Stiffing the EU over Brexit may not land Britain in default

Three credit ratings agencies have said that if the United Kingdom withholds the 39 billion pounds ($50bn) it promised the European Union as part of its original Brexit plan, the country would not technically be in default.

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Fitch, Moody's and Standard & Poor's all say that non-payment would merely result in downgrades, though lawyers argue that such a move would certainly lead to international court battles.

"Our ratings speak to commercial debt obligations," Aarti Sakhuja, primary analyst for the UK for Standard & Poor's (S&P), told the Reuters news agency. "The UK not paying the 39 billion-pound bill would therefore not constitute a sovereign default under our methodology."

Boris Johnson, the leading candidate to be Britain's next prime minister, said over the weekend that until the EU gives the UK better exit terms, he will retain the Brexit payment - which represents outstanding British liabilities to the EU and is supposed to be paid over a number of years.

Johnson's comments drew an immediate rebuke from a source close to France's President Emmanuel Macron, who warned it would be "equivalent" to a debt default. But the big rating agencies have suggested it would not be - according to their definitions.

'A matter of law'

A sovereign default could lock Britain out of international debt markets for years, although its government bonds showed little reaction to the spat on Monday.

Failing to make the payment could still have serious implications, however. The rating agencies have already warned that Britain would almost certainly be downgraded again, and possibly by two notches from its current double-A rating.

Withholding the "divorce" cash implies that the UK would be leaving the EU without a transition deal.

S&P believes Brussels would not commence discussions on a fresh relationship with the UK unless London commits to making good on its obligations.

Legal experts, however, say that it could end up in damaging court clashes.

"I am quite clear that we [Britain] have to pay what is owed up to the date we leave, as a matter of law," said Ros Kellaway, head of the Competition, EU and Trade Group at global law practice Eversheds Sutherland.

"We could end up in front of the international court in The Hague," said Kellaway. "That is quite straightforward."

It also would leave EU member states with a big hole in their finances, Kellaway added.