Emmanuel Macron warns Boris Johnson that if Britain kept £39bn Brexit divorce payment it would be a sovereign debt default with dire consequences for UK economy
- French President warns of ominous ‘consequences’ of ‘debt default’ plan
- Boris Johnson claims he is the only one who can defeat Farage and Corbyn
- He urged Conservative MPs and members to back him as their next leader
- Boris said he would refuse to pay the promised £39 billion to the European Union unless better Brexit terms are on offer
Boris Johnson has vowed to deliver Brexit and keep hold of the £39billion divorce payment unless better exit terms are offered
French President Emmanuel Macron has warned ominously that Boris Johnson’s threat to withhold the UK’s £39bn ‘divorce bill’ payment from the EU could be treated like a sovereign debt default.
Nations which do not repay money they have borrowed – those which default on their sovereign debt – are punished by international markets.
A debt default leads to devaluation of the currency, an increase in the price of servicing national debt, and a lower national credit score – although it is unknown whether the international financial markets would respond in line with historical precedent in this case.
It comes after Boris Johnson vowed to deliver Brexit and keep hold of the £39billion divorce payment from the EU unless better exit terms are offered – as he insisted only he can defeat Labour and the Brexit Party.
The leadership campaign front-runner pleaded with Conservative MPs and members, saying he would be prepared to refuse to pay the promised £39 billion to the European Union – and would step up preparations to counter no-deal ‘disruption’.
‘I think our friends and partners need to understand that the money is going to be retained until such time as we have greater clarity about the way forward,’ Johnson told the Sunday Times. ‘In getting a good deal, money is a great solvent and a great lubricant.’
But a source close to French President Emmanuel Macron countered that failure to pay the Brexit bill would be equivalent to a sovereign debt default.
French President Emmanuel Macron warned that not paying the £39bn would be treated like a sovereign debt default
What is a sovereign debt default?
Nation states which do not – or cannot – repay money they have borrowed within the agreed timescale are said to have defaulted on their sovereign debt.
In recent history, Venezuela defaulted on $65bn two years ago in the grips of economic meltdown, and Greece failed to make a payment in 2015 during the debt crisis which nearly led to the country’s departure from the EU.
Although it remains possible to borrow money after a default (several Latin American countries are repeat offenders) the increased likelihood of default is priced in to the cost of borrowing.
So in UK terms the payments offered by the UK government to those who buy its debt (bond yields) would have to go up to make the debt a more attracted proposition.
This would increase the cost of borrowing and increase the percentage of the UK’s GDP spent on financing that debt – leaving less money for schools, hospitals, or tax cuts.
The pound would also likely fall, and Britain would find its rating among international credit agencies further downgraded.
However it remains to be seen how the markets would treat a non-payment of the divorce bill, since the UK would not exhibit the underlying economic weaknesses of a nation which cannot pay its debt.
‘Not honouring your payment obligations is a failure of international commitments equivalent to a sovereign debt default, whose consequences are well known,’ the source said.
The revelations come as the Sunday Times reported that the first time Donald Trump tried to call Boris Johnson recently he assumed it was a hoax.
Johnson said someone with a mild Irish accent had called him claiming to be from the Downing Street switchboard, saying they would put him through to the White House situation room.
The Tory frontrunner said: ‘Thinking quickly as I do, I said, ‘To all our listeners on Radio Kilkenny, I was not fooled for an instant’.’
Leadership rival Michael Gove set out plans to replace VAT after Brexit with a ‘lower, simpler’ sales tax.
And Sajid Javid’s campaign received a boost with an endorsement from Scottish Tory leader Ruth Davidson.
In his first major interview of the campaign, Mr Johnson told the Sunday Times he could defeat the twin threat posed by the leaders of the Brexit Party and Labour – comparing them to the sea monsters from Greek mythology which troubled Odysseus.
‘I truly believe only I can steer the country between the Scylla and Charybdis of Corbyn and Farage and on to calmer water.
‘This can only be achieved by delivering Brexit as promised on October 31 and delivering a One Nation Tory agenda.’
On Brexit, he said he would scrap the backstop – something the EU has so far refused to do – and would settle the Irish border issue only when Brussels is ready to agree to a future relationship.
The £39 billion settlement would only be paid when there is ‘greater clarity’ about the way forward, he said.
‘I always thought it was extraordinary that we should agree to write the entire cheque before having a final deal,’ he said. ‘In getting a good deal, money is a great solvent and a great lubricant.’
The former foreign secretary received backing from prominent Brexiteer Steve Baker – who had been considering his own leadership bid.
Meanwhile leadership rival Michael Gove set out plans to replace VAT after Brexit with a ‘lower, simpler’ sales tax
He also picked up endorsements from Cabinet ministers James Brokenshire, Chris Grayling and Alun Cairns, and former international development secretary Priti Patel.
Mr Gove sought to focus once more on policy issues after the revelations about his past cocaine use.
Writing in the Sunday Telegraph, he set out a ‘pro-business economic plan’ to take on Mr Corbyn’s ‘Marxist message’.
Mr Gove said his plan would mean ‘reducing the regulations which hold business back’, cutting taxes and ‘using the opportunity of life outside the EU to look to replace VAT with a lower, simpler sales tax’.
Pictured: Nigel Farage, leader of the Brexit party hands in a petition to 10 Downing Street on June 7, 2019 in London
Ms Davidson’s decision to back Mr Javid came as he set out his own plan to tackle the Irish border issue – by spending hundreds of millions on a technological solution.
The support of Ms Davidson, a popular figure in the party who has revitalised the Tories in Scotland, was welcomed by Mr Javid.
‘Ruth knows a winner when she sees one,’ he told the Mail on Sunday.
The Home Secretary also said there is a moral duty on the UK to pay for measures at the Irish border in an effort to secure a Brexit breakthrough.
‘I think it’s morally justified to pay for that because we both have signed the Good Friday Agreement, we are both absolutely committed to peace on the island of Ireland and – given that we voted to leave and that’s what’s changing the status quo on the island of Ireland – I think it’s morally right that we say, ‘look, we’ll pay because we’ve caused this’.’
Rory Stewart’s camp, meanwhile, said he is the challenger best placed to take on Mr Johnson, pointing to polling by Opinium which puts him neck-and-neck with the former foreign secretary on the question of ‘would they make a good prime minister’.
Mr Stewart said it is ‘very encouraging’, but he cautioned there are ‘many steps still between here and Downing Street’.
As Theresa May resigned as Tory leader on Friday, the starting gun was fired for the race to replace her.
The nomination process will take place on Monday, with candidates requiring eight MPs to back them in order to enter the race, with the first round of voting on Thursday.
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