It’s starting to heat up in Brexit-land after 17 months of jockeying for position, and this month more than any month since June 2016 might indicate whether UK Prime Minister Theresa May’s critics are right or wrong.
Will Theresa May travel confidently to the European Union this week to explain what she expects to receive in exchange for offering a £40 billion divorce payment? Or will she arrive and meekly accept whatever crumbs fall from the EU master’s table?
The result will determine what Prime Minister Theresa May will be called for the rest of her political life — she’ll either be known as ‘Theresa the Brilliant’ or ‘Theresa the Appeaser’ — or worse variations of those two titles.
Why Would the UK Choose to Offer £40 billion to the EU?
Certainly, the UK has pension and other legitimate obligations to the European Union that must be covered in the post-Brexit timeframe, no one is disputing that.
Also important to this discussion is that the UK has been and remains the second-largest contributor to the EU budget and is thereby part owner with the European Union of many shared buildings and properties — like the EU Parliament building in Brussels, for instance. (Total UK equity in the EC/EEC/EU institutions and real estate could be as high as £9.65 billion, although it’s difficult to find agreement on the amount)
So the question becomes; What’s the UK paying for, when it offers apropos of nothing, £40 billion?
Clearly, it isn’t to cover the legitimate obligations of the UK post-Brexit which amount to £6.15 billion, nor does it factor-in the UK’s share of the EU’s institutional equity — some £9.65 billion worth of land, buildings, and other holdings.
Indeed, Germany (#1) and the UK (#2) have paid the largest share of the EC/EEC/EU’s operating budget since 1972, and in recent years the UK’s annual net payment to the EU has hovered around £8 billion.
British Taxpayers: “If £40 Billion Isn’t Enough, Then It’s a WTO Brexit, Prime Minister”
Therefore it would seem that the £40 billion offer to the EU isn’t to pay future obligations, but that PM Theresa May has decided to pay in advance for (a) a bespoke free trade agreement with the European Union, (b) a bespoke Northern Ireland border agreement, and (c) to clear every single miscellaneous issue so that Brexit can proceed quickly.
And if that’s the Prime Minister’s thinking, it seems sound logic although it could be seen by some pundits as an expensive way to go.
Q: “Could I Have a Nice and Clean Brexit?”
A: “That Will be £40 Billion, Please.”
If Prime Minister May gets a nice clean Brexit, the UK can then sign free trade agreements with most of the countries and trading blocs in the world, in addition to maintaining a healthy trading relationship with the European Union which accounts for 15% of all global trade.
In addition to that, such a bespoke Brexit payment should guarantee perfect cooperation on a soft border between the Republic of Ireland and Northern Ireland.
It should guarantee that the European Court of Justice won’t comment or interfere on UK matters, and it will simply become one of many global courts that UK judges consult when making precedent-setting rulings.
And because in the whole history of the world there has never been such an unprecedented £40 billion divorce payment, Prime Minister Theresa May and every subsequent UK Prime Minister should be entitled to the utmost respect in EU capitals until the year 2100.
It Sounds Expensive, But It Isn’t
Once the UK signs free trade agreements with China, with all of the UK’s Commonwealth partner nations, with the United States, and perhaps ASEAN nations, MERCOSUR, Russia and its CIS partners, African Union member nations, and with other free trade associations like the Pacific Alliance, the UK will dramatically ramp-up exports to more than five billion people around the world.
If the Prime Minister and her negotiators can sign reasonable free trade agreements with much of the world immediately post-Brexit, it means that instead of paying the EU a net annual payment of £8 billion — increased exports and other positive economic activity (such as increased tourism) will boost the UK economy by £10 to £20 billion annually.
Making Theresa May’s present plan look brilliant, in retrospect.
A Slight Lag, Followed by Economic Boom
Although the first year won’t show instant results, and it depends on the quantity and quality of those free trade agreements and upon how quickly UK exporters can respond to the changed market, as time rolls forward, paying £40 billion to the EU in order to gain a bespoke Brexit and Free Trade Agreement might seem like an exceptionally wise decision by Theresa May.
At the very least and to get the ball rolling in the first few days after Brexit, the United Kingdom could coordinate military procurement with other Commonwealth of Nations countries so that navy destroyers, frigates, coastal patrol craft and army tanks required by Commonwealth countries could be sourced from the United Kingdom. The bonus of such a plan is that through bulk purchasing power and common design parameters, such military equipment costs could be reduced for all member nations.
That plan has ‘instant success’ written all over it because there is a real need among those countries for new and used UK military equipment.
Either Theresa May is one of the brightest politicians of our century (paying £40 billion to get free of the EU more quickly and completely, and by obtaining a bespoke UK/EU free trade agreement) or she’s heading off to Brussels this week to accept whatever crumbs the EU mandarins toss her way.
As the entire country waits this week for the news reports, let’s hope she’s the former.
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I understand that both the EU and the UK government are considering a trade deal similar to CETA.
If so, that might lower the degree of uncertainty.
I hadn’t heard that, but it’s good news, IMHO.
At least it’s something to work from, a template for a final agreement, which to me (an organic trade agreement that is built on the shoulders of previous or similar agreements elsewhere) is more likely to come together in a coherent way than an agreement that is created from scratch.
Such ‘created from scratch’ agreements like the TPP, the TTIP, and others, set their sights very high (too high, IMHO) and then fail because they are too new, too complex, and try to be too many things to too many people and interests.
Basing the UK/EU trade agreement on a proven agreement like CETA makes a lot of sense to me — especially as I hope that trade between Canada and the UK booms in the post-Brexit era.
Logically, other Anglosphere countries could also sign onto such an agreement, shortly thereafter.
I appreciate your comments and links here, thanks so much!
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Prime Minister May has been in a very difficult position. Actually, a CETA type agreement would exceed my (low) expectations.
Yes, she’s been in a very difficult position and she hasn’t necessarily helped herself either.
Still, she’s larger-than-life and that’s the main requirement for a British Prime Minister (we still remember Winston Churchill and Margaret Thatcher, and those are big shoes to fill) and although a self-professed Remainer, she’s trying to deliver a decent Brexit complete with a robust trade deal with the EU.
On the main, I think she’s too EU-focused and she must be made to see that the EU represents only 15% of global trade, and she’s spending most of her time on the EU and an EU trade deal — in addition to Brexit which is also EU-related.
Most of the world IS NOT the EU.
But yes, a CETA type agreement with the EU, and with China, America, and all Commonwealth nations would be a good start.
Brexit can’t happen soon enough, IMHO, so that those things can get moving.
Every day until Brexit completes is another wasted day for the UK, the Commonwealth and Britain’s future trade deal partners.
As always, thanks for the comments and best regards, JBS
BTW, John, I am untested in posting comments regarding the long term future of the UK economy. Where exactly should I post? I was looking at the archived posts regarding the economy.
I’m going to install a Forum page soon, maybe over the Holidays.
I’m hoping that will be a good place for anyone to write about UK or Commonwealth related topics.
Thanks for your patience in the meantime!
Cheers always! JBS