Will the UK exit the EU?
January 14, 2013
The financial press, particularly in Europe, is much abuzz about the upcoming speech by U.K. Prime Minister David Cameron on the countryaEUR(TM)s future in the European Union (EU). The prime minister desires to seize the opportunity of a major revamping of EU treaties to renegotiate its membership terms and put this to a referendum after 2015 aEUR" provided Mr. Cameron wins re-election.

The Conservative Party, which David Cameron heads, has been unhappy with BritainaEUR(TM)s membership in the EU for some time. Recent moves to vest more financial authority in EU-centered institutions have heightened concerns about the future of London as the premier financial center in Europe, if not the world. With all the turmoil that has plagued continental Europe for the past four years, Prime Minister Cameron is unlikely to gain a sympathetic ear from European leaders. However, a case could be made that the Germans would like to cultivate closer relations with Britain now that relations with France have become somewhat strained. This might be used as an inducement for Britain to soften demands in negotiating new terms of EU membership.

Domestically, it is unclear what Prime Minister Cameron and the country at large might gain from trying to pressure the EU. Labor leaders in Britain have warned that a referendum is not in the United KingdomaEUR(TM)s national interest. Investment and employment could suffer at a time when the U.K. economy is already on shaky ground, having experience little positive growth since the start of the financial crisis.

The United States has also weighed in with a senior official at the U.S. State Department conveying a message that the aEURoespecial relationshipaEUR? between the two countries could be in jeopardy if the United Kingdom were to leave the EU. At this point, it strikes me as unlikely that Britain would exit the EU, but given the uncertain economic and political environment throughout greater Europe such an outcome cannot be dismissed entirely.