3 Elephants in the EU Brexit Waiting Room

November 19, 2017 ProACT Sam Orgill

EU Brexit for Expats Blog

ProACT Sam Orgill bring you a Weekly View on EU Brexit for Expats

3 Elephants in the EU Brexit Waiting Room

The terms of EU Brexit is a 2 Stage process, whether the UK like it or not, the EU insist it is step by step. Therein lies the issues at the centre of the politics building to a crescendo for the unofficial December deadline for completing the first step.

The 1st step is to agree the financial settlement of the divorce between EU and UK. The EU want the UK to pay a lump sum for its existing financial commitments. This agreement will also cover visa and residency rights for expats.

The 2nd step is a new trading deal between UK and the EU. This will determine tariffs on imports and exports as opposed to the current free trade zone within the EU (and Norway, Iceland and Switzerland, who are not in the EU…)

Step 2 is easy, a majority voting decision. Step 1 is hard, with unanimous voting required to approve and this is at the heart of the debate. There are three elephants in the EU Brexit Room to be resolved before the first vote can succeed.

Step 1 - Financial Settlement

The financial cost of Brexit for the UK is the legal financial commitments for belonging to the EU club and for mainly two things: The unified EU law covering Social Insurance and Medical legislation. In addition there is communal funding of EU bureaucrat pensions.

By December the two parties want to agree the financial settlement at least in principle so they can move onto a new trade agreement. It is believed the two steps should be agreed by March 2018 to allow time for voting in the UK and EU of the EU Brexit agreement by the leaving date of 29/3/19.

There are 3 elephants in the room hindering an agreement on the financial settlement.

Elephant 1 – The EU needs to Raise Taxes

Brexit will mean the EU need to raise taxes – something they have failed to contemplate at this stage. The UK is the second largest contributor to the EU coffers. When the UK leave the EU has to address the issue of raising taxes from the remaining 27 member states, and this will fall largely on France and Germany. The EU have yet to face up to the budget and tax raising they need to do.

Elephant 2 – The UK need to Raise Taxes or Suffer as an Economy

The UK have a budget deficit and a need to raise taxes – in or out of the EU. They have a large government deficit and are committed to reducing it to zero by 2025. That means continued austerity and tax raising is needed by the UK government in their November budget next week. If the UK do try to raise taxes, the already weak minority government could fall.

If the UK abandon the plan to balance the books, the short term economic impact on international markets could plunge the UK into a recession and …. the already weak minority government could fall.

Elephant 3 – The Voting Requirements for Brexit

Politicians in the UK have to get the terms of Brexit agreement voted on and accepted by the UK parliament. With a minority government, and an opposition believing they can win a new general election, this is a perilous state of affairs. The UK government almost can’t win, and the EU know it.

To make matters worse the 1st Step on the financial agreement has to be voted on unanimously by all remaining 27 EU governments. Like the UK voting, this leaves the Brexit vote in the hands on minority interests.

The Irish could veto any financial deal to ensure they get the border deal they want with Northern Ireland. The Danish and Spanish might veto a deal over loss of fishing rights in UK waters. Any one of the 27 nations could stop an acceptable vote.

Hard Facts

The third elephant in the EU Brexit waiting room is of essence. The first financial settlement needs unanimous acceptance by 27 remaining EU states. The second step, the trade agreement between the UK and EU only requires a majority decision.

The first step is where the politics play. Germany doesn’t what to fund the EU. Nor does France. Ireland want a free trade border to Northern Ireland. Which country will want to pay more tax into the EU after the UK leave?

Which EU Bureaucrat wants a Brexit deal leading to budget cutbacks and losing his job?

The EU is a trade block, but aspires to be much more. It is not a club, nor only a trade bloc, it is a long term plan to create an EU federated state. Every EU law that gets passed and adopted into a member state’s law, means that power is transferred from that country to the EU commission. That is an issue at the heart of EU Brexit for the UK, it’s a reason the EU plays hard so not to lose the UK, nor allow others to consider moving away: Germany would not want to lose its EU trade surplus.

UK Budget

On November the 22nd the UK government set out its Budget for 2018, the tax and financial arrangements that will set the UK government’s position to March 29th 2019 and Brexit. If the Budget puts a foot wrong it could bring down the current government, and Brexit could fail. If the Budget is ok, it will get attacked by the UK politicians anyway for their own ends.

Then the UK government has to find an agreement with the EU bureaucrats, with different competing political demands.

Certainty for Expats

Expats will gain some certainty when the first step of the Brexit agreement is settled. It will include transition arrangements, residency rights, medical and social insurance arrangements, and workers’ rights. If this first step agreement is made by December 2017, Expats can then plan ahead in 2018 towards the impact of EU Brexit for Expats after leaving date 29/3/2019.

Food for Thought

Firstly the UK government need consider how to eat the three elephants in the EU Brexit waiting room. Theresa May’s government has allot to digest before they reach a Brexit agreement in the next 5 months. It could be they have almost too much to swallow in order to achieve an acceptable first financial settlement by December 2018. Food for thought indeed.

There is much more for Expats to Read more at our website www.proactpartnership.com

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