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Why the EU should start contingency-planning for Brexit budget cuts

I’ve just read Jon Worth’s blog post about why he’s calm about the start of the Article 50 negotiations that will most likely lead to Brexit, even if these negotiations are heading to a fight. After spending the best of my last three years researching budgeting in international organisations, including the effects of budget cuts on the EU and UN organizations, I think it’s important for the EU to do some serious contingency-planning ahead of this fight.

Here’s the sentence from Jon’s article that made me write this:

There are essentially two paths for the negotiations as I see it: towards conflict, or towards fudge. The former seems to be the more likely at the moment, with both sides shaping up for a fight over financial contributions and access to the Single Market.

I guess Jon is right, and even if the European Council President Tusk tweeted today that the “EU27 … will not pursue [a] punitive approach”, this does not mean that this will not end up in a punitive situation and a major fight.

One lesson from studying cutback management at EU-level and the budget cuts in the UN system, especially the reactions to massive cuts in UNESCO, has been that international organisations seem to avoid pre-planning for massive cuts until they are actually about to happen.

When, in 2010, the EU negotiations for the 2011 budget were at risk to break down for the first time since the 1980s, the European Commission staff had only weeks to figure out how they would handle the effective budget restrictions under the monthly emergency budgets. When the USA threatened massive budget cuts to UNESCO in case it would admit Palestine as a member in late 2011, internally no contingency plans were made not to give a sign that one could actually live with such cuts. In the EU case, everything went fine in the end, but not being prepared in the UNESCO for what was about to happen made a bad situation worse, in my view.

What’s the lesson to draw from this EU and UNESCO experience?

It should be part of the EU strategy – and the European Commission’s budget department is key in helping with this – to make clear  to the UK that it is ready to handle even a very painful refusal of the UK to provide its legacy contributions.

Some inside the EU institutions may say that this will give a bad signal to the UK, but experience shows that this may not prevent the worst from happening.

It is better if the Commission, and especially the member states, are ready to say to the UK: “If you don’t provide your legacy contributions, you will not have access to our single market. We are prepared to make our extra contributions to stabilise the EU budget if you stop paying or we are ready to make painful cuts to EU spending, but are you ready to have your market access cut, too?

For this strong hand to happen, it needs to be agreed, in advance, among EU member states, who would step in on their side to fill in the extra contributors if the UK doesn’t pay, and/or who would accept budget cuts – especially in agriculture and in regional/structural spending, the largest parts of the EU budget – in case this happens.

The best thing about developing these worst case scenarios and doing the contingency planning is that, should the Article 50 process run smoothly, suffering a little from the re-arranged EU budget (because this will necessary anyway) will seem much less painful than what the contingency planning suggested. But if the cut is hard, the EU will be prepared in advance and not spend a year with budget crisis management at the same time as the new multiannual financial framework needs to be put in place during 2019 and 2020.


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