A massive €100bn Brexit bill is "legally impossible" to enforce, the European Commission’s own lawyers have admitted.
The Telegraph has seen minutes of internal deliberations circulated by Brussels’s own Brexit negotiating team, which had warned against pursuing the UK for extra payments.
But member states appear to have ignored the Commission's own advice by demanding €100bn (£85bn) from the Government, a sharp hike in the original demand of €60bn.
The inflated bill deepened the rift between Brussels and Downing Street. A leaked report of a Downing Street dinner with European Commission president Jean-Claude Juncker accused Theresa May of living in “another galaxy”, prompting the Prime Minister in turn to accuse EU politicians and officials of seeking to disrupt the General Election.
The row over extra payments demanded by Europe arises from a refusal to offset any final bill against the value of EU assets, acquired by the UK during its 43 years of EU membership. Brussels is also demanding that Britain continues to pay farm subsidies up until the end of 2020, almost two years after Brexit.
But both of these moves fly directly in the face of European Commission warnings to EU member states that such demands could undermine the legal foundation for their final bill demand.
The Commission’s initial position – now apparently overruled by EU leaders – would appear to support British contention that the European demands on what Britain owes Brussels are legally flimsy and wildly overstated.
Senior UK officials have described the new Brexit bill as “ludicrous”. At a Brexit seminar in February held by Michel Barnier, the EU’s chief Brexit negotiator, three member states – Ireland, France and Germany – all demanded that the UK’s share of EU assets should not be included in calculations of the Brexit financial settlement.
According to detailed minutes of the meeting seen by The Telegraph, Nadia Calvino, the director-general in charge of the budget, rebutted the idea.
EU assets are listed in its annual accounts, which the Commission believes is the legally watertight basis for calculating Britain’s final bill.
At the seminar, she warned that if the Europe side began “cherry-picking” which parts of the EU annual accounts it wanted to base its own calculations upon, then Britain would be justified in doing exactly the same.
“Calvino was very clear. The only ‘legally defensible’ approach was not to ‘cherry-pick’ the annual accounts,” said a senior EU diplomatic source. “She could not see how the EU could justify taking into account all the UK’s commitments, but not a share of the assets.”
Separately, officials at the Barnier task force warned a month ago that it would be "legally impossible" to insist that Britain keeps paying for farm subsidies after March 2019.
Senior Commission officials explained that because farm payments only become legal obligations when the annual EU budget is agreed, Britain cannot be forced to pay them after departure from the EU.
Team Barnier also warned internally that if member states – led by France and Poland – demanded the farm payments after Brexit, it would give the UK the “perfect excuse” to walk away from the budget talks because the European side was breaking its own rules. That argument now appears to have been overruled.
“It was the clear view of the Commission that it would be legally impossible to defend the idea that the entire seven-year budget plan was a binding commitment on the UK, and that insisting the UK pay after Brexit would give them an excuse to walk,” the senior EU source said.
The EU lists some €22.5bn worth of assets – everything from buildings to satellites – at book value in its annual accounts, but these items are worth considerably more at market rates.
Taking into account the value of loans and other cash holdings, total EU assets have been valued at €153.7bn by the Bruegel think-tank.
Although not owned by member states, the UK, as a contributor to the EU over the past 43 years, expects to be able to "net off" its share of those assets against any Brexit bill.
This could be worth up to €10bn to the UK. John Springford, director of research, working on economic issues, at the Centre for European Reform in London, said the member states were undermining the Commission's attempts to stick to a “principles-based” approach.
“The Commission is trying to make the Brexit bill legally coherent so that, if negotiations fail, it has a defensible case at the International Court of Justice in the Hague,” he said.
“The Commission is defending a principles-based approach to the UK’s Brexit bill. It thinks that the UK does not legally have to pay for spending decisions made after it has left the EU – only those made when it was a member.”
This is why the new demand by some member states to include annual farm payments until 2020 also presents serious legal problems.