The Financial Times provided an update on the state of the first item that the EU wants settled in the Brexit talks, that of the UK’s exit tab. The UK has been whinging that it wants to address the movement of people first, but it doesn’t have any more leverage on the shape of the table than it does on other issues.
The new story doesn’t change the high points of the EU’s position thus far on the Brexit settlement. The Europeans are still expected to start from €100 billion in gross liabilities, with the pink paper confirming that it’s now €99.6 billion. Recall that this was an increase from an earlier estimate of €86.4 billion in gross liabilities as some member states insisted that more items be added to the tally. That’s based on a 13% share of EU liabilities, which includes the rebate negotiated by Thatcher. That equates to what the European Commission says is €60.2 billion in net liabilities. How the gross and net are arrived at is beyond me. This is not net of “UK assets,” since the most generous estimate still puts that at under €10 billion. As the negotiations play out, I suspect we’ll learn a lot more about the gory details.
However, the piece does sort out which parts of the demand are on firm footing and which are likely to serve as trading chips. But the figures are confusing, since they are all larger than the €99.6 billion “gross” figure, and it’s not clear how the lower amounts were arrived at (that they are over time and were therefore discounted? Adding them up and multiplying them by 13% doesn’t get you there either. Anyone who has more insight please pipe up in comments). From the Financial Times:
The demands with the strongest legal backing are based on old commitments signed off in annual budget rounds, with the UK as a member. Those include Britain’s pension liabilities, as well as €251bn in budget commitments approved by the UK before 2019, known as reste à liquider.
An additional €133bn of promises Britain made to back projects are more contentious. These “structural fund” schemes are due to be provisioned for and paid only after Britain has left the union. The EU sees them as “legal commitments” that Britain must honour.
A third tier of demands was excluded from the original approach of Michel Barnier, the chief EU negotiator. Those cover annual EU spending that Britain would say the bloc can easily adjust post-Brexit. That includes €111bn of annual agricultural payments direct to farmers. Most contentious of all, it covers €87bn of other EU administrative and project costs, such as commissioners’ salaries and spending on borders. The EU side knows its argument regarding such areas is especially weak.
But given that the EU has a vastly stronger negotiating position, it’s not clear how much in concessions it will feel it has to give. And some members have targets that are likely more than the UK can stomach politically:
Perhaps more important for the EU, however, is another number. Its first priority is avoiding having to reopen the EU’s long-term budget for 2014-2020. Around €20bn in net payments for 2019 and 2020 would probably be enough to avoid a nasty EU fight over the current budget, pitting net contributors such as Germany and the Netherlands against beneficiaries such as Poland and Hungary.
But more funds would be needed to close a gap after 2020 (there is a big overhang of unpaid bills), making the EU’s discussions on its next seven-year budget much more fraught.
For that reason the EU is looking for Britain to cover at least its commitments under the long-term budget, including the reste à liquider commitments and structural fund promises. That would take the total to €64bn in gross terms and €40bn net. But while such figures would probably be enough for Brussels, they could prove deadly in Westminster.
Recall that €60 billion was bruited about earlier. One wonders if the other demands were added mainly to try to desensitize the UK negotiators and public to big numbers so they could swallow the level the EU needs. And we also have the fraught question of whether the UK will, as it has so far, not recognized that its downside is considerable and it really can’t afford to have no deal. In other words, the first two weeks of the negotiations may so set the tone for the entire affair as to determine its trajectory.