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Thursday 11 January

As the EU turns its attention to trade, signs of discord with the ranks smell of panic over the looming budget crisis and the impact of a no-deal. 

On Wednesday, Bloomberg reported claims from German officials working in “two key departments” that Britain’s financial services industry could remain in the single market if the UK Government was prepared to continue making “substantial contributions” to the EU budget. The revelation came two days after Nigel Farage pressed the EU’s chief negotiator Michel Barnier to include services in an otherwise conventional trade deal.

The comments contradict Angela Merkel’s no “cherry-picking” policy as well as Barnier’s full single market or goods-based trade deal ultimatum. Nevertheless, within twenty-four hours, they were rubber-stamped by a quote from an EU official in today’s Times:

“If Britain wants to trade budget contributions for access to [the] single market for the City, there will be many takers.”

Not a Europe indivisible 

The dislocation between backchannel statements and official ones points to the EU’s impending budget crisis. The man presiding over that disaster, Gunther Oettinger, a German.

The EU’s Budget Commissioner said yesterday that Britain’s withdrawal from the European Union and the impact on the EU’s finances that will mean the 1% of GDP cap on contributions from each Member State needs to be increased by 10%.

The EU budget for 2018 amounts to €160bn, that’s an extra €16bn that needs to be found from somewhere. Unsurprisingly, the richer member states are tired of throwing money down the drain.

“It cannot be that in a smaller European Union it means that you have to pay a lot more,” said Austria’s European Affairs Minister Gernot Blümel at a conference on the EU’s long-term budget.

The poorer ones say they don’t have the money so naturally, the bean counters in Brussels are looking at the UK Treasury to undo their headache.

The prospect of a Canada plus plus plus deal will surely tempt Philip Hammond and Theresa May to part with yet more cash. They must not.

Weaker Europe, Stronger Britain

Instead, they need to assess the frailty of the EU’s position and exploit its weakest points. The weakest of them all is not be hard to find: a no-deal would be catastrophic for an EU economy managing to post decent growth rates, albeit growth fuelled by fake money from Central Banks after a lost decade of Euro-austerity. Europe’s capitals and the EU itself cannot afford to put demand for their exports from one of the world’s biggest markets in jeopardy.

The problem is particularly profound for Brussels. It needs to be reminded that while the Brexit-induced budget dilemma may seem difficult, an uncooperative Britain will bring a whole new world of pain. The EU struggles for legitimacy without cash handouts. But if the bloc were to be perceived as an outright obstruction to prosperity across Europe, its demise would be swift.

Germany too will do anything to avoid such an outcome. It needs the European Union for the lower exchange rate it gets from the Euro, but also to disguise hegemonic position that would be extinguished altogether by a return to a traditional intergovernmental system of pan-European cooperation, one where sovereignty does not leak across borders.

The Government’s chance to make amends for the disastrous divorce negotiations is growing wider each day. Mrs May needs to think deeply about the consequences of not taking it. Cutting down on waste plastics, the story dominating the news, will not win her the next general election, an all-conquering Brexit deal will.