Brexit Has Hidden Costs
Although the majority of people in Britain voted to leave the European Union, they may have left a few bills unpaid. Or at least that’s according to a new report from Brussels. (Source: “EU Seeks €20 Billion Brexit Divorce Settlement,” Zero Hedge, October 13, 2016.)
EU officials are now saying that projects approved while Britain was still a member should be honored both in spirit and in substance. That means they want Britain to cough up their share of the funding for these projects, some of which Britain won’t even get to take advantage of.
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Nonetheless, the member states of the EU don’t think it would be fair to simply let Britain off the hook. By their estimation, commitment to these projects was ironclad. Britain can’t simply abandon €200.0 billion in outstanding payments for projects that were decided on before the referendum.
Whether the projects were for building satellites, fisheries agreements, or pensions, the other members of the EU approved them based on a shared interest. They did not anticipate Britain’s departure—nor did most analysts for that matter.
The fact that EU officials want Britain to honor its €20.0 billion share in these projects cuts to an important issue in Europe; namely, the increasing tension between the U.K. and mainland countries.
Aside from the €200.0 billion in outstanding payments, there is also €300.0 billion in shared liabilities, €56.0 billion for contingent liabilities, and €21.4 billion in loan guarantees.
The contingent liabilities are politically explosive because they could potentially be used as “rescue funds” for Italy or Portugal. The EU had raised this cash when periphery nations started getting buried under the mountain of debt they had racked up. In order to salvage the ruins of their economies, the EU was forced to draw up several bailout packages.
Larger countries like Britain put aside funds in case those countries brushed up against insolvency once more. However, analysts expect a strong political backlash if Britain’s portion of those funds is used, especially since Britain voted to leave the EU.
Since these issues will likely be resolved in political negotiations, the strict legality of “who owes what” is not binding. Political leverage and compromise will determine whether or not Britain actually does pay its outstanding €20.0-billion tab.
