During its time as an EU member state, Britain was one of the biggest contributors to the EU’s budget. In 2018 the British Government paid £13 billion towards it, and EU spending on the UK was forecast to be £4 billion. So this country’s net contribution was estimated at £9 billion.
Although Boris’s Withdrawal Agreement ensures Britain continues to pay into the EU budget until the transition period ends in December, this will be a central issue that Brussels must resolve if they hope to maintain their current spending patterns.
It is unclear which nation will fill the black hole in the EU budget that Brexit will create in the long-term. The money is unlikely to come from Mediterranean countries such as Italy, whose debt to GDP levels are likely to rise to 135 percent this year from its 2018 level of 132 percent.
Germany ended 2019 with a record-breaking budget surplus of €13.5 billion. But the German Government has failed to specify whether it is willing to plug the EU’s spending gap that will emerge post-Brexit. Instead, German politicians want to spend €500 million on their country’s defences and spend the rest of it on significant investments planned for its next budget.
But the most pressing issue for Brussels is: what type of trade deal will they offer the UK? According to the Sunday Telegraph, Boris Johnson is infuriated with the EU at their attempts to frustrate a free trade agreement. As a result, the British Government is no longer committed to a Canada-style pact, in what would be a major hardening in the Government’s Brexit strategy.
Downing Street negotiators intend to pursue a much ‘looser’ trade agreement while simultaneously signing deals that make up 13 percent of the world’s GDP.
The British Government is also refusing to force this country to align with EU rules after Brexit. Chancellor Sajid Javid urged businesses to adjust to the reality of leaving the EU, despite warnings from firms that there will be significant costs and disruption to British trade should Britain fail to to reach a trade deal by December.
There are two outcomes that could emerge from the UK’s trade negotiations with Brussels: they refuse to provide Britain with a free trade deal and this country leaves on WTO terms, or the EU budges at the last minute like they did when negotiating the Withdrawal Agreement last year. But European politicians insist a no-deal Brexit should be avoided at all costs, so it is more likely they will capitulate to the British Government’s demands, especially now that the Tories have a majority.
Brexit is a lose-lose for the EU: whatever conclusion both sides reach in December, it will set a precedent for other nations to leave. But failure to reach a deal will result in the bloc suffering anyway. The BBC reported on a study produced by a Belgian university that discovered the EU would lose 1.2 million jobs in the event of a no-deal Brexit.
Britain’s departure also increases the prospect of EU integration. The UK has always been an awkward partner in its relationship with the bloc. The EU will now have to resolve other challenges like the Eurozone crisis and its ability to act as a unified actor.
It will also have to deal with the deteriorating economic problems countries like Italy face. Although it is currently ruled by a centre-left government willing to comply with the EU, Matteo Salvini won big in last year’s Umbria election. If he returns to power, Rome and Brussels are likely to engage in a future collision course. Regardless of who’s ruling the nation, the Italians are in trillions of debt and could default at any minute, sending shockwaves throughout the world.
There are many other problems Brussels faces now, but Brexit will remind the EU that it faces an existential crisis and it will be interesting to see which path they embark upon now.