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Merkel: EU market access and freedom of movement inseparable

German Chancellor Angela Merkel has warned that Britain will not be able to access the EU single market if it refuses to accept the free movement of people. Her remarks foreshadowed tough Brexit talks.

At a meeting of German industry leaders and policymakers in Berlin on Thursday, German Chancellor Angela Merkel called Britain's vote to leave the EU a watershed moment for the EU, adding that "Brexit negotiations won't be easy." She insisted that full access to the internal EU market was conditioned on the freedom of movement, or else "each member state will start doing what it wants."

In the same vein, German Economy Minister Sigmar Gabriel said it was important to make clear that full access to the bloc's single market was ultimately linked to accepting freedom of movement. "But this should not prevent us from trying to keep the Britons as close as possible to Europe," Gabriel argued at the meeting.

Merkel promised industry there would be small tax cuts to the tune of over 6 billion euros ($6.7 billion) in 2017 which would also benefit middle-income people and with them small and medium-sized companies. She also promised more investments in the nation's infrastructure as tax revenues soared.

At the same time, the Chancellor defended Finance Minister Wolfgang Schäuble's policy of sticking to a balanced budget in the years ahead, noting there was no justification "to heap a bigger debt load on the generations to come."

Moderate growth

The president of the Federation of German Industry (BDI), Ulrich Grillo, was confident that Europe's powerhouse would stay on a path of moderate growth. The association raised its 2016 outlook, saying it now expected Germany's gross domestic product (GDP) to expand by 1.9 percent this year, up from a previous forecast of 1.7 percent.

"Additional jobs and strong wage increases in many sectors have resulted in a robust consumption climate in the country," Grillo said in his address.

But he noted there was room for improvement. He called on the government to significantly raise investment spending in light of the recent surge in tax revenues. Grillo said a lot more should be done to maintain the country's traffic infrastructure and modernize schools across the nation. He also pushed for a faster extension of broadband internet connections for entrepreneurs in rural areas.

Grillo reiterated his view that the integration of migrants into the labor market was still facing some major hurdles. The BDI chief specifically addressed the need to let migrants access the temporary employment market.

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Industrial orders up

Thursday's meeting came amid a fresh report by the National Statistics Office (Destatis) which said that German industrial firms recorded a sharp uptick in orders in August. Companies saw a 1-percent increase in demand compared with July.

Orders picked up at home, while there was also a 4.1-percent rise in demand from fellow eurozone countries, Destatis pointed out. By contrast, non-eurozone orders dropped by 2.8 percent in August month on month.

"Today's numbers bring some relief for German industry, but are still far too little to become overly optimistic," ING Diba analyst Carsten Brzeski said in a statement.

hg/jd (dpa, Reuters)

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