Could the U.K. withhold the £38bn Brexit divorce bill — more properly called the “financial settlement” — it has agreed to pay the EU? And could doing so really help renegotiate the EU withdrawal agreement that has been rejected three times by the House of Commons?
The intriguing possibility raised by prime-ministerial candidate Boris Johnson in a Daily Telegraph interview has been met in the EU with incredulity, indifference or outrage, depending on one’s views of the Brexit process. But an adviser to French President Emmanuel Macron went a bit further and told Reuters that the Johnson suggestion, if it saw the light of day, would be considered as a “sovereign default”.
Those are big words, and the Macron adviser, if indeed he used them, is obviously no lawyer. But he is still on to something.
Default it may not be, but withholding payments agreed through a valid international agreement would indeed open the U.K. to a string of lawsuits that may take years, and end up with the country paying much more than Theresa May’s government originally agreed on.
If, that is, there is an international agreement. And for now there is nothing of the sort.
The headline amount of the divorce bill results from a “joint report” that the EU and U.K. issued after agreeing back in 2017 on the liabilities London should still carry after leaving the union, because of previous financial commitments binding the U.K. government. But it has no legal standing for now.
The joint report has been included in the withdrawal agreement, but it would only be in force once the overall deal has been approved by both the U.K. and European parliaments.
The second reason the Macron adviser is wrong is that even if the divorce bill had legal standing, a change of mind in London wouldn’t be akin to a “sovereign default”. A government unable to pay back a bond goes into default, interest rates shoot up, creditors must agree a course of action, and the legal aspects are handled under whichever system the bond issuer chose when it borrowed the money.
But the specters of Greece or Argentina needn’t haunt the City. A fit of temper by a future U.K. prime minister over what to pay the EU wouldn’t trigger an immediate meeting of all the country’s creditors, or a debt restructuring under IMF monitoring.
The question here is not legal, it is political.
The principles of the Brexit financial settlement were agreed without much furor on either side back in 2017, and in its most recent estimate last March, the U.K. government assessed the bill at a net £37.8bn. Reopening the case, to quote Johnson, as a “lubricant” to get a better overall deal would certainly spook markets and throw doubts on the future government’s intentions.
The EU side is already standing firm so far on its official line that the withdrawal agreement cannot be renegotiated. Would Brussels change its mind under the elusive threat of losing collectively a few dozen billion euros over the years?
That is unlikely, if only because the EU could then try to recoup the money by legal means. The real court battle would be over the liabilities that the U.K. should be responsible for after it leaves. It is a sovereign government in London that agreed to take part in the EU’s multiyear budget until the end of 2020, and to contribute to the pensions of EU civil servants. Refusing to make good on these firm commitments would indeed put the U.K. at risk of international lawsuits.
That is not, by the way, a quarrel that would be adjudicated by the European Courts that the U.K. no longer wants to be part of, but more likely by the International Court of Justice in The Hague. Talk about lubricating the post-Brexit EU-UK relationship.
In the scenario of a no-deal Brexit, however, London will have a choice. By definition, the agreement on the Brexit bill will become void if the withdrawal agreement isn’t ratified. So London can then either decide it wants to renegotiate what had been agreed between the two sides, or go ahead and abide by Theresa May’s pledge to avoid legal and financial uncertainty on that thorny question.
But if that is what Johnson had in mind, he was merely stating the obvious.