The EU needs our cash — if Theresa May is strong, we will get a good Brexit deal
“I AM equally clear that no deal for Britain is better than a bad deal for Britain.”
These were the ringing words of the Prime Minister in her well-received Lancaster House speech in January 2017.
They resonated around the chancelleries of Europe as a forthright statement of the British Government’s confidence in its negotiating position and made the point that wise negotiators have always insisted upon.
There must be a time at which it is better to agree nothing than to accept unfavourable terms.
Individuals buying houses know this, as do governments discussing international treaties.
It was also a declaration of strength. The European Union has depended upon the United Kingdom, not least for money.
In this context, as we leave, it is not the gross figure that matters for them but the net figure. Each year we contribute above the amount returned to our own shores, by about £10billion.
This goes to subsidise other member states often via so called “cohesion” funds used, for example, to build roads in Eastern European states, or through the Common Agricultural Policy to keep inefficient Continental farmers in business.
In the absence of our contribution, the EU would either have to ask the Germans for more or pay the Eastern Europeans less. These alternatives would be highly unpopular.
In Germany the last election result may have seen the two parties who lost the most votes between them remain in government — in a classic example of European democracy.
But the anti-European party, the Alternative For Germany, is now the main opposition and its support would increase if Brussels sent in a further bill to Berlin.
Similarly, the Eastern European nations are not eagerly complying with the whims and directions of Brussels.
Hungary and Poland are both quarrelling with the Commission, and the threat of losing funds would make them even less willing to bend their necks to the bureaucracy.
The structure of the EU’s budget makes the loss of our money particularly hard for it to bear.
There is a seven-year cycle, the multi- annual financial framework, in which expenditures are set and revenues determined.
As we will leave 21 months before the current framework ends, it would be chaotic for the EU.
Not paying any money is the default position if we leave without a deal, reinforcing Theresa May’s words.
At one point there was some debate over this and a few ill-informed people still think that we may have to pay regardless.
But a House of Lords report of March 2017, that has been unchallenged since, sets out why we would owe nothing under UK, international or EU law if we left without a deal.
Money is our strongest card but it is not our only one.
Once the UK has left the EU, we will become its largest customer.
We buy more from them than they do from us by about £100billion a year.
This is in our interest, theoretically, as it allows us access to well-made products that improve our standard of living.
But as goods from the rest of the world suffer from trade barriers, it is not necessarily the best value.
In the event that we were to leave with no deal, there are a number of trade options that we could take.
Under Article XXIV of the General Agreement on Tariffs and Trade, parties that are seeking a free trade agreement may “for a reasonable length of time”, defined as no more than ten years, follow an interim agreement which could be the current tariff arrangements.
If the EU did not like this then the UK could unilaterally cut all our tariffs on goods that we do not produce at no harm to domestic producers while cutting prices for consumers.
Free trade enriches countries that practise it, and once outside the EU we would have no possible reason to offer protection to inefficient Continental businesses.
Defence is another area of British strength. Not only do we meet the two per cent of GDP expenditure target set by Nato but after the US we are its biggest contributor.
The EU has ambitions to build up its own defence capability and is threatening to exclude us from everything other than “hi-tech projects that require elite British know-how”.
This is rather wonderful in its folly and arrogance. The UK has some of the best technology.
Why on earth would we share our top secrets with them if they sought to keep us out of the routine business?
Instead we can co-operate more closely with the US, the world leader in this field, leaving the EU even more dependent on Nato, which is the reverse of what it wants.
The UK has long had a great commitment to the defence of Europe and that will not change — but it could be done on our terms, not theirs.
The other crucial advantage that we have is the City of London, where it is rumoured that the Treasury wishes to give away our regulatory autonomy for some unspecified advantage in other areas.
This would be absurd. The City is not a mere regional European centre but a truly global one that is already being hamstrung by EU rules.
Leaving without a deal would allow better, saner regulation that understands financial services, meaning we would not even need to think about sacrificing this major interest.
Some faint-hearted, timorous souls, who mainly backed Remain, feel that reiterating “no deal is better than a bad deal” and that we could walk away while keeping our money, may upset our negotiating partners.
The matter is simple – they need our money.
It is about time they were upset, and we put pressure back on them. Managing decline and being fearful of shadows will not provide the best Brexit result and in the end the matter is simple.
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They need our money, especially between March 2019 and December 2020, and we would like a trade deal.
These two are umbilically linked and no one in their right mind would want to pay £39billion for nothing.
Thank goodness the Prime Minister is so clear, even if some of her colleagues are not.
- Jacob Rees-Mogg is a Conservative MP and chair of the European Research Group.