The EU’s chief negotiator, Michel “Barmie” Barnier, wants the UK to pay around €60 billion to the EU as part of a Brexit deal. That’s around six times our average net annual contribution from 2011 to 2015.
Former justice minister Dominic Raab put it best: “Good luck with that. I’m not sure Monsieur Barnier has quite mastered the art of expectation management, but it’s good to know he’s got a sense of humour.”
It’s not a completely ridiculous position though. If a sponsor of your favourite football team walks out on a three-year deal, there is a financial penalty. It probably shouldn’t be the full three-year amount as Barnier is arguing, but you get the idea.
You’d hope that both the sponsor and the football team thought things through at the beginning. They might’ve put in a relevant clause about all this in their original agreement. But this is the EU, so never mind.
Britain is supposedly on the hook for things like EU loan guarantees, budget commitments, pension liabilities and future EU projects in Britain. Three of those four sound suspicious to me, but this is the EU budget we’re talking about.
The key is that we already agreed to pay. But that agreement presumed we’d stay members. So whether the UK still has to pay the amount by law in the event of Brexit is a complete unknown. Believe it or not, the UK lawyers say no, the EU ones say yes. What a surprise.
What a bargain
But everyone is missing the point – €60 billion is cheap. It’s less than Italy’s budget deficit in 2014. It’s a mere 17% of Greece’s government debt. And around 0.13% of Deutsche Bank’s derivatives outstanding last year.
But how are those figures even relevant? It’s apples and oranges.
Except it isn’t.
Currently, the UK is on the hook for EU bailouts. Exactly how, how much, and when, is completely obfuscated by the EU law, which changes each time there is such a bailout anyway. But it’s clear that the EU would continue to contribute to bailouts of its member states from its budget. And that the UK should therefore do a runner.
Outside the EU, Europe will have far less leverage over Britain’s commitment to bail out other EU members. Back in 2015 it tried to pressure us into committing a billion pounds indirectly via the EU budget. The EU offered a guarantee to refund any losses.
Yes, the people needing bailouts guaranteed to repay the money. You can’t make this stuff up.
Back then the EU also tore up an agreement to limit the UK’s exposure to just such bailouts. You should keep this in mind when anyone says we are protected from such bailouts this time around.
Some portion of the bailouts from the European sovereign debt crisis came through the International Monetary Fund (IMF), which Britain is still beholden to under Brexit. And it’d be a tough pitch to avoid that after Britain benefited from the IMF only decades ago.
But outside the EU, any attempt to use British funds as part of the EU contribution wouldn’t work. Avoiding the European Financial Stabilisation Mechanism (EFSM) could be priceless. We avoided the European Stability Mechanism (ESM) last time around, saving a bundle.
Being outside the reach of the EU’s expensive acronyms is easily worth 60 billion euros. Especially if you take a look at the budget position of Greece and Italy.
Then there’s the bank bailouts. EU member states spent €1.6 trillion on bank bailouts between 2008 and 2012. Tim Price at the London Investment Alert is expecting another crisis soon. So is the famous investor George Soros.
UK banks featured prominently in bailouts last time around. Last year the Office for Budget Responsibility predicted our bank bailouts will cost UK taxpayers around £17 billion when the dust settles. The question is whether we want to be on the hook for Europe’s banks too, or just UK banks. Because when all hell breaks out in Europe, again, Europe will respond together again.
Tally up the price we might have to pay inside the EU for bank and sovereign crises and €60 billion is cheap.
If Brexiteers really do fear a hard Brexit, then €60 billion is one bargaining chip worth sacrificing. If they don’t, which they shouldn’t, then just leave without paying. The worst case scenario is that we’ll have to pay in the end anyway.
Incidentally, if net recipient countries of EU funds leave the union, I wonder if the EU would pay them the financial commitments the EU had made to those countries…
Europe is turning into a loony bin
I very rarely heard anyone compare the Brexit campaign to the campaign over adopting the euro. Brits were lucky they escaped the euro and its “one size fits all” monetary policy. But when the very same arguments played out again over EU membership, few saw the links.
Those links remain a great way to think about Brexit.
EU and eurozone membership are both about cooperation, trade, integration and many other good things. But cooperation, trade and integration with what exactly? Something better or worse than the alternatives?
The alternatives are trade with other countries that the EU has been stalling on, and British national policies where the EU used to rule.
During the campaign, only the Brexit camp argued on these terms. It explained that Britain could do better than the EU. That’s one reason Brexit won. The Bremainers would’ve had a hard time arguing our national politicians will do a worse job than the EU has. Instead, the Remain camp just promoted the fears of leaving and feel-good politics of staying. Patriotism trumped fear and good intentions. That’s not a surprise.
With the right policies, even the most ardent Bremainer could decide Brexit was a good idea.
We still haven’t really got much of an idea what the government has in store for us in the Brexit world. That’s a problem.
But the longer we wait, the more obvious it becomes how disastrous Europe really is.
We had to wait a long time to discover how the eurozone’s monetary policy led to booms and busts in member countries. At first the euro looked like a great success for Greece, for example. But it was a bubble financed by interest rates that were suitable for Germany, not Greece.
So how is the EU faring?
As every week goes by, it’s looking more ridiculous.
Take this week so far. The Dutch finance minister, and head of the Eurogroup finance ministers, Jeroen Dijsselbloem implicitly accused southern European countries of misappropriating funds:
During the crisis of the euro, the countries of the north have shown solidarity with the countries affected by the crisis.
As a Social Democrat, I attribute exceptional importance to solidarity. [But] you also have obligations.
You can not spend all the money on drinks and women and then ask for help.
This statement makes perfect sense given it was made to a German newspaper by a Dutchman. But Dijsselbloem forgot that others could read it too.
Dijsselbloem tried to paper over the political crisis by admitting that his own country had done the same thing…
Don’t be offended, it is not about one country but about all our countries. The Netherlands also failed a number of years ago to comply with what was agreed […]
Meanwhile, Turkey continues to hold Europe to ransom. President Recep Tayyip Erdogan wants Europe to stop meddling in his own referendum efforts. These would give him vastly more power, something Europe is opposed to. But Erdogan is the man holding back refugees from Europe. He’s threatening to release them a few thousand at a time until Europe yields.
Do you want to be part of this nonsense?
Until next time,
Nick Hubble
Editor, Capital & Conflict
Category: Brexit