- Remaining EU states need to prepare for budget consequences
- Opposed to raising member states’ payments to make up for U.K.
European Union finance ministers need to schedule an extra meeting to prepare for the inevitable negotiations with the U.K. over its planned departure from the bloc, Austrian Finance Minister Hans Joerg Schelling said.
Drafting the EU’s stance can’t be left to the leaders of Germany, France and Italy, Schelling said in an interview in Vienna on Thursday, a day before finance ministers convene in the neighboring Slovak capital Bratislava. He will present the request at the meeting even though no Brexit discussion is scheduled there, he said.
The finance ministers will be the first political screening point for evaluating the implications of Brexit on a range of EU legislation in the field of economic and financial affairs, from minimum sales tax rates to banker bonuses. The group also will have to consider the budgetary repercussions of a U.K. departure and how to compensate for a possible shortfall.
“Our strategy is to not put it on the agenda at all right now,” Schelling said. It’s important to have an extra meeting “and take our time to discuss how we’re going to deal with it,” he said.
Avoiding the Brexit topic, the finance ministers will use their first meeting since July to discuss where the single currency is heading. While they will touch on Greece’s progress in completing the conditions for the latest payout and evaluate the EU’s decision not to fine Spain or Portugal for breaches of budget deficit limits, the easing of the debt crisis gives them the luxury of brainstorming.
The ministers will also explore how the euro area can best adapt to the threat of growing populism in Europe and the challenges posed by terrorism and the migration inflow, according to documents obtained by Bloomberg News. They will also look at ways to expand the EU’s investment program by focusing on diversifying funding sources through the development of the EU equity market.
They will also consider whether the euro area needs its own budget to be used to encourage countries to make their economies more competitive or as a common investment fund and explore further ways to tackle tax evasion.
Despite having a full agenda, the ministers should begin discussing how to deal with Brexit, Schelling said. The U.K. can’t be allowed to cherry-pick benefits of EU membership without assuming the corresponding responsibilities, because that would immediately cause others to demand similar deals, he said.
It’s “worrisome” that Prime Minister Theresa May announced she wouldn’t honor the EU’s “four fundamental freedoms,” including the freedom to settle anywhere in the bloc, because in that situation there can be no wide-ranging deals like those with Norway or Switzerland, he said.
The strategy of the remaining 27 members shouldn’t be the job of German Chancellor Angela Merkel, French President Francois Hollande and Italian Prime Minister Matteo Renzi, Schelling said.
Dubai on the Thames
“I don’t think it’s a good idea that Germany, France and Italy lead the talks, the overall strategy must be determined jointly,” he said. The meeting “is especially relevant -- just think about the impact on the EU budget once U.K. stops contributing,” he said.
Schelling said he would propose to cut the EU budget to make up for the deficit caused by the U.K. dropping out. If there’s a shortfall for the EU’s so-called structural funds, this should be used as an opportunity to discuss their design more fundamentally, he said.
The option to turn the U.K. into a lightly regulated, low-tax haven akin to a “Dubai on the Thames” isn’t realistic, Schelling said. “The U.K. can’t afford to cut taxes without limit,” he said. Even though some hedge funds want lax regulations, banks prefer to retain access to the EU’s single market, he said.
“Its future role in the capital markets is what will decide whether the U.K. survives Brexit,” Schelling said. “If that role is limited, it will be a problem.”