Sam Hill, Senior UK Economist at RBC Capital Markets shares his views on the main elements of the potential financial settlement between the UK and EU that will form part of the Brexit negotiations.
Now that the UK has formally notified the EU of its intention to terminate membership, by triggering Article 50, the negotiations can begin. The EU has made it clear that its stance will be that talks on a successor UK/EU free-trade deal will only come once ‘sufficient progress’ has been made with the so-called divorce negotiations. To stress an important point, in other words, there are effectively two Brexit negotiations, one to serve the objective of extricating the UK from its current relationship as a member of the EU, and a second to establish the terms for its new future dealings with the EU from after the time Brexit takes effect. The EU’s position is that these two negotiations must come in this order, whereas the UK would prefer the two to run concurrently.
Effectively this means that in-depth discussion of the ‘divorce bill’, the cost associated with winding up the UK’s membership of the EU, is likely to come sooner rather than later in the Brexit proceedings. Although many press reports mention the prospect of the EU presenting the UK with a ‘divorce bill’ of €60bn, it remains to be seen exactly at what size the demand will be set. Equally, we do not know what the UK government’s opening position will be on the financial settlement.
Our research report on the topic attempts to introduce some of the relevant details of EU finances, so that Brexit-watching readers feel better equipped to follow the forthcoming negotiations with an understanding of how any so-called ‘divorce bill’ might be determined.