Eurocrats are insisting that the UK cannot withdraw cash from the European Investment Bank (EIB), which has been criticised over risky lending, despite the fact we are leaving the bloc.
In a technical paper published yesterday the EU Commission said that instead Britain will only get its money back via a drip feed of repayments on loans handed out by the Luxembourg-based institution.
Critics say much of that cash has been lent to hopelessly lost causes, such as more than £5.6 billion handed to Greece, and could now be lost to taxpayers forever.
A battle is brewing over the future of the European Investment Bank
They have accused the EIB of investing heavily and “aggressively” in EU countries that would not have been able to secure such funding on the global markets due to their struggling economies and high debts.
This has led financial experts to observe that UK taxpayers’ cash is being dished out “in pursuit of EU political objectives” rather than being invested sensibly to secure a financial return for Britain.
Britain’s decision to leave the Brussels bloc has automatically triggered its looming exit from the EIB, which under the treaties can only be made up of EU member states.
But the investment bank is heavily reliant on as handful of wealthy countries, including Britain and Germany, to retain its cherished AAA credit rating which allows it to borrow so cheaply on the international markets.
In contrast some of the other EU member states, such as Cyprus Greece and Hungary, have junk ratings meaning they would face exorbitant interest rates borrowing from anyone else other than the EIB.
If the UK pulled the plug and attempted to reclaim its share of the EIB’s assets it is likely the bank would be downgraded, forcing up the amounts it would have to ask struggling EU countries to repay.
As a result the EU Commission has moved swiftly to try and shut down such an eventuality, insisting that Britain will not be allowed to withdraw its cash from the bank as part of negotiations over a Brexit divorce bill.
Its guidelines state: “Following the withdrawal, the United Kingdom should cease being a member of the EIB.
“The United Kingdom liability resulting from the guarantee for the financing made by the EIB while the United Kingdom was a Member State should be maintained and decreased in line with the amortisation of the EIB portfolio outstanding at the time of United Kingdom withdrawal.”
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According to reports earlier this year Theresa May will attempt to recall £9 billion – or about a quarter – of the UK’s total capital in the EIB during the opening salvo of the Brexit talks.
The PM, who is fighting for reelection, wants to use Britain’s hefty assets in the bank to mitigate the astronomical size of a proposed divorce bill from Brussels which would reach £85 billion.
And in a paper earlier this month Martin Howe QC, from the Brexit-backing group Lawyers for Britain, said the UK had a “strong” claim to an immediate share of the EIB’s assets.
He said: “There is a strong argument that the UK on EU exit is entitled to the return of its paid up capital and indeed to a corresponding share of the accumulated reserves of the EIB.”
European banking expert Bob Lyddon said Brussels would be keen to tie up Britain’s investment in the bank for many years to come to help protect its gold-plated credit rating.
May meets Juncker and Barnier at Number 10 Wed, April 26, 2017
Theresa May hosted European Commission President Jean-Claude Juncker and chief negotiator Michel Barnier at Downing Street for the first face-to-face talks since she triggered the two-year process of withdrawing from the EU
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Prime Minister Theresa May greets European Commission President Jean-Claude Juncker ahead of a working dinner at 10 Downing Street, London
In a paper for the eurosceptic Bruges Group think-tank, published just before last year’s EU referendum, he accused the EIB of investing recklessly in the support of Brussels’ own political agenda.
He wrote: “The EIB is acting counter-cyclically and aggressively to increase its lending within the EU under its programme of regular loans and under the European Fund for Strategic Investments, and is aggressively increasing its loans outside the EU in pursuit of EU political objectives.”
Mr Lyddon also observed that the “full faith and credit of the UK is a credit enhancement mobilised through the EU and EIB to enable the borrowings of the smaller/weaker EU countries”.
The EIB, which was set up in 1958, is jointly owned by the 28 member states with contributions to its assets – known as shareholding percentage – calculated proportionate to GDP and population size.
Eurocrats have repeatedly insisted in private that the UK has “no claim” to any of the bloc’s hundreds of billions of pounds worth of assets because they belong to the bloc as an independent legal entity.