All brace for a €60bn Brexit battle

epa05769177 British Prime Minister Theresa May (L) and British ambassador to the EU, Sir Tim Barrow (R) attend the informal meeting of EU heads of state or government in Valletta, Malta, 03 February 2017. The European Union (EU) leaders met on the migration situation, focusing on the Central Mediterranean route and Libya, and were to discuss the future of the EU after Brexit.  EPA/YVES HERMAN / POOL AFP OUT


Like many a divorce, the UK’s separation from Europe threatens to get bogged down over money. While the UK wants to focus straight away on building a post-European Union identity, for the EU the first order of business will be the 60 billion euros the bloc says Britain owes it.
Prime Minister Theresa May plans to formally trigger Brexit by the end of March, with parliament expected to pass the relevant legislation within the next few weeks. Negotiations will start soon after. That’s when May is likely to get presented with the EU’s final
A senior Brexit negotiator for the EU told me last week that the EU will be obliged to force Britain to meet its financial commitments; otherwise its own credibility would be undermined. Moreover, the EU will demand an early acknowledgment from May that she’s willing to pay the exit bill before the rest of the discussions can proceed, the negotiator said.
The EU says that Britain owes money for civil-service pension liabilities, projects already underway, loan guarantees and other unpaid budget commitments. While 60 billion euros is the top estimate, even the lowest figure I’ve seen mentioned by any EU official comes to 40 billion euros — about the same as total UK central government spending on education each year. That EU demand for money is bound to lead to an awkward conversation. One piece of propaganda used by the pro-Leave camp in the referendum campaign was the claim that Britain’s EU contributions could be diverted instead to the National Health Service. “We send the EU 350 million pounds a week,” was the slogan emblazoned on the side of a campaign bus. “Let’s fund our NHS instead.”
That implicit pledge of more money for the health service was swiftly abandoned once the referendum was over. That claim was always absurd; it didn’t take into account that Britain gets a rebate, which is applied straight away (or indeed any of a number of other EU payments that would stop).
Still, Brexiters are likely to kick up a fuss about the prospect of handing money over to leave the bloc. John Redwood, a Conservative member of parliament, said earlier this week that talk of the UK paying to leave the EU is “all nonsense.”
The departure bill isn’t the only obstacle the talks will have to surmount. The UK remains an EU member during the two years set aside for negotiating its exit, so in theory it can participate in setting rules and regulations that will apply the remaining member states after the UK’s departure. That arguably gives Britain an unfair advantage.
There’s also the UK’s desire to work now toward trade agreements with non-EU members. That’s a sensible approach to creating a post-Brexit mercantile environment, and one that the EU can probably support. But it will demand some finessing of the existing rules that bar EU members from making solo arrangements.
At the moment, the talk is tough. A British threat to turn the nation into a tax haven by cutting the levy on corporations has angered EU officials including Dutch Finance Minister Jeroen Dijsselbloem. In retaliation, EU negotiators are mulling “a clause in a future deal with the UK that would void all undertakings if London were to depart significantly from its current economic and social model,” the Brussels-based news service MLex reported on Friday.
It’s a reminder that the UK isn’t negotiating in a vacuum; each of the remaining EU 27 members has its own agenda, and some of those will conflict with British desires. “The hardliners are more numerous than it appears,” Mario Giro, Italy’s deputy foreign minister, told the Guardian newspaper in an interview published on Monday. “This will be an economic war. Let’s say an economic cold war, and we are not in favour of it.”
If the EU insists that May pays her way out of the bloc and May refuses, the talks could be over before they even begin. May said earlier this month that she’s “sure that no deal for Britain is better than a bad deal for Britain.” But the same may be true for the rest of the EU. And while it’s hard to envisage exactly what “no deal” would look like, it’s clear that an impasse would benefit neither side in the divorce.
Marine Le Pen could be France’s next president. Sure, her lead in some polls exaggerates her strength before the field narrows to two candidates — but voters’ discontent with normal politics isn’t subsiding. Failing to take the anti-immigrant, populist insurgent seriously would be a huge mistake.
For France’s sake, and Europe’s, Le Pen must be defeated. Her party’s blend of virulent xenophobia and economic statism makes Donald Trump seem moderate. But with her support still building, defeating her calls for more than a show of contempt. Her rivals need to understand why she’s so popular.
The National Front is no longer just a fringe movement of bigots and extremists. It is now a refuge for disenchanted working-class voters, the unemployed and young people unable to find their first jobs. In response to their concerns about terrorism, economic stagnation and joblessness, the party has an appealing list of scapegoats: immigrants, globalization and a corrupt establishment in Paris and Brussels.
Aping this message — as Republican candidate and former President Nicolas Sarkozy did during his unsuccessful primary campaign — won’t do. It’s wrong on the merits and bad tactics as well, because voters sense crass opportunism.
Lavish promises of handouts and action against greedy capitalists are no better. Socialist Party candidate Benoit Hamon promises a 750 euro monthly universal basic income, and a tax on job-stealing robots. This may appeal to some die-hard socialists, but most French voters know it’s unrealistic.
Unfortunately, the most promising anti-Le Pen platform is championed by Republican candidate Francois Fillon, who’s currently embroiled in a scandal. An avowed Thatcherite, Fillon offers something fresh, even radical, for France. His Socialist counterpart wants to reduce the workweek to 32 hours; Fillon wants to scrap the 35-hour workweek, raise the retirement age, reduce benefits, and ax 500,000 civil-service jobs.
He’s trying especially to attract moderates away from Le Pen, calling for caps on immigration and limits to social benefits for immigrants. He’s outspoken on confronting terrorism. Whereas Le Pen wants to take France out of the euro system, Fillon argues for reforming the European Union — by reducing the European Commission’s powers and better coordinating national fiscal policies. Most French voters are unimpressed with the EU right now, but don’t like Le Pen’s reckless remedies.
Thanks to the scandal, Fillon has lost ground to former economy minister and investment banker Emmanuel Macron, and has talked of dropping out. Macron’s center-left platform remains vague, but he too has championed the labor-market deregulation that France so badly needs, while calling for more public investment in technology, renewable energy and education. His platform needs work, but Macron, like Fillon, has something to offer those drawn by Le Pen’s promise of radical change.
The crucial thing for every candidate opposing Le Pen is to speak to the moderates among her supporters without surrendering to her bleak and dangerous vision. Deploring Trump and his supporters didn’t work in the United States. Deploring Brexit and its supporters didn’t work in the Britain. Le Pen’s opponents can’t say they weren’t warned.

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

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