05 March 2017

Financial Times: Europe’s demands for cash before Brexit look legally shaky

The extent of Britain’s legal obligations is explored in a newly-published House of Lords committee report. The underlying argument is actually quite simple: when treaties fall away, it follows logically that the commitments attaching to them disappear also. For things to be otherwise requires an explicit agreement between those leaving and those who remain (if any).

Michel Barnier’s cash call was always contingent on the EU’s claim being legally well grounded Article 50 does not provide any provision for an ongoing obligation, let alone one requiring any payments. Quite the contrary, in fact. In its very brevity it points to departure being a clean break. The article says simply that two years after a member state notifies the bloc of its intention to leave, and in the absence of any agreement between them, the treaties fall away altogether.

The EU’s argument is in any case based heavily on its budgeting procedure, in which member states agree to cycles of spending years in advance. The fact that they consent unanimously is thought by Brussels to denote some inalienable commitment. Yet given that the EU has its own separate legal personality, it is hard to see why these liabilities have anything to do with those who cease to be members.

After all, the bloc is not some sort of partnership. Its employees work for the EU in its own right, and the organisation has its own spending commitments. According to Barney Reynolds, head of financial institutions at the law firm Shearman & Sterling: “It is essentially more analogous to a corporation, where the member states are akin to shareholders. The UK is departing and handing back its shares.”

Brexit Briefing Sign up to your daily email briefing Keep up to date with the latest developments on the UK’s exit from the EU Given all this, it is hard to see how Mr Barnier can in good conscience table his bill and demand its settlement as some sort of precondition. This presents a headache for the commission. Britain is one of the largest contributors, accounting in gross terms for roughly 10 per cent of the EU budget. In the absence of a deal, Brussels faces a steep spending cut. Passing the hat round other member states may lead to dissension — especially among eastern countries who have been promised that the UK’s share of cohesion funds is some sort of debt owed to them.

Negotiations on Article 50 have yet to start, but Mr Barnier’s public pursuit of an exit charge threatens to create an impossible situation. In the absence of a valid claim from the EU, there is a question of what, if anything, the UK should pay as part of its departure.[...]

Full article on Financial Times (subscription required)

House of Lords EU Committee: UK payments to EU budget could end but political consequences would be profound 

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