EU budget deficit intractable problem for Brexit

The departure of the UK from the Union will leave a deep hole in a rising EU budget

BRITISH Prime Minister Theresa May and her “Brexit” negotiating team need to embark on serious creative thinking. They need to persuade the European Union (EU) that trade  should be above politics.

The basic stumbling block is money. The EU’s spending commitments in the coming 12 months is already a whopping 158 billion euros ($216 bn), up 41 per cent in the past decade, latest official EU figures show.

Brexiteer politicians contend that the EU’s request for 40 billion euros, as a departure payment, is unreasonable; and that the reason for the demand is to discourage other member nations from leaving the union.

The real reason, however, is that the departure of the UK from the union in March 2019 will leave a deep hole in an EU budget which is increasing every year.

The key contributors to this budget are currently Germany, followed by the UK (estimated at 10-15 per cent), France, the Netherlands, Italy, Sweden and Belgium. Austria, Denmark, Finland and Luxembourg have also been small contributors.

Sixteen member-nations – headed by Poland, the Czech Republic, Romania, Greece, Hungary, Spain, Slovakia and Bulgaria – are beneficiaries of the budget.

A portion of the budget results from corruption and waste. But the vast bulk is the cost of rising infrastructure and other spending on the poorer and indebted nations such as Spain, Greece and Portugal. Moreover, the EU is encountering a growing refugee crisis from war-torn Middle East and north Africa. The nations with the biggest burdens are Italy and Greece.

EU negotiators have thus rejected Mrs May’s initial offer of 20 billion euros for the two years after March 2019. They need extra money to ward off further austerity, unemployment and national debt of stricken nations.

The EU’s claims include Britain’s prior agreements on infrastructure spending, pension liabilities, European institutions, following debt bailouts and other costs.

In a meeting with Mrs May a few days ago, EU Council President Donald Tusk said that the UK must show much more progress on the “divorce bill” and the Irish border by early next month. Mrs May said that “good progress” was being made, but more needed to be done.

French President Emmanuel Macron said that all the EU members agreed that key trade and other talks would not commence “until the divorce has been settled”.

The unenviable prospect for Mrs May, however, is to attempt to extract an agreement from her party and Parliament for a much higher payment at a time when national indebtedness is already 89 per cent of gross domestic product.

Both budget and balance of payment current accounts are in deficit; and the economy, especially the city’s financial sector and property market, is slowing down.

Consumers, already in debt, are experiencing accelerating inflation of 3 per cent; and imported food and other costs are rising following the pound’s devaluation.

Brexit-supporting Conservative MPs, headed by Cabinet ministers Boris Johnson, Michael Gove and former Tory leader Ian Duncan Smith, contended that the UK should walk away from negotiations if the EU refuses to discuss trade and other key economic variables in the coming December meeting.

Complicating the issue is that the UK also cannot leave the EU customs union without an accord regarding the border between Ireland and Britain’s Northern Ireland.

Irish premier Leo Varadkar said that he wanted binding guarantees that there would be no physical checks at the border after the UK leaves in March 2019. He dismissed verbal assurances that technological advances will ensure the continued free and safe movement of people.

“What we want to take off the table before talking about trade is the idea that there would be any hard border, physical border, or border resembling the past in Ireland,” said Mr Varadkar.

James Dyson, the successful inventor and entrepreneur, said that Britain should walk away from Brexit negotiations without paying anything towards the divorce bill. He maintained that EU negotiators would then come back to the table and accept a better compromise.

Critics of that view said that the uncertainty of such a move would cause market and economic downturns, and potential recession in both the UK and the rest of Europe.

Do you think that the negotiated €40 billion settlement is fair?  Comments are below.

(This article was first published in The Business Times, Singapore.

Neil is author of anti-war children’s novel Butterfly Battle- The Story of the Great Insect War. The updated 2015 Waterloo commemoration version of Butterfly Battle is on Kindle and e-books. Jack of Diamonds Neil’s thriller on global diamond mining and smuggling, will be published in coming weeks. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner. Book reviews are on and Amazon and more reviews are welcome. If the books are purchased direct on this site, a proportion of the proceeds will go to low cost charities.)

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