep the U.K. in the EU’s common market and customs union, Kirkegaard said.

Spillover Risk?

Scholz views the risk of Brexit spillover as diminished and is more concerned about the obstacles posed by political grandstanding, according to a person familiar with his views. His goal is to steer Brexit talks toward technical solutions that ultimately lock in close economic relations, the person said.

It’s a contrast with his predecessor, Wolfgang Schaeuble, who famously warned Britain that “in is in and out is out,” a reflection of early concern that a preferential trade deal for the U.K. might encourage other EU countries to leave and seek the same. Even so, German policy makers, including Chancellor Angela Merkel, consistently reject the notion of punishing the U.K. for Brexit.

Scholz, 59, has an opportunity to wield influence as the U.K.’s divorce talks hit a critical juncture. His goals include enlisting the U.K. to help avert a global race to the bottom on corporate taxes after President Donald Trump announced plans to cut U.S. rates.

A Finance Ministry spokesman said Scholz wants to ensure the closest possible EU-U.K. relations. He declined to comment on the minister’s detailed policy plans.

Read more: How Merkel and Scholz tried to romance Cameron in 2016

Scholz’s ties with U.K. politics include his involvement with Policy Network, a group founded by Peter Mandelson, a former cabinet minister and confidant of former Prime Minister Tony Blair. Scholz credits the group with helping develop a minimum-wage plan that he proposed when he became labor minister in Merkel’s first coalition in 2007.

For Scholz, Brexit also hits close to home. Hamburg, Germany’s second-biggest city and home to an Airbus SE plant, does more trade with the U.K. than Germany does with some EU countries. More than 1,000 companies have business ties with the U.K. in the former Hanseatic League city, which often is dubbed Germany’s most British metropolis.

British-European ties are so important to Scholz that he invited Cameron and Merkel to an annual festive banquet in Hamburg as mayor in February 2016, four months before the Brexit referendum.

In an ultimately futile bid to influence the vote, he proposed an alternative to Cameron’s call for a four-year U.K. exemption from social-welfare payments to EU migrants, which Scholz viewed as a non-starter. Instead, he suggested starting payments only after migrants had worked in Britain for a year.

Scholz, who’s also vice chancellor in Merkel’s fourth term, has to watch his back with his Social Democratic Party, whose inclination to help out the U.K. is limited.

“We expect that the new finance minister will maintain the government’s position that the unity of the EU is more important than the fate of one individual country,” said Johannes Kahrs, a budget committee lawmaker with the SPD.

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