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BERLIN (Reuters) - Petty politics pose the biggest threat to a good divorce deal between Britain and the European Union, Chancellor of the Exchequer Philip Hammond said on Tuesday, warning that a bad Brexit pact could harm the economic interests of both sides.
"I am confident that with the political will to put jobs and prosperity first we can achieve an early agreement on a transitional period," Hammond said at an economic summit of Chancellor Angela Merkel's conservatives in Berlin.
Hammond's political career came back from the brink after Prime Minister Theresa May lost her governing majority in the June 8 election, leaving her unable to carry out a reshuffle of her top team in which he was seen as the biggest likely casualty for appearing to favour a "soft" Brexit.
British business views Hammond as one of the senior ministers keenest on preserving trade ties with the EU and less focused on curbing immigration, and in his speech he stressed how much firms in Britain and Germany relied on each other.
But he also said there was a serious risk "that somehow we allow petty politics to interfere with economic logic, and we end up with a suboptimal solution that fails to maximise our mutual benefit."
However for many Europeans, the EU is a political project as much as an economic one, and free trade is only permissible alongside free movement of people - or uncontrolled immigration, from the British government's perspective.
Hammond sought to smooth over these concerns, saying Britain wanted to "manage" rather than "shut down" flows of migrants from the EU, and that EU countries had "reasonable concerns" about issues such as financial regulation after Brexit.
"Hard" Brexiteers want sweeping cuts in annual immigration and a complete break of Britain from EU structures.
Hammond also poked fun at Foreign Secretary Boris Johnson, whom many European politicians derided for saying Britain should be able to dodge painful tradeoffs when leaving the EU and be "pro-cake" as well as "pro-eating it".
Britain's Sunday Times newspaper said this week that some ministers see Hammond as a potential caretaker prime minister to lead Britain through Brexit if May is forced to step down.
In a sign of a change in tone since May's election debacle, the government will set up a new Brexit advisory group bringing together business leaders and top ministers to ensure major firms' views are taken into account in the process.
But it stops short of the regular access some business leaders enjoyed with May's predecessor, David Cameron, who favoured remaining in the EU but resigned a year ago after Britons voted narrowly in favour of leaving.
A spokeswoman for May said the government wanted business to avoid a "cliff edge" when Britain leaves the EU.
Writing by David Milliken; editing by Mark Heinrich