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The cost of divorce

When two parties separate there’s often a settlement involved. Normally this is an up-front payment and may include ongoing maintenance. The amount is subject to assets, dependents and time. A 50/50 split is often considered equitable.

Breaking up isn’t just for the family courts it happens elsewhere too. Exit a contract early and pay the penalty fee. It could be for your insurance, mobile or energy. The amount depends on the small print.

In financial markets if you want “out” it can be simple. Just “hit the bid”. For derivatives it’s different. You need to agree the value using all the incoming and outgoing cash flows. This isn’t as straightforward. What you both want can be entirely different. Partly this is explained by bid – offer spread but a lot’s down to how much you can get away with. For complex deals negotiating leverage proves to be most valuable.

What then is the fair price of Brexit?

Given that the future commitments aren’t clear agreement will be based on approximation. But there is something that we need to know.

In markets salesmen extoll the virtues of entering trades. But change your mind and they want their profit up-front before you go.

Over the years we’ve been told that being a member of the EU is advantageous. I am sure this is true of the non-financial aspects of membership. Which incidentally also accrue to the EU.

But if the UK pays a substantial sum to leave it implies two things:

  1. That we are net financial contributors.
  2. The EU has a better negotiating position vis a vis the UK.

If either party presses too hard it will be counterproductive. Both sides need to feel the deal is “fair” and that’s up to those doing the negotiating. What’s at stake are all those mutually beneficial things that aren’t measured in money.

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