France and Germany back tougher approach to Britain’s departure obligations

3 hours ago by: Alex Barker in Brussels

The EU has raised its opening demand for Britain’s Brexit bill to an upfront gross payment of up to €100bn, according to Financial Times analysis of new stricter demands driven by France and Germany.

Following direct requests from several member states, EU negotiators have revised their calculations to maximise the liabilities Britain is asked to cover, including post-Brexit farm payments and EU administration fees in 2019 and 2020.

Although over coming decades Britain’s net bill would be lower than the €100bn upfront settlement, the more stringent approach to Britain’s outstanding obligations significantly increases the estimated €60bn charge mentioned by Jean-Claude Juncker, the European Commission president.

It also reflects the steadily hardening position of many EU member states, which have abandoned early reservations about the bill’s political risks to pile on demands that will help to plug a Brexit-related hole in the bloc’s common budget.

Paris and Warsaw have pushed for the inclusion of post-Brexit annual farm payments, while Berlin is against granting Britain a share of EU assets.

Estimates of the Brexit bill are highly variable because they include assumptions on Britain’s exit date, its proper share of contributions, UK receipts such as its budget rebate or EU investment spending, and the type of liabilities it is expected to honour. European diplomats consider this flexibility as helpful in reaching a deal. FT View One rotten dinner must not poison Brexit talks Britain and the EU should take a breath and bridge dangerous gaps

The hefty bill represents one of the biggest early obstacles to a smooth Brexit. To the alarm of the EU side, Theresa May bluntly rejected the notion of an exit bill at a recent dinner with Mr Juncker, saying any financial terms would be tied to securing a trade deal by 2019. On Tuesday, she promised to be a “bloody difficult woman” in talks.

On Wednesday morning, David Davis, the UK Brexit secretary, told ITV that the UK would “not be paying €100bn”.

Michel Barnier, the EU’s chief negotiator, has said no figure will be set until the end of the Brexit process and payments could be staggered. But he wants Britain to agree a methodology before trade talks can begin, including a definition of EU liabilities the UK would be expected to share. He will unveil a draft negotiating mandate, including the Brexit bill assumptions, on Wednesday.

As well as adding €10bn-€15bn of mainly farm-related payments, the commission’s tougher approach denies London a share of assets such as buildings. Significantly, it requires upfront payment for contingent guarantees and loans to countries such as Ukraine and Portugal, with Britain being reimbursed as the loans are repaid. FT’s Editor on the Brexit dinner leak

According to FT calculations, this brings the upfront gross settlement demand to €91bn-€113bn, depending on how Britain’s share is calculated. Over a decade or more, this would be reduced in net terms to €55bn-€75bn as Britain received its share of EU spending and repaid EU loans.

Using similar assumptions, the Bruegel think-tank estimates that Britain would make an upfront payment of €82bn-€109bn, which would net out to €42bn-€65bn over the long term. Compared with the FT and some commission officials, Bruegel uses a higher estimate of expected EU spending in the UK and a lower estimate of net pension liabilities.

Zsolt Darvas, a senior fellow at Bruegel, said the EU’s latest approach clearly represented “the most extensive possible liabilities for the net bill”.

“It requires the UK to make a large upfront payment that is even bigger than the long- term net bill,” he added.

The commission has never published its preferred methodology. But in early discussions with member states it took a more conservative view of UK liabilities. The FT previously calculated the figure to be €40bn-€60bn in net terms — a number that corresponds to Mr Barnier’s informal estimates shared with member states.

This gave Britain a share of EU assets, such as buildings, and included only what it sees as legally binding commitments to investment programmes, such as infrastructure projects in eastern Europe, running over multiple years. Read more After dinner, the knives come out over Brexit Leaks from meeting at Number 10 threaten to poison talks ahead

However, during recent private deliberations, France and Poland insisted that EU liabilities worth €183bn, covering annual farm subsidies and administrative costs, should also be added to the tally.

Diplomats say this is reflected in the EU’s negotiating guidelines, which refer to “a single financial settlement including issues resulting from the MFF [the EU’s long-term budget]”. Greece asked that the UK also honour political commitments it made to fund refugee programmes in Turkey.

At the request of France, Germany and several other member states, the commission also abandoned its initial plans to offer the UK a share of assets, worth between €3bn and €9bn, depending on the definition used.

On the issue of contingent liabilities, Mr Barnier’s negotiating mandate is expected to require upfront payment to cover loans or guarantees, which will be “returned in accordance with the maturity of the underlying loans”.

The European Investment Bank is excluded from the FT calculations. However, the EU is insisting Britain would have a claim only on its paid-in capital, rather than a share of the bank’s €63.5bn funds that Britain will demand.