How the 'Brexit' summit will unfold and why it matters

BRUSSELS (BLOOMBERG) - When Prime Minister David Cameron meets with the other European Union leaders in Brussels on Thursday (Feb 18), he will be seeking to reconstruct the UK's terms of membership in the 28-country bloc.

Cameron hopes to win concessions during the two-day summit that will pave the way for a referendum to be held in Britain as soon as June, in which voters will decide whether or not the UK should remain in the EU. Cameron has said that he is ready to campaign to stay in the union if he gets a deal along the lines of an EU proposal released this month.

Failure to reach an accord, and agreement among the leaders must be unanimous, could put pressure on the British economy as well as UK assets. The prospect of the UK leaving the EU, a so-called Brexit, has helped drive down the pound, which has weakened against all but two of its 16 major counterparts over the past three months.

Here's what's at stake: What does Cameron want from the EU?

The prime minister has asked for commitments on four broad policy issues: economic governance, social benefits for non-British citizens, competitiveness and sovereignty. In practical terms, that requires the EU to address bank oversight and how it shapes future financial laws, welfare payments, red-tape business regulations and the philosophical commitment in the bloc's founding treaties to an "ever-closer union."

On the last point, the EU will affirm that the UK can't be forced into a tighter alliance.

EU President Donald Tusk will try to get a comprehensive agreement in one summit because "to fail would be compromising our common future."

What are the sticking points?

Cameron is seeking an assurance that UK financial firms will be shielded from euro-region banking rules. Tusk proposed that euro-area banking rules should be voluntary for countries outside the currency bloc but that non-euro nations should get more of a voice on issues that affect them, without getting a clear veto or right to delay urgent decisions. Still, the non-euro nations should get some sort of mechanism they can trigger when they have serious concerns.

France is one of the nations opposing this reform and has led calls to make sure London banks don't gain an unfair advantage over their continental counterparts. Britain counters that its banks can't be held hostage to the European Central Bank's euro-area hegemony, and financial-sector executives warn that the UK needs to stay on the same page as the EU to prevent chaos in the financial system.

What limits are possible on social benefits?

The UK government wants to soothe taxpayer concern that workers from across Europe are coming to Britain to exploit health, welfare and child benefits. The EU has said it may offer some concessions, but not for Europeans who are already working in the UK. Any changes would need to apply only to workers who move to the UK after a deal is enacted, according to Tusk and European Commission President Jean-Claude Juncker.

Compromise is possible when it comes to benefits for parents of young children. Juncker says leaders can discuss "indexation of the child benefit," meaning tying payments to what foreign EU workers would receive in their home country instead of the UK standard. The UK has pushed for a four-year "welfare brake" on when EU migrants can qualify for benefits, and Cameron has sought to quell worries among his eastern European counterparts, including Poland and Bulgaria that make up a large segment of the immigrant community in Britain.

What's the meeting's timetable?

After meeting with their political parties in the early afternoon, government heads will begin the first summit session at 5:45 p.m. (12.45 am Sing, when they'll discuss the EU proposal for the U.K. Over an 8 pm working dinner, they'll tackle the refugee crisis, after which they could continue working through the evening or call it a night before taking up negotiations again Friday morning.

On his ideal timing, Cameron would be able to announce an accord around mid-day on Friday and fly back to London, where he would chair a cabinet meeting to secure the support of as many of his ministers as possible. If talks break down, the summit could stretch into Saturday.

What if there's no deal at the summit?

If leaders fail to reach an accord by the end of the month it's unlikely the UK will be able to hold a referendum by the end of June. The risk of a UK exit would increase if there isn't an agreement this week, not only because failure would show the difficulty of reaching a pre-referendum deal but also because the timing of a delayed vote would be unfavourable for the pro-EU side.

Will the British vote to leave the EU?

The latest opinion poll by Ipsos Mori showed that 54 per cent of respondents said they would vote to remain a member of the EU, down 1 percentage point from January, and 36 per cent said they would vote to leave. About 63 per cent said they had definitely made up their minds while 35 per cent said they may change their mind.

"There's little movement in the public's views towards Europe - but still time for that to change, even though the public expectation is still for a 'remain' victory," said Gideon Skinner, head of political research at Ipsos Mori.

What are the consequences of a 'Brexit'?

The Confederation of British Industry joined 21 counterparts in other European Union nations in urging Britain to remain in the bloc, saying in an open letter: "European business strongly supports continued British membership of a European Union that takes the necessary reforms to be competitive, outward-looking and continue delivering growth, jobs, peace, security and prosperity for all."

If the UK leaves the union, it could cause short-term market turbulence and an "economic and political weakening" of both Britain and the EU in the long term, according to Finnish Finance Minister Alexander Stubb. HSBC Holdings Plc Chief Executive Officer Stuart Gulliver said the lender would probably move about 1,000 investment bankers to Paris if Britain withdraws from the EU.

Six-month implied volatility for the pound versus the euro, a measure of anticipated price swings based on options, climbed to 11.94 per cent on Wednesday, the highest closing level since October 2011.