Debate Over Brexit Fee: Would Nonpayment Constitute Default? Who Owes Whom?

-edited

Round and round we go. After more than two years the UK and EU are still debating Brexit breakup fees.

On March 29, 2017, the UK filed Article 50, triggering an exit process from the EU, but the UK is still trapped.

Theresa May negotiated such a poor deal that the British Parliament would not accept it. Yet, there is no support for the default legal position which is a No Deal (WTO Deal) Brexit.

Theresa May did manage to get two extensions, the latest one expires October 31.

May's is now gone and a leadership vote is in progress. Boris Johnson, the heavy favorite has pledged to not pay the Brexit breakup fee of £39 billion (about $50 billion).

France Says Not Paying Would Constitute Default

“Not honoring your payment obligations is a failure of international commitments equivalent to a sovereign debt default, whose consequences are well known,” a source close to French President Emmanuel Macron told Reuters.

Unwise to Default Says Telegraph

Telegraph writer Jeremy Warner says Britain Would be Unwise to Ruin its Perfect Record on Sovereign Debt by Defaulting on the EU Divorce Bill.

Britain is the only one time dominant power that has consistently honoured the terms of its government debt. Germany, France and China have all been serial defaulters, and even the mighty US has reneged on the terms of its debt on occasions.

What, then, to make of Boris Johnson’s comments on the EU divorce settlement? The Tory Party leadership frontrunner has threatened not to pay the agreed £39bn unless he wins a better deal, or to be more precise - the script keeps changing - he has said that he would withhold “at least half” this sum until a satisfactory free trade deal is concluded.

This would of course not be the same as defaulting on sovereign debt, but it would arguably amount to reneging on the country’s international obligations, so might reasonably be thought of as much the same thing.  It is therefore not a threat to be made lightly.

Higher Ground

Telegraph writer Ambrose Evans-Pritchard says Refusing to pay the £39bn Brexit bill is not a default, but Boris Johnson should stake out higher ground.

Who Owes Whom?

In 2017, Lawyers for Britain made the legal case We Don’t Owe the EU Any Money.

We do not owe the EU any money as a Brexit divorce bill. That is the conclusion that Martin Howe QC, Chairman of Lawyers for Britain, and Charlie Elphicke MP have come to after an exhaustive analysis (click to download full report) of the claims the EU Commission sent to the British Government in June. The Government would, therefore, be right to stand firm and not be blackmailed into a multi-billion pound divorce bill. Particularly as it transpires that the legal position is that the EU owes us €10 billion.

The EU’s main claim appears to be that the UK is obliged to contribute to the EU’s budget for a period of roughly two years after withdrawal. This claim is without merit as a matter of international law. The EU’s “Own Resources Decision” and its “Multiannual Financial Framework” are legally subordinate to the EU treaties. They have no binding force in law independently of the treaties. Therefore they cease to impose any legal obligation on the date when the Treaties themselves cease to apply to the UK – on March 29, 2019.

The EU’s second claim relates to the large deficit of its staff pension scheme. The UK could not be liable for a share of that without having a claim on a corresponding share of EU assets. Yet there is no general practice in international law of States making or receiving balancing payments representing the net assets or liabilities of an international organisation when they join or withdraw. No such balancing payments were made when Member States joined the EU. It is therefore difficult to see any credible basis upon which the UK is obliged to make any net payment when it leaves.

The European Investment Bank (EIB) is in a rather different position. Member States have paid up capital to this organisation, and that capital stands in its books. There is a compelling argument that the UK, on EU exit, is entitled to the return of its paid up capital and to a corresponding share of the accumulated reserves of the EIB. This amounts to about €10 billion.

Certainly Not Default

Regardless of who owes whom, if the UK refuses to pay, it certainly would not constitute default.

The rating agencies would not label it a default and there are no bonds or interest in play.

Macron's position is ludicrous.

How Much?

£15.9 billion of the £39 pertains to EU budget contributions for 2019 and 2020. A portion of the liability has already depleted.

Warner cautions "Watch out for any politician who says they have negotiated the sum down."

Also watch out for the EU suddenly agreeing to lower the bill as a matter of goodwill.

Honorable Silliness

Pritchard wants Johnson to pursue the higher ground. What a hoot.

The EU openly admitted a desire to trap the UK into a permanent customs union and Pritchard is worried about matters of honor.

