British PM Cameron negotiates concessions before referendum on EU exit

Britain's Prime Minister David Cameron (left) with European Commission president Jean-Claude Juncker on Jan 29, 2016.
Britain's Prime Minister David Cameron (left) with European Commission president Jean-Claude Juncker on Jan 29, 2016. PHOTO: REUTERS

LONDON (BLOOMBERG) - The UK's 43-year membership in the European Union comes into sharper focus in February as Prime Minister David Cameron discovers whether the rest of the bloc will offer him sufficient concessions to convince the British people it is worth staying.

Britain's relationship with the EU, troubled by decades of anxiety over waning national power, the euro area's threat to London's financial clout, subsidies to French farmers and, more recently, mass migration, may come down to the next few weeks of deal-making. Any accord must offer enough special treatment to allow Mr Cameron to claim victory before an in-out referendum as early as June, without prompting a revolt from other members of the 28-nation club.

"If Britain votes to leave it will be a seismic event," said Mr John Springford, senior research fellow at London's Centre for European Reform. "Cameron's strategy of having a renegotiation and then a referendum has been felt by the other leaders as essentially holding a gun to their heads; there's been resistance to allowing Britain to set the terms of the future direction of the EU."

Mr Cameron met EU president Donald Tusk - the man who represents the bloc's national leaders - in London on Sunday, and they agreed to postpone the circulation of the former Polish premier's template for a compromise until Tuesday - 24 hours later than planned. The Tusk meeting was preceded by a hastily organised trip to Brussels by the Prime Minister on Friday for discussions with Mr Jean-Claude Juncker, the man whose candidacy for the European Commission presidency Mr Cameron tried to block in 2014 and whose support he now needs to help forge a deal with fellow EU leaders at a summit in Brussels from Feb 18-19.

The Commission, the EU's executive body, has been working on giving the UK a so-called emergency brake, granting it some power to limit welfare benefits to migrants - Mr Cameron's most contentious demand - if the government can prove exceptional circumstances. Since any compromise must win the approval of every EU government, Mr Cameron's room for manoeuvre is small.

The Prime Minister used the meeting with Mr Tusk, who travelled to London with his full negotiating team, to press for the brake to be put in place immediately after a referendum and established as a "stop-gap'' until a permanent solution can be found. Mr Tusk's draft agreement for the February summit will now say that current circumstances in the UK meet the threshold for bringing in the brake, Mr Cameron's office said after the meeting.

While the Prime Minister's demands for EU reform won't significantly change the bloc or the UK's relationship to it, they might give him enough ammunition to make the case to the British electorate for the country to remain wedded to the continent. That matters to all Europe for reasons of trade and economics, but also because Britain has been a flag-bearer for the free market and EU enlargement towards the East, even as it refused to go along with more integrationist policies like the single currency and the removal of border checks.

The pound fell to a 5 1/2-year low against the US dollar on Jan 21 as investors started to focus on the risks of a potential UK exit from the EU. Last week, Barclays warned that markets appeared to underestimate the impact of the referendum as it designated the EU summit a "key risk event". Berenberg Bank raised its assessment of the chance of a vote to exit to 35 per cent.

Faced with a tide of anti-EU sentiment in his Conservative Party and a substantial part of the electorate that favours Britain leaving the EU, a so-called Brexit, Mr Cameron has sought to win agreement from his fellow EU leaders in three other broad areas alongside welfare: safeguarding the rights of non-euro countries like his; abolishing Britain's obligation to "ever closer union"; and stripping back regulations that hamper competition.

But it is the demand to limit access to welfare payments for non-British EU citizens in the UK that has proved most contentious with governments in countries such as Poland and Hungary. They have sent thousands of people to set up home in the UK and say the move would make their countrymen and women second-class citizens in a club where everyone is supposed to be equal.

There have been signs that negotiations are not going to plan. Mr Cameron cancelled a planned visit to his counterparts in Denmark and Sweden on Friday to meet Mr Juncker instead. He said afterward that the proposals were "not enough". On Sunday, the Premier's office said "much progress" had been made in the 48 hours after meeting Mr Juncker and British officials are due to travel to Brussels on Monday morning to continue negotiations.

The Prime Minister will have the opportunity for face-to-face talks with German Chancellor Angela Merkel, the EU's chief power broker, twice over the next two weeks in the run-up to the summit: on Thursday, when she will co-host a conference on Syria in London; then on Feb 12, when he is scheduled to make a speech on Europe in Hamburg.

An opinion poll published on Friday showed that exactly half of British voters would back staying in the EU while 38 per cent want the UK to leave. The survey, conducted by Ipsos MORI for the Evening Standard, indicated that 58 per cent have already decided how they would vote in a referendum. The 12- point gap is the narrowest in an Ipsos Mori survey since 2012 and compares with a 34-point lead for the "In" campaign in June, the newspaper said. The polling company asked 1,027 adults by telephone from Jan 23-25.

While phone polls have shown consistent leads to stay in, more frequent online polls have suggested the race is much closer.

"As these negotiations are highly technical, it is hard to see how any result - even if presented as a victory for David Cameron - can be so compelling to the British people that they would lose their EU-scepticism," said Mr Carsten Brzeski, chief economist for ING-DiBA in Frankfurt. "The rest of the European Union, therefore, is well advised to think of the unthinkable and prepare for a Brexit."