Lots of media huffing/puffing about the way the early stages of the #Brexit negotiations are unfolding, with menacing noises emerging from EU HQ:

The UK must pay for an exit ticket! Pay LOTS! And if it doesn’t agree to pay, no talks on the future deal. Maybe no deal!

It’s enough to make you Dizzy:

A few months ago, on March 4, you may recall that a House of Lords subcommittee, chaired by a Lib Dem Remainer, published a report stating that the legal position of the UK not paying anything was strong, and that there was no legal obligation for the UK to pay a single penny. This was based, among other things, on the fact that that the treaties themselves, and the Article 50 process, makes no mention of financial commitments upon exit.

That report further argued that while walking away without paying would not necessarily be desirable, it said that any payment made would be a political gesture, not a legal requirement.

The following weekend it was reported that legal opinion circulating in Whitehall had confirmed the House of Lords’ position that the UK did not legally have to pay anything and went further, stating that the EU actually held £9 billion in the ECB that belonged to the UK that it was legally obliged to pay back.

Reasonable people can and will argue about how far a member of a club is expected to pay future dues on leaving the club. For now one notes only that in the EU club member states agree to pay their membership dues in seven-year cycles, with the EU Budget for each cycle agreed well before it starts and each member state having a maximum possible contribution within that spending total. Plenty on how all that works on this website, including here on the 2013 Budget deal.

So if a member state leaves within that seven-year cycle what should it pay? Options include:

  • contributions for only what has been spent by the EU by the date it leaves
  • contributions for what has been spent and for projects agreed by the EU by the date it leaves
  • its full allocation for the current seven-year cycle
  • all that plus lots more for separate commitments to the EU officials’ bulging pension pot
  • all that plus lots more

Plenty of wiggle-room within this for a deal. A lot of money is at stake, but HMG have already planned and budgeted around spending something like the full EU allocation over the current seven-year EU budget cycle, so it’s scarcely a tragedy if one way or the other a lot of that money does end up in Brussels.

NB that this discussion is in principle distinct from the quite separate issue of how far if at all the UK outside the EU should pay into a shared pot with the remaining EU to fund initiatives that everyone agrees are Good Things (eg supporting democracy in Ukraine, or joint development work in Africa). Yet as we here all know, “nothing is linked – but everything is linked”.

This takes us neatly to the core thing to understand about the Brexit negotiations. Namely this.

The options for the UK/EU relationship after Brexit boil down as follows:

  • Nothing drastic changes in substance – result presented as nothing drastic changes
  • Nothing drastic changes in substance – result presented as a major change
  • Serious changes in substance – result presented as nothing much changes
  • Serious changes in substance – result presented as serious/drastic change

This matters. Why?

Because everyone opining on whatever noises emerge in London, Brussels and other EU capitals need to think carefully: are those noises really about Substance, or about Presentation?

What do both sides (very crudely defining HMG in London v EU/Brussels as the two sides) in fact want?

Something that LOOKS and FEELS different but is in substance quite like what we have now while wearing different legal trousers? The UK and EU/Brussels continue to work as close trading and security partners as part of the wider European family, but on a new different legal basis. Something like EU/Switzerland Plus or EU/Norway Plus?

Or something that is in substance and legal effect very different? The UK has a positive, busy arms-length relationship with EU/Brussels but as a firm friend, not as a family member. Something like (say) EU/Canada?

Ot is there a hybrid option? Not too much change for now, but moving on an agreed basis towards a very different relationship in (say) ten years’ time?

Thus the problem for London. There’s far less disruption if not too much changes for the time being. But if not too much changes for the time being, why bother with Brexit at all? Won’t there be enormous weary hassle, lost opportunity costs and embarrassing uncertainty even for fairly little change in substance?

Thus too it makes sense for Brussels to talk tough, to present the costs to a member state of leaving the EU as intolerable so as to bludgeon any other would-be Leavers into sullen submission. But that needs some fine calibration. Plenty of EU capitals are uneasy about their own voters and so not want to set a precedent for a brutal Leave deal in case they want one too in years to come.

Against all that, if we pesky Brits want Something Completely Different, what exactly do we want to be Different? Trade? Migration? ECJ jurisdiction? Fishing? Security? Airlines? Whatever happens, none of these things are going to stop dead, once and for all. What differences that make sense do we propose, and what are we prepared to pay or forego to achieve those Differences?

Good questions. The Brexit referendum never answered them. It might even be argued that it scarcely posed them coherently. For that stupid situation David Cameron has a lot to answer for.

Wait!

But isn’t the UK in a weak bargaining position one way or the other? Can’t the EU set a high price of its own choosing for our exit ticket? How far can the UK insist to the point of being bloody-minded on, well, anything much?

Let’s just remember that beyond the vainglorious bibulous noises of Jean-Claude Juncker at EU HQ lie some pretty big realities. One of which is that the UK’s GDP is about the same as the GDPs of Malta, Cyprus, Estonia, Latvia, Lithuania, Slovenia, Croatia, Bulgaria, Luxembourg, Slovakia, Hungary, Romania, Czech Republic, Greece, Portugal, Finland, Ireland, Denmark and Austria COMBINED.

In other words, there are many EU governments who like the sound of talking tough but who do not really want too much disruption for their exports and investments and other relationships.

Yes, the EU Budget is a big deal over a seven-year cycle. Yes, the UK’s contribution to the EU Budget is a lot of taxpayers’ cash. But when those numbers are compared to other numbers involved in EU-wide trading and investment, they start to look pretty small to everyone with a brain.

In short?

Lets wait and see what HMG come up with after the summer break.