by Mish

Bloomberg reports U.K. Threatens to Quit Brexit Talks If It Faces Massive Bill.

"The U.K. will quit Brexit talks unless the European Union drops its demands of a divorce payment of 100 billion euros ($112 billion), Brexit Secretary David Davis said

Britain’s negotiations on leaving the EU would otherwise be plunged into “chaos,” and even a 1 billion-pound settlement would be “a lot of money,” Davis said in an interview published in the Sunday Times.

The size of Britain’s exit bill, and which types of negotiations can begin before it has been agreed, has been a source of debate for weeks.

European Commission President Jean-Claude Juncker has said the U.K. will have to pay about 50 billion pounds, while Luxembourg’s Prime Minister Xavier Bettel has signaled a figure between 40 billion euros and 60 billion euros. The Financial Times estimated the cost could balloon to 100 billion euros, while a study by the Institute of Chartered Accountants in England and Wales put the cost at as little as 5 billion pounds ($6.5 billion).

“We don’t need to just look like we can walk away, we need to be able to walk away,” Davis said. “Under the circumstances, if that was necessary, we would be in a position to do it.”

Brexit Talks Could Collapse Over UK Divorce Bill

The Guardian reports Brexit talks could collapse over UK divorce bill, says EU negotiator

The EU’s chief Brexit negotiator, Michel Barnier, fears the refusal of member states to soften their demands over the size of Britain’s “divorce bill” could lead to a collapse in talks and the UK crashing out of the EU without a deal, minutes of a meeting of the European commission reveal.

Barnier has told the commission president, Jean-Claude Juncker, and other senior officials that the stakes are so high because Berlin and Paris are refusing to pay more to cover the UK’s departure, while those governments who receive the most from EU funds are opposed to any cuts in spending.

“Mr. Barnier considered that this issue would doubtless be one of the most difficult in the negotiation,” the minutes of a top-level meeting held earlier this month note.

“However, should there be no agreement on this point, he believed that the risk of failing to reach an agreement on an orderly withdrawal of the United Kingdom would become real, since none of the 27 member states wished to contribute more to the current multi-annual financial framework or receive less in projects financed under the framework.”

As positions have hardened on the continent, with estimates of the size of the bill now reaching as much as €100bn, Juncker noted that Theresa May appeared to be softening up the British public for failure to strike a deal."

EU is Shocked, Shocked by the UK’s Stance on Brexit

Eurointelligence confirms things I stated long ago: The UK is able and willing to walk away, the UK is not Greece, and the EU nannycrats still have not figured this out.

Via email from Eurointelligence.

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"EU is Shocked, Shocked by the UK’s Stance on Brexit

We have argued for some time that the main risk to the entire Brexit process is a source of cognitive dissonance on the part of the EU, which has a long history of misjudging UK politics. [Mish comment: Actually Eurointelligence has repeated numerous times it expects a deal.]

The Guardian [above story] has a wonderful story about a memo detailing a Commission meeting that includes an exchange between Michel Barnier and Jean-Claude Juncker. Barnier said he detected a growing readiness by the UK to pull out without a deal – something they both seem to have discounted before. And Barnier makes another important point: the reason why the Brexit bill has become such a serious issue is related to internal EU politics: Germany and France are steadfastly refusing to put any new money into the EU’s budget, while the net recipient member states will not accept lower disbursements. This is why the Brexit bill has been ratcheted up.

[Commenting on the Guardian article, Eurointelligence continued]

We find this story very revealing. We recall that people laughed at Theresa May’s Brexit-means-Brexit pledge, only to find out later that it was an accurate, albeit incomplete, pledge. We feel the same goes for the “better-no-deal-than-a-bad-deal” pledge. They really mean it, and the EU is right to factor this into their own negotiating stance. There is a history of misjudgment: the EU did not see the Brexit referendum coming. It did not factor in any probability of a Leave vote. After the referendum, many bought into the “Bregret” hopes, only to find out that British politics is not going to make that happen. And now they are surprised that the UK is willing to pull the plug on an Article 50 agreement. It is not hard to see a pattern here.

The EU is now finding out that the Brexit negotiations are going to be different from the talks with Greece in 2015. The European Council then took the view, correctly as it turned out, that Alexis Tsipras would not have the stamina to pull the plug. The UK government is better prepared for Brexit partly because it is not doing much else these days, while the EU has a few other issues to deal with, and because it has concluded that a credible no-deal threat is the only tool it has to equalize the negotiating position ."

Deal or No Deal?

Eurointelligence is discovering that its repeated expectations for a deal may vanish into smoke.

As I said all along, a deal is only possible if the UK shows a willingness to walk away and does so immediately. We may be hitting that phase now.

The second problem is 26 nations all have to agree to the terms. Even if we are at the point the UK is finally willing to tell the EU to go to hell, we are not at the point that 26 EU nations understand the implications.

Finally, if and when 26 nations do grasp reality, will the desire to punish the UK overrule common sense?

Mission Impossible

I am not saying a deal is impossible. But if there is a deal, the EU will have to give a lot, and all 26 members will have to approve it.

The irony of the setup is the firmer the UK is and the more forcibly it stresses willingness to walk away, the more likely a deal takes place. But if so, it will be the EU, not the UK that backs down from the most demands.

As I have stated all along: the EU does not have the upper hand. The UK can shut off fishing rights, lower corporate taxes, pay zero for a divorce fee, and stop all payments of any kind to the EU. Should WTO rules automatically apply, the EU exporters will get hit much harder than UK exporters.

From a practical standpoint, the only thing the EU can do is make enough demands such that the UK walks. That is not a position of power and as I predicted it was a very poor negotiating tactic.

If the UK does walk, it will be much harder on the EU than the UK.  So much for the ballyhooed “art of the deal” and preposterous demands that cannot be accepted.

Mike “Mish” Shedlock

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