The issue of what Britain does or does not owe the European Union risks becoming a landmine in the Brexit negotiations. Britain should pay what it legitimately owes for EU services that it signed up to. Divorce is never cheap. But by seeking to maximise payment, and by making payment a precondition for the rest of the talks, the EU risks getting less from Britain and hurting the chances of a productive negotiation.
The potential amounts involved are not small. They stem from what is owed to EU civil servants for their pensions (which are, staggeringly, funded on a pay-as-you-go basis), budget commitments and structural funds already promised, and contingent liabilities (those that might arise in the future).
A figure as high as €60 billion (S$91 billion) has been mentioned, although a paper published recently by the Centre for European Reform came up with scenarios that ranged from €24.5 billion to almost €73 billion. The divergence depends on whether Britain's share is 12 per cent (its average post-rebate budget contribution in recent years) or 15 per cent (based on gross national income), whether contingent liabilities are paid upfront, and how rebates are dealt with.
Mr Ivan Rogers, the former British envoy to the EU, says a dispute over money could be an "immensely complex part" of the exit talks. "The total financial liability might be in the order of €40billion to €60 billion," he told British lawmakers last month.
News service Politico reported that the issue was "one of the main items for discussion" between chief EU negotiator Michel Barnier and his officials last Monday.
On Tuesday, European Commission spokesman Margaritis Schinas explained why Britain should honour its financial commitments in a language that beer-loving Brits can relate to, saying it is like going to the pub with 27 friends. You order a round of beer but then you cannot leave while the party continues; you still need to pay for the round you ordered.
Britain will baulk at footing the bar bill. Even though Prime Minister Theresa May did not campaign for Brexit, the idea that Britain will save money in leaving Europe has become an article of faith for Brexiters. The government will struggle to sell a big transfer payment.
But it is worth remembering that this is a one-time settlement. Britain and Europe both have long-term economic interest in a fair Brexit deal that covers a wide range of relations from trade to financial services. Both sides have an interest in those negotiations proceeding smoothly.
For Britain, that means dropping the rhetoric that an exit cost is "bizarre" or "absurd" - words used by secretary for international trade Liam Fox last month. Britain has had the benefit of the EU civil service for more than 40 years, for example; clearly, it has an ongoing liability to those civil servants for as long as they draw a pension.
For the EU, letting the headline number drop by ignoring contingent liabilities for now probably makes sense. It would also be good politics to allow Britain to spread the payments over several years rather than trying to impose a lump-sum settlement. And, perhaps most importantly, insisting that Britain should reach an agreement on the amount due before the rest of the proceedings can take place risks over-dramatising the issue.
"The days of Britain making vast contributions to the European Union every year will end," Mrs May said in her Jan 17 speech outlining her government's Brexit priorities.
Well, yes, they will. But there's a bill to settle first.
BLOOMBERG VIEW
