Brexit Institute News

Workshop on Brexit, the Financial Settlement and the Future of EU Finances

by Ian Cooper, Visiting Fellow at the DCU Brexit Institute. 

On November 23, the DCU Brexit Institute organized a workshop on the subject, “Brexit, the Financial Settlement and the Future of EU Finances.”

This was the third in a series of workshops addressing the three key issues of the first stage of the Brexit talks.  The previous two workshops were concerned with citizens’ rights (October 6) and the Irish border question (October 26).

Following words of welcome from John Doyle (Dean of the Faculty of Humanities and Social Sciences, DCU), the first keynote speech was introduced by Federico Fabbrini (Principal of DCU Brexit Institute).  The speaker was Baroness Falkner of Margravine, Chairwoman of the EU Financial Affairs Sub-Committee of the UK House of Lords.  She began by clarifying that, as the Chair of a Select Committee, she was officially non-partisan and should not be seen as representing her party, the Liberal Democrats.  But she also noted pointedly that she was the only one of 100 Liberal Democrat peers to have voted to trigger Article 50.  She says she did so because she believes it is the UK parliament’s duty to enact the decision of the referendum.

In the first part of her talk, Baroness Falkner discussed the EU budget in general terms, including many of the difficult issues that would have arisen even if the UK had not voted to leave the EU.  At this point in time, budget planners would already be gearing up to negotiate the next Multi-annual Financial Framework, which is always a long and challenging process.  This would be made more difficult by the current instability in many member states, that will make them want to prioritise domestic spending.  In addition, there are economic challenges that stem not only from the structural weaknesses of the Eurozone, but also more generally from technology, innovation and competition from China and the US.  Then on top of all that, the eventual absence of the UK will leave a 12% hole in the EU budget;  either the budget must shrink, or some other EU member states must pay more to fill the gap.

Then Baroness Margravine turned her focus on the financial settlement, which was the subject of her Committee’s report of March 2017.  The report’s surprising finding was that the EU treaties give no guidance as to how to settle the financial bill, leading them to conclude that the UK actually has no legal obligation to pay anything after leaving the EU. Nevertheless, her Committee recommended that the UK should honour its commitments and pay its obligations.  Even so, they found it impossible to deduce exactly what amount the UK ought to pay, coming up with figures ranging from 21 to 70 billion euro.  While she is pleased that the UK government has moved towards acceptance of the need to pay something, she is worried about dangerous inflexibility on the EU side, and that at some point the UK will be forced to either “capitulate” or leave without a deal.

A panel discussion followed, chaired by Colm Kelpie (Irish Independent)Anthony Foley (Dublin City University) began by setting out in detail the financial background of the UK contribution and the profound impact of Brexit on EU finances.  He said that the character of the future financial settlement varies on whether one understands Brexit to be more like a termination of membership (in which the remainder of the membership fees must be paid by the exiting party) or a divorce (in which assets should be divided between the parties). Michael Keating (University of Aberdeen) then analysed the effect of Brexit on the finances of the various devolved nations within the UK.  He showed that Scotland, Wales and Northern Ireland all receive significantly more per capita from the EU, in the form of Agricultural and Structural Funds, than either England or the UK average.  Thus Brexit will have huge distributional consequences within the UK.

Thilo Maurer (European Commission) discussed a Commission reflection paper on EU finances.  It is unfortunate that in the current EU budget, as a consequence of the UK rebate, every item of expenditure must be allocated to one country, even if the benefit is Europe-wide.  He hoped that after Brexit the EU budget could be expressed in non-zero-sum terms that place an emphasis on the provision of public goods with a European dimension, and the defense of EU values.  This hope was echoed by Kim Lane Scheppele (Princeton University), who argued that the EU should consider new sources of revenue that reflect European values. She compared the current EU budgetary practices to those in the early US under the Articles of Confederation, which were eventually cast off under the 1787 US Constitution in favour of revenue sources that were not attributable to any one state.  She recommended the adoption of a Corporate tax or a Financial Transactions tax that could be applied in a way that obscures the distinction between states that are net contributors and net beneficiaries.

The final keynote speaker was Mairead McGuinness, Irish MEP and first Vice President of the European Parliament, introduced by James Temple-Smithson (Director of the EP’s Information Office in Ireland).  Ms. McGuinness gave a wide-ranging talk on the state of the Brexit negotiations, including but not limited to the issue of the financial settlement.  She pointed out that the budget is a symbol of EU solidarity, with positive-sum effects.  She also acknowledged that the UK has always paid its fair share, and that Ireland has, until recently, been a net beneficiary.  She expressed hope that a financial settlement could be reached that all would regard as fair.  With respect to the future of Europe after Brexit, she recognized the need for long-term thinking about how to fund the EU-27.  The EP is a young parliament with no revenue-raising powers, and thus in the easy position of spending money that it doesn’t collect.  As the EP official responsible for dialogue with national parliaments, she sees the need for a serious inter-parliamentary dialogue about the EU budget.  Finally, with respect to Brexit, she expressed the hope that she would find “sufficient progress” in her Christmas stocking.