STRASBOURG — There’s a new plot twist in the already complicated EU budget negotiations — Brexit.
On Wednesday, MEPs are scheduled to vote on a proposed budget worth €161.8 billion in spending commitments, including funds to tackle the migration crisis and unemployment across the EU. The European Parliament and Council will begin budget negotiations on Thursday and have until November 17 to strike a deal.
But many in the chamber and beyond will be wondering what will happen to that pot of cash once the Brits have gone.
At least in the short-term, the U.K. remains a member of the EU and will have to continue making contributions to the budget. “As long as they are in, they need to pay and receive,” said Jens Geier, a German Socialist MEP who is leading the budget negotiations on behalf of the Parliament.
But the U.K.’s future status within the bloc raises a number of questions, including how the EU will make up for the shortfall caused by the slump in the value of the pound; how the end of the U.K.’s controversial rebate will affect future EU budgets, and how much the U.K. will owe the EU after the divorce is finalized.
“Brexit is looming large on the budget,” said Indrek Tarand, an Estonian Green. “It’s not Romania or Estonia who are leaving. It’s a big contributor so we have a lot of unanswered questions — and no good answers.”
Sterling has lost almost a fifth of its value since the Brexit vote on June 23. At current exchange rates, the U.K.’s £10.3 billion annual contribution is worth just €11.5 billion, well short of the agreed €14 billion.
How will the EU close that sizable gap? If the Commission gets its way, the money will come from fines levied against companies and member countries for breaking EU competition rules, according to a draft of plans to amend the budget. So far this year, such fines have been worth €1.1 billion.
Many MEPs believe that the rest of the EU will have to make up the remainder of the shortfall.
“We will have to fill the deficit. At the end of the year we are not allowed to have red figures, we have to have a zero debt budget on December 31,” Geier said. “It is possible that the pound rises again, but for the time being … we have a deficit.”
Officials from both the Council and Commission said those fears are unfounded as the 2016 budget won’t be fully used up before the end of the year and what is left over can cover any shortfall.
When Margaret Thatcher famously negotiated a permanent rebate for the U.K. at Fontainebleau in 1984, other countries wanted rebates too — Austria, Denmark, Germany, the Netherlands and Sweden have all had them, albeit granted on a temporary basis.
When the Brits leave, those other rebates will likely go as well.
“Since all the rebates are calculated on the basis of the British rebate, the other rebates will also disappear,” Geier said
Ingeborg Grässle, the combative German center-right MEP who chairs the Parliament’s Budgetary Control Committee, said the central question would be how much the U.K. has to pay into the EU budget even after it leaves.
“We are looking at the sums, and how the U.K. will need to pay in liabilities,” she said. “In my view, there is a risk the U.K. will need to pay more after it leaves.”
If the U.K. wants to remain part of several long-term schemes, such as Horizon 2020, the research and innovation project, it will come at a cost. Grässle believes the U.K.’s bill might top €20 billion after it leaves the EU.
But sources in the Council believe the impact of Brexit is limited — at least for now — as the U.K. has yet to trigger Article 50.
“The EU budget issue will be a top priority for sure when the negotiations start,” an EU diplomat said. “Filing the British contribution is essential for the EU to avoid bankruptcy. And it will be a test to check if finding a EU27 position is actually realistic.”
Geier said he regretted Prime Minister Theresa May’s apparent shift toward a “hard Brexit” that would see the U.K. leave the single market. He said it would put Britain “on the same level as Chile or Mexico” when it came to free trade deals with the EU.
The real change, he said, would not be seen until 2019 when the EU finalizes the next seven-year, long-term budget — the multiannual financial framework. The Commission is expected to present budget plans post-2020 late next year and negotiations are likely to take years.
Commission’s sources and diplomats confirmed they have started to brainstorm on a post-Brexit budget but they said that much will depend on the UK’s future agreement with the bloc.
“We will have to think about what do we want for the EU, which policies we want to strengthen and recalculate the budget on this basis,” Geier said.