Is the EU broke without our money ?

The following little nugget about the Multiannual Financial Framework (MFF) mentioned by no other than Jacob Rees-Mogg in his podcast  – http://bit.ly/2pdWQLz,  but here is the comment that intrigued me:

“For the 21 months remaining of the multiannual financial framework, the EU is bust. It has no legal ability to borrow, and neither do the Germans want to pay more or the Poles wish to receive less.”

This somewhat throw away comment, but it got me thinking.

If the Brexit negotiations are completed by March 2019 for the remaining time after that EU will be broke without our money – and don’t forget we were a fairly large contributor the last time this happened.

When crunch time comes will the EU really have to consider how they want to treat the UK as we leave the EU. The Commission will want the UK’s money – but let’s be honest most governments like more money. The EU still wants our money but we should not want to hand it over too quickly.

In 12 months time, the EU negotiators will be in a bind. Negotiating with the UK, that wants frictionless access to the single market, not to mention pressures from the City to retain passporting for its financial services.

However, the EU is hamstrung by other EU nations stating that they will not contribute more to the EU budget and most importantly Ireland not wanting a border on the mainland. The UK may have time on their side to bring the EU to a budgetary brink and avoid overpaying on the divorce bill.

With a backdrop President Trump talking about tariffs. How does it look to the rest of the world the EU has pushed tariffs on goods coming in from Britain. They would lose some of their credibility when they complain of others doing it to them. As I said in my last post, if free trade is advantageous, then it is not only advantageous within the EU it is advantageous to trade with the world.

Could we see a shut down of the EU? Similar to what happens in Washington when budgets cannot be passed. We have not seen it happen in the history of the EU yet. This situation would reflect badly on the EU. Something that they would want to avoid…..tick-tock.

The EU could bridge the gap by cutting costs, this will not be popular with the EU commission or bureaucrats as it lessens both their power and prestige. Although the Germans along with more fiscally prudent partners will prefer this option. Those on the receiving end of the budget will no doubt prefer to have richer countries contribute more ensuring that they get the same payments to which they have become accustomed. The electorate across Europe have been overwhelmingly been voting for eurosceptic parties.  It’s going to be difficult to convince such countries to send more money to the EU, especially when bashing the EU has been profitable to parties such as AfD (Alternative for Germany),  Lega Nord (Northern League – Italy), FPO (Freedom Party of Austria). Whoever is in power in these countries will be well aware of this broad (beyond left and right) feeling of resentment towards the EU.

Another option that could raise revenues is by levelling fines on companies that trade within the EU. In case you think this is a far-fetched idea,  just have look at the following graph which shows how large the recent Google fine is compared to other countries contributions to the EU.

This is not good fiscal policy in the long run for the EU. But for the UK if we are nimble enough, this is an opportunity for us being outside of the EU jurisdiction, companies could base themselves here in the UK knowing that they are next to a very large European market. Another option for European companies would be to base themselves in the UK knowing that they would be free of some of the impositions of the EU and outside of it customs area too. The UK could well be used as a base for European companies to trade outside of the EU with greater ease. We could position ourselves as the Singapore of Europe if there was the political will to do so.

With the mantra of the negotiations being “Nothing is agreed until everything is agreed”, UK negotiators to play the long game of chicken to the very end. Withholding money to the last moment will allow it to be in the strongest bargaining position.

First posted on stopflyingtheflag.com

  2 comments for “Is the EU broke without our money ?

  1. Paul Marks
    Mar 22, 2018 at 8:55 pm

    We should stop paying the European Union money (any money) right now – after all the referendum for independence was two years ago, there has been a “two year transition”. There should certainly not be another 40 Billion Pounds thrown at it – as the government has offered.

    “But the European Union will go bankrupt” – GOOD.

  2. Ken Ferguson
    Mar 27, 2018 at 4:00 am

    Excellent article,

    The Brexit negotiation from the UK side has been pusillanimous. We should have triggered Article 50 then waited for the EU to respond saying nothing except that we were leaving and would be stopping the financial contribution.

    Of course we want free trade with everybody but if the EU responded to the above with tariffs they would understand that the consequences for them would not be good.

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