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28 October 2019

How Brexit would cost the EU

The UK’s departure would create a financial black hole that member states will struggle to fill.

By George Eaton

Brexit would leave the UK diminished – economically, politically and diplomatically. But it would also represent a loss to the EU. Never before has a member state left the union. Though the UK’s present woes serve as a cautionary tale, its departure would still set a grim precedent. The EU’s relentless expansion – from six members in 1957 to 28 today – would end. 

Britain’s withdrawal would also cost the EU in a more literal sense. At present, the UK is the second-largest net contributor to the union’s budget (after Germany), contributing £8.6bn in 2018, and the fifth largest on a per capita basis. Should Britain leave the EU, it will pay a “divorce bill” of around £38bn and continue to make payments of hundreds of millions of pounds a year until 2064 to cover pension liabilities. 

But Brexit would still create a financial black hole for the remaining 27 members to fill – a task they are now turning their attention to. Initial spending plans, reported by today’s Financial Times, suggest that Germany would face a 100 per cent increase in its gross payments from €15bn in 2020 to upwards of €33bn in 2027. The Netherlands, meanwhile, would see its net contribution rise by 50 per cent from under €5bn to €7.5bn, though it would still be surpassed by Germany as the largest per capita contributor. 

Earlier this month, Angela Merkel warned that her country would be “excessively burdened” by Brexit, adding that “we have to talk about fair burden-sharing on the financial side and a rebate for Germany”. As the UK sometimes forgets, other European countries have domestic concerns, too. An EU diplomat quoted by the FT warned: “When we plan our national budgets we will have to take away billions from healthcare and other national spending. There is no way our parliaments will accept this.”

The prospect of a Brexit black hole partly explains why the EU has kept alive the possibility that the UK may yet remain. For the third time since March 2019, Brussels has today agreed to extend the deadline for withdrawal from 31 October to 31 January. The EU may not expect the UK to remain but it undoubtedly hopes that it will. 

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The common supposition that the union is grateful to see the back of a recalcitrant member state is wrong. For most EU countries, Brexit is a matter of profound regret. 

The UK’s departure would not “settle” the European question, it would merely reframe it. The Remain campaign will be succeeded by “Rejoin”; the Leave campaign by “Stay Out”. Should the EU ever allow the UK to return there is much talk of the conditions that it would impose: membership of the euro and the Schengen Zone, the relinquishment of the UK’s budget rebate. 

Brussels would undoubtedly strike a tougher bargain – but for a clue as to why Britain may eventually be welcomed back, simply follow the money.