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The “UK is the cash cow” flawed argument

One of Brexiteers’ favourite argument is that the EU is scared of Brexit because Brussels would lose their “cash cow”. Given that the UK is the second (or third) largest contributor to the EU budget, Brexiteers believe that EU countries will go bankrupt if the UK leaves.

Money appears to have a central role in the debate, also considering that the “exit bill” is taking so much time and attention. But is it really the case? Nope.

The EU is a pretty inexpensive organisation, especially considering how valuable it is for all involved countries. First of all, only 11 countries out of 28 actually put in more money than what they get back. Among these 11 countries, the average contribution as % of GDP is 0.27, with the biggest contributors being Italy and Germany with 0.29% of their GDP.

Now, let’s imagine the worst case scenario in which the UK leaves without paying its exit bill and the EU budget remains exactly as it is despite losing one country. What would happen is that all other 27 countries would have to split the bill left behind by the UK and this would amount to, on average, an increase of about 0.04% of GDP. So, Germany’s contribution, for instance, would increase from 0.31% of GDP to 0.34% of GDP. So much for a bankrupt.

One important corollary to this calculation: Brussels does not care about the UK Exit Bill. Even if the UK would decide not pay the exit bill (which obviously would be politically catastrophic for them), the EU would not care. The amount at stake is so small that it does not make a difference at all.

Keep in mind that this back of the envelope sum does not take into account that:

  1. By large and far, the biggest economic advantage of being part of the EU comes from access to the single market. So a country with a net contribution of 0.3%, will actually get back 50-100x more that investment thanks to trading.
  2. A Brexit would move lots of resources – economic and human – from the UK to continental Europe, actually enriching some countries by much more than 0.04% of GDP. Think about banks being moved to Frankfurt or Paris, for instance.

Below, my back of the envelope calculations.

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