How to pay the EU divorce bill
A perpetual sovereign bond could give the EU an annual payment – but only if the UK economy does well.
How much do we have to pay to get out of the EU unscathed? The answer will depend on Theresa May's (possibly dodgy) negotiation skills, but I think we can all assume that there will be a financial price for keeping cheap access to the single market without accepting all the strictures that usually go with it.
But whatever we have to pay, how do we pay?
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A neat answer comes in a letter to the Financial Times today. How about we create and hand over a "hypothecated long term (50 years) or perpetual sovereign bond?" suggests Oxford University's Dr Peter Johnson.
The bond would be guaranteed by the UK government but held by the ECB and its interest rate (payable to the ECB) would be equal to the real rate of growth of UK GNP.
That would work for everyone: it would spread the debt over a long time, while allowing the EU to get some cash on an annual basis.
But crucially it would also give the EU reason to want the UK to do well: they would not want our GNP to decline, or worse, go negative (hence requiring interest repayments). Win win?
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