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Brexit: We Say Goodbye; They Say You'll Pay
Posted On April 18, 2017
Forget Wildenstein versus Wildenstein—Barnier versus May will be the costliest divorce ever.

The divorce proceedings between the U.K. and the European Union (EU) have finally reached the gloves-off stage, with former French foreign minister Michel Barnier leading the EU’s Brexit team and Prime Minister Theresa May leading the U.K.’s.

Despite European Council president Donald Tusk’s initial response to May’s March 29, 2017, nice-to-know-you-but-we’re-off letter, indications are that it’s more likely to be settled by arm-wrestling at dawn than by a sit-down session with a counselor. Tusk said negotiations would be difficult and warned of “damage control.”

German Member of Parliament (MEP) Detlef Seif accused May of a primitive blackmail attempt because she included a request that security matters be part of the upcoming negotiations. Security and defense are, arguably, the U.K.’s strongest cards as far as achieving a satisfactory—for Britain—outcome to the talks that should start in earnest in late May 2017.

The U.K.’s intelligence services are probably second only to those of the U.S. in their reach and capability. They also collaborate closely with U.S., Australian, Canadian, and New Zealander counterparts in the Five Eyes arrangement. In a Europe plagued by terrorism, security matters much.

The U.K.’s relative defense capability may not be what it was, but, in EU terms, it’s the most powerful force alongside that of France. The U.K. and France are the only serious military players in the EU. The rest, special forces aside, tend to do little more than aggressive camping. What leverage this will give the U.K. remains to be seen. Indeed, the overall Brexit picture is just that. No one knows what the outcome will be.

Signs are that the EU will want to deal with the principles of a U.K. withdrawal before getting down to the nitty-gritty of trade agreements, Anglo-EU cooperation in science and research, fishing and agricultural policies, etc.

It’s likely that the vexed issue of giving the right of residence to EU citizens living in the U.K. and their British counterparts in the EU will be one of the first items on the negotiation agenda. Other issues likely to be dealt with early are how the U.K. will disentangle itself politically from the EU and what form a future relationship will take.

‘A Free-ish Trade Deal’

Above all, the U.K. wants a trade deal to be agreed on as soon as possible, largely to provide confidence and certainty to U.K. businesses, and because May’s government is under pressure from British business to deliver a deal as close to free trade as possible.

The U.K. tends to view the EU as primarily a trade and business vehicle and has kept its distance from policies designed to further integration, such as the euro and the Schengen Agreement’s borderless movement zone. About 44% of U.K. goods and services exports—£240 billion (about $300 billion)—went to EU nations in 2016, according to Full Fact. Some 53% of goods and services—about £290 billion (about $363 billion)—imported by the U.K. were from EU countries.

Germany is an EU member with a lopsided trade relationship with the U.K. In 2015, it sold about £25 billion (about $31 billion) more to the U.K. than vice versa. Spain, France, and Belgium also sell more to the U.K. than vice versa. Given that Germany and France are the two biggest players in the EU, this may be significant inasmuch as businesses in those countries will probably want unfettered access to the U.K. and may pressure their governments into cutting a free-ish trade deal. Who knows?

Similar to any divorce, money will be high on the agenda. The Centre for European Reform (CER) calculates that the U.K. will have to agree to pay the EU up to €60 billion (about $64 billion) to settle outstanding commitments before any deal is signed. The bill includes financial liabilities that stretch into the distant future; for example, payments to cover the generous pensions drawn by EU officials, MEPs, and commissioners, plus the cost of shared assets such as satellites and EU buildings, according to the CER.

This has been contested by a financial affairs subcommittee in the House of Lords (the U.K.’s archaic and unelected upper chamber), which recently issued a report saying that the U.K. is not legally obliged to pay anything to the EU once exit negotiations are completed. It does acknowledge that individual EU states may litigate on their own account to force the U.K. to pay perceived compensation for leaving the club of 28. The report reckons that the U.K. pays about £19 billion (about $24 billion) into the EU budget, but gets rebates, leaving a net contribution of £10.4 billion (about $13 billion) in 2015. This is compared to “an average balance since 2010 of £9.1 billion a year.” The U.K. could make a counter-demand for payment in lieu of its share of EU assets; for example, buildings that it has helped pay for since it joined the European Economic Community in 1973. I don’t recall dancing in the streets on that day.

All seems set for a drawn-out ding-dong over money. The U.K. is the EU’s second biggest financial contributor after Germany. It’s unlikely that Angela Merkel, should she remain chancellor after September’s German elections, will allow the U.K. to slink off without dropping a few pfennigs in the Brussels piggy bank.

Possible Wild Cards

Of course, the joy of situations such as Brexit is their unexpected twists and turns. For example, the U.K. government wants to repeal a section of the 1972 European Communities Act and replace it with the Great Repeal Bill, essentially converting EU law into U.K. law. Critics have called this section the Henry VIII clause, as it allows changes to U.K. law without going through the process of primary legislation—which is rather similar to actions by the infamous Tudor.

Then there’s Gibraltar, a remnant of empire at the far southern end of Spain. This part of the British Overseas Territories pretty much runs its own affairs, and 99% of its population has voted to stay British. It was captured by an Anglo-Dutch naval force in 1704 during the War of the Spanish Succession—you in the back, wake up!—and was ceded in perpetuity to Great Britain in the 1713 Treaty of Utrecht. This irks Spain, although its membership in the EU has taken some of the sting out of a territorial dispute that has run for even longer than the Star Wars franchise.

May’s formal leaving letter made no mention of it. This prompted the EU to state that Gibraltar’s status post-Brexit would require talks between Spain and the U.K. Incredibly, this prompted some British tabloids (see this and this in The Sun) to talk about war with Spain should it try to get its manos on Gibraltar. Well, former prime minister David Cameron did say the risk of a European war would rise should the U.K. vote to leave the EU.

The BBC trotted out go-to-Spaniard Miriam González Durántez, wife of former deputy prime minister Nick Clegg, on a recent current affairs program to ask, How would the English like it if there was a tiny Spanish enclave on the tip of England? Actually, I would. Who could resist proper paella, cheap vino tinto, and advanced castanets-handling lessons? Count me in, Miriam.

No mention, of course, of two enclaves, Ceuta and Melilla, that Spain holds in Morocco. Trust me, there is more chance of Donald Trump becoming the face of L’Oréal than there is of a catapult being fired in anger over Gibraltar. 

John Charlton writes about technology, law, and education for several publications.

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