The Brexit bill, first big fight between London and Brussels
The activation of the exit process of the United Kingdom of the European Union opens two years of tedious and tangled negotiations that can stumble in any obstacle. And, as in many divorces, the couple will start fighting for the distribution of assets – and debts – for profit. The UK puts up about 12% of European budgets.
Although the agreement that can be reached on trade, financial markets or freedom of movement for workers is more important in the long term, Europeans put the ‘Brexit’ bill as the first obstacle.
European budgets are set at seven years – the current runs from 2014 to 2020 – and the EU also has longer payment commitments and longer-term loans, already committed – also by the British government as an EU member – but not yet paid.
Although from English nationalism since it said not to pay anything, the letter of Prime Minister Theresa May suggests that her government will meet its obligations. Even so, a report from the British Lords claims that the UK could leave the EU without paying a cent, a path London does not seem to want to explore and would break any bargain.
The bill will cost dearly to London. A report from the Bruegel study center in Brussels gives figures. It assures that the prime thing is to agree if the Brexit is legally like the annulment of the membership to a club or like a divorce. That and the methodology for the calculations will vary the final payment.
Taking these scenarios into account, the ‘Brexit’ bill could range from €25.4 billion to €65.1 billion, or 2.75% of British GDP. That would be the total cost for London, but the British government would actually have to face a payment of between 54.2 billion and 109 billion.
That high part of the fork would involve disbursing up to 4.6% of its economy in one payment. Then, depending on borrowing loans, the EU would repay between 28,800 and 43,900 million.
Half of that money, as the officials block has explained months ago, it is the British side of European budget commitments not yet fully implemented, one-third the expenses that will be made after the British exit but it was decided during the years in which the United Kingdom was part of the block. The rest would be to pay the pensions of British nationals who have worked in the European institutions.
Supporters of the Brexit used during the referendum campaign the argument that the British exit of the EU would cut its contribution to the block and they promised to commit 350 million pounds sterling every week to improve the public health system.
That number, like many other campaign promises, was false. The UK’s net annual contribution to the EU is about £7.9 billion a year, about £165 million a week.
That includes the ‘British check’, the repayment of part of its contribution that prime minister Margaret Thatcher of that time obtained in the 1980s because its country barely benefited from the large community funds, such as the financing of the common agricultural policy.
Theresa May’s letter to European Council President Donald Tusk says her government is willing to continue paying, but that “we will have to discuss how we have decided a fair agreement on the rights and obligations of the UK as an outgoing member, in accordance with the laws and in the spirit of partnership that the UK wants to maintain with the EU”.
The bill could be made even more expensive. London is a member of the European Investment Bank, an institution that has been expanding its activities to the rest of the world. If any of its creditors did not repay a loan, the shareholder countries would have to face jointly that default.