British and EU diplomats privately acknowledge that a solution to Britain’s exit bill must come in part from a transitional arrangement, which would effectively continue the UK’s budget contributions.
This would cover the gap in the EU’s budget for the two years after Brexit, while allowing Britain to portray the payments as the cost of an implementation period to benefit business, rather than as debts.
Britain pays about £9 billion a year to the EU. Brussels is expected to demand a total net Brexit divorce payment in the region of £40 billion.
The EU needs the money the UK contributes to its budget. That’s more important that either the Irish border or the rights of its citizens. For the UK, tariff free access to the single market is at the top of its wish-list. Everything else is secondary.
If we ignore our emotional attachment to either side in the evolving negotiations and simply think about the actions of both parties from the negotiating tactics they are employing, perhaps we can come up with a better understanding of what is in fact going on.
The UK would appear to be following a feint, parry, riposte strategy. The position papers released over the last few weeks were the feint. They represent positions on issues that will need to be decided upon, but are not central to the negotiations. They were designed to show a willingness to negotiate but not capitulate to EU demands. Everyone knows that to have any sense of superiority in a negotiation one must be willing to walk away with nothing. By refusing to engage on the money issue the UK is none too subtly making the point it will not cede its central negotiating chip without extracting concessions.
The EU can’t walk away from the negotiations and they do not want to go through this process twice. That means they have to hold to their “the price is the price” negotiating strategy. Refusing to barter on price is the only way to come close to your price objective. The exorbitant figures thrown around at the outset of discussions might be thought of as opening levels to ensure the final price is as high as possible.
Switzerland does not have a monitored border with the EU and Ireland is not a Schengen country. Millions of people from all over the world live in the UK with no issue. These are not insurmountable issues to resolve, but making them seem so suits the UK’s negotiating strategy. Money remains the crux of the issue. I get the feeling more than a few people on both sides of the argument understand Warren Buffett’s maxim “price is what you pay, value is what you get”
It strikes me as logical to expect the tone of leaks, press releases and political statements to become progressively more emotive as October approaches. It would be unwise for the negotiating parties to do otherwise. Just think about it, if you were negotiating, you’d do the same. It’s in both parties’ interests to push as hard possible because to make concessions early would represent a weakness that could be exploited later. The big questions are going to require heads of state to sit down together to iron out, I don’t think it was ever going to be any different.
Meanwhile the Pound is extending its break lower against the Euro and becomes progressively more overextended in the short term. However, a clear upward dynamic is going to be required to check the slide.