David Cameron To Propose EU Referendum Tomorrow

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In a move that may cause some consternation in Europe due to its adverse implications for trade paterns in the continent, tomorrow British PM David Cameron will announce that he will propose a referendum on whether or not to stay in the European Union, a move that as the WSJ qualifies it "threatens to inhibit trade and cast a new shadow over the troubled bloc." That may be a slight exageration: the referendum would take place, if at all, before the end of the first half of the next Parliament, roughly by late 2017, after an election. Which means that if Cameron loses the election, it is a non-issue, just as it would be a non-issue of course if the UK public voted to stay: according to a survey of the British public late last week by pollsters YouGov showed 34% indicated they would vote to leave in a referendum, while 40% said they would vote to stay. A week earlier, 42% said they would opt out, compared with 36% preferring to remain. Obviously a volatile topic for the population.

Still, as the WSJ notes, an "explicit vote on whether to leave the EU would be the first such move by a member in some time. In 1985, Greenland, which is part of Denmark, voted to leave the EU's predecessor, the European Economic Community. And, in 1975, the U.K. held a referendum on whether to leave the then-EEC, which resulted in a large majority voted in favor of staying in." Finally, since the UK has its own currency it certainly does not have all the adverse side effects of being fully integrated into the Eurozone, which is why Cameron's gambit may have very little if any market relevance. If anything, the move will merely further alienate the UK from the continent, aggravating a process that started over a year previously.

Realistically, this may be merely internal horse trading with the other UK parties, which however will have little impact on the broader macroeconomic picture.

Then again, with the BOE preparing to engage all other central banks in currency warfare, there may be far bigger issues on the horizon quite soon.

From the WSJ:

Mr. Cameron plans to say that, if elected in 2015, a Conservative government would renegotiate the U.K.'s relationship with the EU, and then hold a referendum on the new settlement in the first half of its five-year parliamentary term. Such a referendum would mark the first time in recent years that an EU member has offered its citizens such a vote.

His pledge will likely prove unsettling for one of the world's largest trading blocs as members of the EU have been struggling to deal with a debt crisis. While many people had focused on the risk of Greece leaving the euro zone, the promise of a referendum by Mr. Cameron would raise the prospect of an exit by a far-more essential member—one of the bloc's biggest economies and its most important financial center.

The move is a risky gambit by Mr. Cameron, who has found himself in a tight spot on the issue of Europe. He has said repeatedly that he thinks it is in Britain's best interests to remain part of the EU. But some members of his own party—who think too much power is ceded to Brussels—have aggressively pressed him to significantly reduce the U.K.'s ties to the bloc or exit altogether.

Still, the referendum Mr. Cameron will propose wouldn't occur before the end of the first half of the next Parliament, roughly by late 2017, after an election.

He is betting that, by offering the vote, he can both appease the anti-Europe wing of the Conservative Party and, at the same time, keep Britain in the EU under new and better terms.

"I want the European Union to be a success. And I want a relationship between Britain and the EU that keeps us in it," Mr. Cameron is due to say.

His proposal is likely to make the Europe debate a key part of the country's next election. That in itself comes with potential risks, as business leaders and others have warned that uncertainty about Britain's future status in the EU could chill the desire for companies to invest in the country until matters are sorted out.

Mr. Cameron's proposal comes with conditions. He will need to win the next election—and likely need to win it outright. His center-right Conservative Party, which failed to win a majority in the previous election and was forced to form a coalition with the centrist and pro-European Liberal Democrats, has been trailing the main opposition Labour Party in opinion polls.

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A survey of the British public late last week by pollsters YouGov YOU.LN 0.00% PLC showed 34% indicated they would vote to leave in a referendum, while 40% said they would vote to stay. A week earlier, 42% said they would opt out, compared with 36% preferring to remain.

While members of the British public are often quick to gripe about the EU voters generally don't cite Europe as a key factor in general elections. Mr. Cameron also is conscious that a key factor in the next election will be in winning the center ground.

Europe also has long been a divisive issue for the Conservative Party—it played a factor in the downfall of the past two Conservative prime ministers, Margaret Thatcher and John Major. In opposition, Mr. Cameron said the party had alienated voters by "banging on" about Europe but the issue has one again come to the fore since he became prime minister amid the euro-zone crisis.

Mr. Cameron also risks further aggravating his European counterparts, who already get frustrated by what they view as the U.K.'s efforts to throw up roadblocks.

European officials have spoken in recent weeks about the potential consequences of a U.K. split. However in private, EU officials have been more critical of Mr. Cameron's plans, with France warning London would not be able to pick and choose which parts of EU membership it would keep. And, some European officials worry the U.K. could prompt others to try to follow suit.

An explicit vote on whether to leave the EU would be the first such move by a member in some time. In 1985, Greenland, which is part of Denmark, voted to leave the EU's predecessor, the European Economic Community. And, in 1975, the U.K. held a referendum on whether to leave the then-EEC, which resulted in a large majority voted in favor of staying in.