Realist, not conformist analysis of the latest financial, business and political news

The £39 Billion Isn’t A Debt Nor A Bill, It’s An Aspiration

The business pages in The Telegraph have managed to get this wrong. Both Ambrose Evans Pritchard and Jeremy Warner are muttering about damage to Britain’s reputation, even our debt rating, if we don’t meekly cough up the £39 billion divorce bill to the European Union. This isn’t how such matters work, not at all how the creditor, debtor, relationship does work.

Do recall what the claim is. That we’ve agreed to pay certain bills as a result of our membership of the European Union. In the past we said that we’d cough up for future pensions of those who work as federasts. We’d stick some money into the pot to pay for the southern Italian Mafia. We would help build motorways in Slovenia. Shrug, OK, we did.

That doesn’t mean that we then just hand over a cheque for whatever is demanded if we decide we’re not going to sign up for the next set of spending plans.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Refusing to pay the £39bn Brexit bill is not a default, but Boris Johnson should stake out higher ground[/perfectpullquote]

Sure, it’s not a default. We’re arguing over how much the bill is. And we’re also – if we’re being sensible – discussing how much we get back in assets we’ve already paid for. Entirely reasonable calculations say that the net bill is in fact zero, possibly even in our favour. OK, that depends upon what we call reasonable but there are certain parts of the EU bill that are unreasonable. Like calling in a cash payment now for guarantees which may or may not be called upon in future.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Britain would be unwise to ruin its perfect record on sovereign debt by defaulting on the EU divorce bill[/perfectpullquote]

We should still suggest default though. For threatening not to pay a bill is often enough the only way to be able to negotiate that bill.

And then there’s one more point here. Do we want to be known as patsies for evermore? Then we should be rather altering our negotiating strategy here. The price to be paid is something decided after everything else is agreed. We don’t agree to spend £40,000 on a car and then allow the salesman to decide whether we get a nice new Ford or that old Yugo he’s got around the back. The price is something dependent upon what sort of car we’re going to get.

Sure, that bill for past commitments doesn’t in fact depend upon our continued membership of the EU. That’s the whole basis of the claim that we owe it – we already promised. But that’s never how you negotiate. The price is the last thing on the table, not the first.

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ian parkinson
ian parkinson
4 years ago

A default is a failure to perform. Given the debate here is what are the obligations there is no default. The UK has offered to put this to international (i.e. not EU governed) arbitration which is a perfectly sensible way to determine what those obligations are – until that is done the word “Default” is just wrong.

Quentin Vole
Quentin Vole
4 years ago
Reply to  ian parkinson

And if we go down that route, the EU will get nothing for several years (if not decades) until the court issues its determination – almost certainly somewhere between the €4 billion (that both parties agree upon) and €40 billion (which is the EU’s gold-plated estimate). But in the meantime, who will fund the drinks cabinet of the new Commission President? (I imagine they’re likely to be a bit less thirsty than Druncker, but still …)

Rhoda Klapp
Rhoda Klapp
4 years ago

Please explain to this Oxfordshire housewife how much money and credit we have in the EIB, and whether we can get it back, based as it seems to be on dodgy loans.

ian parkinson
ian parkinson
4 years ago
Reply to  Rhoda Klapp

The EIB loan book is ok. Working from my somewhat faulty memory
– we put 3bn into the bank as capital
– the bank has made profits over the years and these were kept in the bank rather than distributed to shareholders, the UK share of the retained earnings is c6bn
– the UK has a very strong argument that they should receive this 9bn
– the UK negotiators have offered to gift the 6bn of profits to the other shareholders for no obvious reason

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