Moreover, and as Theresa May proved countless times, giving int to the EU never gets a positive result.

Will the EU return the good will?

Hell no. So why bother?

Agreeing to pay £39 billion that a fool negotiated is silly. Only by making £39 negotiable can Johnson possibly get anything in return.

The UK is in this mess precisely because Theresa May is a piss poor negotiator who gave away the farm for nothing in return.

Brazen Liars

The EU is nothing but a brazen pack of liars. And Theresa May was in bed with the lot of them.

I cannot emphasize that point enough: Let's Discuss Brexit (and How the EU Bragged, on Film, About Screwing the UK)

Please click for a shocking (if you have not seen it yet) video.

No Honor in Being a Fool

Telegraph writers Pritchard and Warner have lost their minds.

There is no honor or high road in being the EU's fool.

Mike "Mish" Shedlock

Comments (14)
No. 1-9
Bam_Man
Bam_Man

Evans-Pritchard has evidently become an EU lickspittle who does not want to be dragged to "Room 101".

Menaquinone
Menaquinone

I see no prenup and no international law.

Coolraine
Coolraine

I say leave and don't pay.. I want to see the brexiteers faces when the EU refuses to negotiate until the UK pays what it has signed up to pay.. fun times ahead...

leicestersq
leicestersq

A lot of the 'bill' is due to a large pensions deficit in the scheme for overpaid bureaucrats.

If the EU had told the voters in the Brexit vote about this deficit, then I think that we in the UK would have some moral obligation to pay it when leaving. But they didnt tell us about it in order to send voters to the ballot box with incomplete information. After all only fools and insiders would have voted remain if the true costs of EU governance were laid bare. Because they didnt tell us about it, I have no moral qualms in walking away from it.

Stuki
Stuki

As in all contracts, the maximal extent of individuals even possibly bound by them; are those whose voluntarily rendered signatures are found on the loan papers in the first place. Which adds up to, perhaps, at most a few tens to hundreds of specific Britons. The EU just may have some cause to come after them. While leaving the rest of Britons, who haven't signed diddly squat, alone.

avidremainer
avidremainer

On a point of fact, the UK defaulted on its sovereign debt to the USA in the early 1930s. This caused endless problems for FDR in his attempts to support Britain prior to the US's entry to WWII- hence the Lend-Lease program. US legislators did not trust Churchill or Britain to keep their word. It is dangerous to prey in aid anyone who writes for the Daily Telegraph.

Blacklisted
Blacklisted

Maybe Trump knows that a higher dollar and higher rates is what blows up the current system, due to all the foreign entities sitting on high levels of dollar-based debts. A lower dollar and rates delays the reset, which is why the IMF has been lobbying the Fed to cut (it has nothing to do with the economy and data).

If the economic reset occurs after 2022 in the US, Trump and more anti-establishment candidates have a better chance to win, which means there is a MUCH better chance of our Constitution surviving (after the reset).

It should be obvious that Trump's hands have been more than tied - just look at the audacity of the "intelligence " cabal and the rest of the establishment in CONgress, MIC, and the press to conspire against his election and presidency, which will be laid bare soon enough and will contribute to the collapse in confidence.

Since you do NOT know his intentions, you should stop injecting opinion (like more liquidity is going to push gold higher), and at least put forth both sides and show pros and cons, noting the obvious corrupt influences of the establishment that Trump is combating. You see it with Brexit, why not with Trump?

AndrewUK
AndrewUK

The simple fact is there isn't a basis for the EU demanding a 'divorce payment'. It is blackmail pure and simple. The EU has 'legal personality' so spending commitments it enters into are its responsibility not the member states. Also the EU is financed via 'own resources' as set out in the treaties and as Lawyers for Britain point out this is subservient to the treaties and has no legal basis outside the treaties. But the whole debate and comments from idiots like Macron show the EU for what it is - I would rather deal with the Mob who at least are more honest and honourable.

Quatloo
Quatloo

What ever happened to “nothing is agreed until everything is agreed”? No deal was ever agreed to with the EU, so no default can occur.

Even if that weren’t true (it is), Contract Law 101 says you need consideration on both sides to have a deal. The UK gives up the money in exchange for what? Without a legally binding commitment from the EU there is no consideration.

Anyone who thinks there is a legally binding commitment to pay the EU 39B just doesn’t know what they are talking about.