One issue above all others is looming over the future of the Brexit talks: money.
This week’s European Council meeting had been billed as a crunch summit: would negotiations be given the green light to advance to future relations between the UK and the EU? But the lack of suspense has been clear for some time: the reply not just from the Commission but from other government leaders is non, nein, no.
The “deadlock” – in Michel Barnier’s words – is because the EU believes the UK has not made “sufficient progress” on the key issues: citizens’ rights, the Irish border, and above all – the exit bill. London, meanwhile, won’t commit to pay more until the EU agrees to discuss future trade and transitional arrangements.
What has the UK offered?
In her speech in Florence in September, Prime Minister Theresa May acknowledged that Brexit was causing “uncertainty for the remaining member states and their taxpayers over the EU budget”.
She made an offer implying that the UK would continue to pay into the EU budget until the end of the current cycle in 2020. This was taken to amount to two years’ net contributions for 2019 and 2020, a total of around 20 billion euros.
“I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave. The UK will honour commitments we have made during the period of our membership,” May said.
The prime minister then referred to future “specific policies and programmes” the UK would want to take part in, citing science, education, culture and security. “We would want to make an ongoing contribution to cover our fair share of the costs involved,” she said, referring to her Lancaster House speech in January where she made a similar pledge, with the proviso that “this will be for us to decide” and the days of “huge sums… vast contributions” to the EU were over.
The Florence speech was hailed as constructive and conciliatory, and the UK government hoped it would help push the Brexit negotiations forward. Sources have suggested that May believes she needs something in return before she can offer more concessions.
In our negotiations for our new partnership with the EU, we’ve made considerable progress on the issues that matter pic.twitter.com/dbqDz1WmaP— Exiting the EU Dept (@DExEUgov) October 10, 2017
What is the EU demanding?
The Commission set out the EU’s position before the negotiations got underway. It believes the UK should honour its share of all financial commitments made by the EU during British membership. In return the EU agrees the UK should continue to receive EU funding for the duration of programmes.
Estimates have varied as to the size of the UK’s “bill”, some as high as 75 billion euros or more. But for the EU it’s not so much about sums as principles. It has not presented an official figure – much depends on interpretation – but it does want more commitment over specific programmes, and argues that a methodology for calculating the settlement must be agreed.
Most of the demands concern the current EU budget period from 2014-2020. The bulk of this consists of commitments to future spending, not yet paid out (the total for the EU at the end of 2016 was 239 billion euros). A significant amount also covers allocations to specific programmes, for example on the economy, employment, agriculture and migration.
Other liabilities include the pension scheme for EU employees: like the UK’s civil service pension scheme this is unfunded, with costs covered by the EU budget as they arise.
The EU also expects the UK to settle matters outside the budget: for example, to cover costs relating to relocating EU agencies from Britain, and to return the UK’s shareholdings in the European Investment Bank. The UK is also called upon to contribute to specific funds, such as a programme for refugees in Turkey.
Brussels proposes that the UK’s share of financial commitments be calculated along the lines of its current contributions, taking account of its rebate, and payable in euros. Estimates put this at around 12-13 percent.
Why is there such a row?
The EU has been irritated that the British government has not put forward a position paper on the financial settlement, unlike in many other areas. The UK however has preferred to challenge the EU’s demands one by one. Both sides agree on one thing: that they disagree on the extent of the UK’s legal obligation to pay up.
The UK’s payments represent a significant proportion of the EU’s overall budget: Britain is one of the largest net contributors. Without British money, a major hole would be blown in EU funding. All the EU27 countries have an interest in the UK paying up: the likes of France and Germany because they would otherwise risk contributing more, and poorer countries because they want to continue receiving funds.
A typical EU view is that the British have only offered around a third of what they owe. The European Parliament President, Antonio Tajani, has described the 20 billion euros inferred from Theresa May’s Florence speech as “peanuts”. Officials argue that despite the speech, the UK has put nothing on the negotiating table.
The UK government believes the prime minister offered a significant olive branch to the EU, which deserved a move in return towards unblocking the talks. Her government, weakened after June’s election, is under pressure from pro-Brexit hardliners who strongly oppose further concessions, with some saying the UK should be ready to walk out of the talks altogether.
Any signs the deadlock may be broken?
Despite Michel Barnier’s assessment that the talks are stuck, he and others have reportedly argued that EU leaders should give the Commission a mandate to move negotiations onto trade. A recommendation from EU Council president Donald Tusk that preparations begin for future trade and transition talks was seen as an encouraging sign.
However Germany – backed up by France – is said to have dug in on insisting that the UK’s exit bill be settled before talks can move on. Although Angela Merkel’s government has spoken of wanting to keep strong post-Brexit ties – and UK Brexiteers have cited the importance of British markets to German business – Berlin has repeatedly taken a firm line.
Germany has long argued that concessions to the UK might jeopardise the EU’s Single Market and possibly the very existence of the union. However, behind the scenes officials have reportedly been giving positive signals about the talks.
All the signs are that the crucial date concerning the future of the negotiations is the next EU summit in December. Meanwhile, as the Brexit clock keeps ticking, the political and economic pressure for a decisive move is reaching new levels of intensity.