It’s not uncommon for divorces to start with a lot of screaming and scheming. Brexit is certainly no exception.
Although you’ve been reading about the split for months, formal discussions between the EU and the U.K. on how to manage their separation only started last week. Immediately afterward, the EU’s top bureaucrat, Jean-Claude Juncker, let it be known he thinks Prime Minister Theresa May is “delusional,” while May fired back Wednesday that Juncker and others are deliberately using “threats” to influence the outcome of the election she has called for June 8.
How did things get so heated so quickly? In a word – money. At the risk of oversimplifying, at least some in the EU seem to put the final bill at over 100 billion euros ($109 billion), while at least some in the U.K. government argue that there’s nothing to pay, period. That leaves a lot of room for arguing.
The EU’s top Brexit negotiator, Michel Barnier, outlined Wednesday that he wants to agree to a “global settlement” on outstanding obligations before starting to talk about how the two sides will regulate trade, investment, and citizens’ rights after March 2019, when Britain formally withdraws from the union. May, by contrast, wants to talks about a future trade agreement to run in parallel with the talks on the divorce settlement, not least because business wants to know as soon as possible the terms on which it will be able to buy from and sell to Europe after 2019. Foreign investors, such as Wall Street banks like JPMorgan Chase, want to know whether it’s even worth staying in the U.K. after Brexit and are already preparing to move people from London to financial centers in other EU countries.
When the EU Commission in Brussels released its first thoughts on how to calculate the “Brexit Bill,” the gross liabilities added up to around 60 billion euros. That would cover its commitments under the EU’s seven-year budget period that runs through 2020, plus longer-running liabilities like pensions for EU officials and loan guarantees for infrastructure projects.
But according to the Financial Times, national governments in France, Germany, Poland, and elsewhere estimate a total gross liability of up to 113 billion euros. The member states have a vested interest in pumping up the number because they are the ones that will have to plug the hole in the EU’s budget after the U.K. leaves. The U.K. is the second-biggest net contributor to the EU budget, paying in roughly 12 billion euros a year more than it receives, according to U.K. parliament figures.
As the Brussels-based think tank Bruegel points out, the final figure will depend largely on whether the two sides frame the agreement as a divorce (where both sides divide the assets and liabilities) or the cancellation of a club membership (where the departing member gets a much less favorable deal).
Barnier, giving his first press conference in his new capacity Wednesday, refused to be drawn out on how much the EU would ultimately press for, saying that the figures “are still evolving.”
May, by contrast, was still fuming at the way Juncker had briefed the German press in highly unflattering terms after his meeting in Downing Street last week.
“In the last few days we have seen just how tough these talks are likely to be. Britain’s negotiating position in Europe has been misrepresented in the continental press, the European Commission’s negotiating stance has hardened, threats against Britain have been issued by European politicians and officials,” Reuters quoted her as saying. “All of these acts have been deliberately timed to affect the result of the general election.”
May called an election ostensibly to strengthen her hand in the Brexit negotiations, aiming to make sure that she couldn’t be held hostage by a small group of hardline Conservative lawmakers who want no compromise with the EU at all.
“Obviously, there is a lot of saber rattling at play,” said Carsten Brzeski, chief economist with ING-Diba in Frankfurt. “But the principle that countries outside the EU cannot have the same rights as EU member states seems to be one of the important red lines the EU has drawn and is not likely to give up any time soon.”