November 29, 2017 / 11:24 AM / 15 days ago

Breakingviews - UK plays weak hand badly in Brexit poker

By Neil Unmack

European Union's chief Brexit negotiator Michel Barnier attends the Berlin Security Conference on European Security and Defence in Berlin, Germany, November 29, 2017. REUTERS/Hannibal Hanschke - RC1947D63770

LONDON (Reuters Breakingviews) - Britain is playing a weak hand badly in the Brexit poker game. The country has reportedly bowed to European Union demands that it pay up to 100 billion euros when it leaves the bloc. The outcome of months of haggling shows the UK has a lot less leverage than it pretends.

Settling the Brexit bill, as the Financial Times reports the UK is ready to do, should have been the easy part. Anything else would increase the chances that it will exit in 2019 without a transition period or trade deal. Lost tax revenue could amount to 75-150 billion pounds by 2030, according to Breakingviews estimates.

The final bill, after deducting what the EU will owe Britain, is likely to be much lower – around 50 billion euros, according to the Financial Times. Even the gross figure of 100 billion euros would be covered within five years by the 350 million pounds a week that Brexiteers, such as Foreign Secretary Boris Johnson, promised would become available once Britain stops paying into the EU budget.

Yet Prime Minister Theresa May has taken eight months to bow to the inevitable. Pandering to the eurosceptic members of her Conservative party has wasted more than a quarter of the two years she has to negotiate an exit and has cost her goodwill. May has also shown EU negotiators that UK bravado – embodied by Johnson’s July remark that the bloc could “go whistle” for its money – can be easily ignored.

May’s hand may not get much better. Honouring its financial commitments could give the UK a brief transition period to plan its departure and sketch out a deal with its main trading partner. Yet the prospect of a “hard” Brexit will still loom if those talks founder. Negotiating a basic agreement for trade in goods, such as the EU’s recent pact with Canada, would be painful for the UK services sector, which makes up around four-fifths of the economy. A better deal would require Britain to abide by EU regulation and accept more immigration and budget payments – all red lines for May’s party. Having seen May fold once, EU negotiators will be quicker to call her bluff in the future.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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