Brexit could blow a €20 billion black hole in the EU’s budget

A European Union flag, with a hole cut in the middle, flies at half-mast outside a home in Knutsford Cheshire after today's historic referendum on June 24, 2016 in Knutsford, United Kingdom.

LONDON — The European Commission believes Brexit could leave the EU with a budget black hole of up to €20 billion.

Speaking on Wednesday at the launch of a reflection paper on the future of the EU’s finances, European budget commissioner Günther Oettinger said the bloc would have to make “hard choices” and consider budget cuts.

He said: “We will not have the UK with us anymore but they were net payers despite the Thatcher rebate so we will have a gap of €10 to €12 billion per year.

“A large country will be departing. We need to look at shifting expenditures and making cuts.”

The UK currently pays around €10 billion a year net, roughly 16% of the EU budget. In 1984 Prime Minister Margaret Thatcher secured a rebate to the UK worth around €3 billion annually.

As well as the shortfall in incoming cash, Oettinger is worried that Britain’s exit from the 27-member bloc will create new expenditures.

Oettinger said in a separate blog post that the need to finance new initiatives relating to defence and internal security means “the total gap could, therefore, be up to twice as much,” bringing the potential budget shortfall to around €20 billion.

The EU’s annual budget accounts for around 1% of the bloc’s collective GDP and 2% of overall public spending. It is collected through sales taxes, customs duties, and budgetary transfers of each of the 28 member states.

Over 70% of it is spent on farming and regional subsidies, while some is spent on crime and border control, foreign aid, research and development, and education.

Oettinger suggested the shortfall could be addressed by reforming farming subsidies or asking for bigger contributions from member states.

“If Europe is to tackle new challenges, the money must come from somewhere. We can either spend less or find new revenues,” he said.

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