€40 billion not enough to unlock Brexit talks, say EU diplomats

The indication from London that it is willing to up its financial offer was welcomed by EU diplomats.

EU diplomats gave a cautious welcome Monday to reports that the U.K. is preparing an enhanced financial offer of €40 billion to unlock the Brexit negotiations — but said it would not be enough to move to phase 2 of the talks without a promise to push the offer further.

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The new figure, which has been widely reported but not officially announced by the U.K. government, would be a significant increase on Theresa May’s financial offer in her Florence speech in September, which amounted to roughly €20 billion. It was discussed Monday at a meeting of May’s “inner” Brexit cabinet.

The official EU line is that it will not negotiate via the media and is waiting for a concrete offer in the Brexit negotiations. “I have seen a lot of signals but this has been happening for a few months now, so it has to be concrete and on the table instead of in the press,” said Dutch Foreign Minister Halbe Zijlstra as he entered the General Affairs Council meeting in Brussels.

But speaking anonymously, EU diplomats are prepared to engage — characterizing the enhanced Brexit bill offer as a step forward but not enough.

“This €40 billion could make sense only if it’s a first step with an openness to discuss further [financial] commitments,” said a diplomat from a small EU country. “It could be enough to say, OK we are ready to move to phase 2, but only if it’s not the final figure.”

“For some countries, it could be enough but I don’t see France or Italy agreeing,” said another diplomat, from one of the larger EU countries.

A third diplomat from Central Europe said there was a will to move the process along: “Everyone is so desperate to move to the second stage that if this is not their final say, yes, it could be enough.” But the diplomat added that with the collapse of German coalition talks, the “process is going to be increasingly driven by Paris,” which is seen as having a more hardline than Berlin on Brexit.

The U.K. side is keen to avoid what happened after Florence, where Theresa May made the first public move with a speech she hoped would unlock the talks. The EU27 simply banked the offer and demanded more. This time, the U.K. is looking for assurances it will get some movement from the EU side before it goes out on a limb.

An offer of €40 billion would still be far short of some estimates of the U.K.’s liabilities based on its share of financial commitments the EU made during its four decades of membership. The EU is looking for a commitment from the U.K. not just to maintain its payments into the current EU budget up to 2020 — the offer made by May in Florence — but to cover its share of ongoing EU programs such as regional and overseas aid (known as the reste à liquider, or RAL), plus pension obligations accrued during Britain’s four decades as an EU member.

In testimony to the House of Commons Treasury select committee earlier this month, the U.K.’s former Ambassador to the EU Ivan Rogers described the generally agreed-upon, back-of-the-envelope math. The RAL amounts to roughly €240 billion and the U.K. share is roughly 12-13 percent — or a total, he said, of roughly €30 billion. The U.K.’s pension share would similarly be 12-13 percent of liabilities, currently pegged at about €70 billion, which equals €8.75 billion. That is on top of around €20 billion to cover the current budget up to 2020, so a total of close to €60 billion.

One thing that does appear to be flexible though, is the deadline for agreeing to up the offer on the money. The EU’s chief Brexit negotiator, Michel Barnier, said at the end of the sixth formal round of Brexit talks in Brussels earlier this month that the U.K. has until this Friday to improve its bid in order to achieve a decision of “sufficient progress” at the European Council summit in December.

But the diplomat from the large EU country argued the decision could go right down to the wire at the summit itself. “There’s no real deadline, [Theresa] May theoretically could also stand up during the European Council and announce something big that allows everybody to move forward,” the diplomat said. “We would have to work harder to quickly write the new mandate [for Barnier] but politically all is possible if it means moving ahead.”