Reasons to leave the single market [2]: The UK’s liabilities to EU financing mechanisms

Reasons to leave the single market [2]: The UK’s liabilities to EU financing mechanisms

by Brian Monteith
article from Monday 9, January, 2017

IT IS LITTLE KNOWN that the UK has liabilities of nearly EUR1.3 trillion (£1.1 trillion) by being part of the EU and its Single Market – including responsibility for the entire EU cash budget, and for the EU’s loans and guarantees. We are also shareholders in the European Central Bank and the European Investment Bank, out of which the UK has loans in about the same amount as our shareholdings.

The good news is that, when we step out of the Treaty on the Functioning of the European Union, we step out of all the liabilities relating to the cash budget, debts and guarantees of the EU itself, and are no longer obliged to be shareholders in the ECB or EIB: we can have our shareholdings cancelled in exchange for our taking over the EIB’s loans to ourselves, a zero-sum exercise.

We can step out completely from these liabilities, and we must do so and quickly.

The EU, ECB and EIB – acting individually and in concert – are taking the most enormous risks and in huge quantity to bail out the Eurozone, and on the UK’s credit card.

The spending of the loans being signed off is all that is keeping the Eurozone out of depression. These loans are being extended in the form of secondary and below-the-horizon public sector debt:

·     To regional and municipal authorities, to projects in which public authorities have an involvement, and to projects – on the Public Private Partnership model – where a public authority guarantees to buy the offtake, for a long period and usually at an inflated price;

·     Making a mockery of the Fiscal Stability Treaty, which only controls primary public sector debt;

·     Creating a form of irresponsible Equity Release, to enable spending now, but secured, not on assets, but on the tax-paying capacity of future generations.

Within this feeding-frenzy of new lending there is new credit to Greece, made out of the European Fund for Strategic Investments (“EFSI”). The UK is directly on-risk for losses on those loans, in the way as we are on-risk for losses under many elements of the Eurozone bailout, contrary to the contentions made by David Cameron.

The ECB has gone way off its mandate and legal powers in the way it is allowing its members – the Eurozone National Central Banks – to finance one another, to finance commercial banks, and to settle (or rather not to settle) their payment traffic, all against collateral that is overvalued.

The EIB has gone off the reservation in lending to projects that have only the most tenuous connection to wealth-creation, and supporting projects simply on the basis of creating spending now, to inflate GDP figures.

The nexus of the EU, EIB, ECB and the EFSI is a steam engine for public debt creation that has lost its governor. We need to get out before inevitable train wreck. If Scotland chose to stay on the train it would be heading for disaster.

As part of the UK Scotland is directly and wholly a shareholder in Britain’s enterprise in underwriting the European Project. When the UK breaks with the EU and its Single Market it should lose these liabilities. There will be no need for them and to retain them will represent a bad deal. The liabilities will, therefore, be no more.

If Scotland finds some, as yet undiscovered, way to maintain a separate involvement with EU institutions then it is difficult to see how it can benefit from any perceived benefits without having to also retain some of the liabilities – but this has not been considered, never mind explored, by the Scottish Government and represents one of the many obstacles to such a divergent settlement being possible.

Note how the UK has a share in EU liabilities even though it is not a participant in the Euro currency. It is difficult to understand how a semi-detached or fully independent Scotland could therefore avoid its own liabilities for EU institutions so long as it remained inside the Single Market.

For avoidance of doubt, a proportional Scottish share of the £1.1 trillion liability would be in the region of  £110 billion that it would have to be good for. This would of course be in addition to the £40 billion in reserves it would need to find if Scotland wished to create its own currency, which is why Alex Salmond was so keen on retaining use of the Pound Sterling.

It is not stretching credulity to say Nicola Sturgeon has less of a clue about economics than Alex Salmond; as yet she has no answer to the Scottish currency problem, what then she would make of the EU liability obstacle is anyone’s guess as she has probably never considered the issue.

Every time Nicola Sturgeon bangs the drum for Scotland being inside the Single Market she needs to be reminded of Scotland’s share of the UK’s EU liabilities and asked just how she would fund this. There is no other answer than to leave the Single Market along with the rest of the UK, and in so doing recognising which of the two markets is the most important to Scotland. In terms of economic  benefit the British Union comes a long way ahead of the European Union.

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