More and more the UK is in the catbird seat on Brexit negotiations with the EU

On a week when London railroads launched the first direct cargo transport to China along the projected Silk Road transit, it is appearing more and more that the UK will not lose too much when they complete negotiations and officially exit from the European Union.

However, an interesting report out on April 12 from Standard & Poor’s shows that perhaps it is the EU itself, rather than the UK, who has much more to lose if they attempt to make negotiations difficult for Britain’s departure.  This is because the ratings agency suggests that if the UK refuses to pay the demanded €60 billion exit fee, then the EU may immediately experience a credit downgrade.

The European Union's credit rating could be downgraded if the UK refuses to pay the €60 billion obligation in the course of implementing the country's exit from the bloc, warns Standard & Poor's.

“The EU ratings could come under pressure in an adverse scenario. This is because our ratings on the EU are to a certain extent predicated on our expectation that the UK would honor its share of financial obligations to the EU,” S&P said in a report seen by the Telegraph.

EU officials are not only demanding Britain pay €60 billion as it quits the bloc but insist a settlement of the issue should be reached before any other stages of Brexit negotiations can start.

The so-called divorce bill is aimed at covering the costs of significant pension contributions and financial liabilities, according to Brussels. – Russia Today

Britain’s GDP accounts for 22% of the European Union’s total annual production, and is second only to Germany on the hierarchy of economies.  But what makes it even more dire for the EU is that most of Britain’s debt is denominated in Pound Sterling rather than the Euro, and this means that when the UK’s GDP is no longer part of the EU’s total, their debt to GDP ratio will skyrocket.

Additionally, there is another monetary problem that is facing the EU that could completely blow up their financial system as well as their credit rating.  And that is, should Marine Le Pen win the upcoming French elections and succeed in bringing back the French currency to replace the Euro, then a very interesting event will take place…

The French could pay back most of their debt owed to banks and the EU in their new currency.

A little known fact about the majority (70%) of France’s debt is, it was borrowed before they entered into the EU, and thus is not beholden to the rules on debt outlined in the Maastricht Treaty.  Ie… since it was originally borrowed in Francs, it can be paid back in Franc’s rather than the Euro.  And Le Pen could simply print up enough devalued new currency and use it to pay off 70% of their total debt load owed to the EU and to EU banks.

Now imagine what that will do to Deutsche Bank who owns most of France’s debt?

In the end it is the EU, rather than the UK or any other member nation who has the most to lose in both the exit of multiple countries, or the complete breakup of the coalition.  And while the bureaucrats in Brussels can make things difficult for Britain for a little while should they simply ignore the EU’s request for a ‘divorce settlement’ of other indemnity, the reality is that the EU is the one who will suffer the most, and it could begin for them even at the very start of the Brexit negotiations.