Analysis: To stay or to go? Britons mull future outside EU

LONDON Fri Dec 23, 2011 10:40am EST

Britain's Prime Minister David Cameron (R) addresses parliament next to Deputy Prime Minister Nick Clegg during the weekly Prime Minister's Questions session in London December 14, 2011.   REUTERS/Parbul TV via Reuters TV

Britain's Prime Minister David Cameron (R) addresses parliament next to Deputy Prime Minister Nick Clegg during the weekly Prime Minister's Questions session in London December 14, 2011.

Credit: Reuters/Parbul TV via Reuters TV

LONDON (Reuters) - Long dismissed as "Little Englanders" living on the fringe of politics, Britain's vocal band of EU-haters sense that their moment may have come.

Prime Minister David Cameron's decision to veto a new European Union treaty during a December 8-9 summit has emboldened Britain's so-called eurosceptics, who are now pressing him to loosen ties with the bloc or even leave.

Cameron insists that Britain must remain part of the 27-nation Union, with which the island nation does around half of its trade and which supports an estimated 3.5 million jobs.

"Our membership of the EU is vital to our national interest," Cameron told parliament last week. "We are a trading nation and we need the single market for trade, investment and jobs."

Many legislators from Cameron's Conservative Party, his Liberal Democrat coalition partners, and the opposition Labor Party, share the government line, which reflects a British establishment view formed over nearly four decades of EU membership.

However, an influential and vocal section of Cameron's party dreams of Britain having a similar relationship with the EU to that of Switzerland or Norway - a free trade agreement which gives access to the EU's huge single market without signing up to what they see as a costly and burdensome bureaucracy.

Public opinion is starting to move in that direction too.

An Ipsos MORI poll in October found 49 percent of British voters would choose to leave the EU in a referendum, compared with 41 percent who would vote to stay in. A similar poll in 2007 found 51 percent of voters would choose to stay in.

EU sources said Cameron, a relative novice to the delicate art of Brussels summitry, had not intended to cast a veto, intending only to use the threat of a "no" as a negotiating tactic to secure concessions for London's financial district.

But the apparent diplomatic missteps which led to the veto have now presented the British premier with an unexpected problem: his defiance in Brussels may have infuriated Continental allies but it proved very popular at home, giving him and his party an immediate lift in the opinion polls.

No one expects a British exit from the EU to be seriously proposed any time soon and the current fraying of relations between the remaining EU 26 nations over their fiscal pact could yet open the door for Britain to re-engage with Europe as the Cameron's coalition partners, the Liberal Democrats, are demanding.

However, the eurosceptics see a unique opportunity to refashion relations with Europe and create an entity which looks more like a free trade association than a political and fiscal union.

Peter Bone, one of the Conservative eurosceptic members of parliament, believes Britain is clearly moving in the direction of quitting the EU.

"I think what is much more likely is that we will have to come out and renegotiate our position with the EU from outside," he told Reuters.

Cameron wielded the veto against his EU partners after France and Germany rejected his demands for safeguards for Britain's important financial services sector.

The decision left Britain, the bloc's third largest economy, in a minority of one and infuriated key allies such as Germany and France.

Conservative eurosceptic MP Douglas Carswell said the summit outcome made a British referendum on EU membership "even more likely."

"There is now going to be some sort of new deal," he said.

In his vision, Britain would have a Swiss-style free trade agreement with the EU but would not be an EU member state.

BRITISH BULLDOG BITES

Popular feeling against the EU in Britain is already running high and there is a risk that Britons' alienation from Brussels could increase if they feel their country does not have a say in important decisions affecting them.

Opposition to Europe is fuelled by doubts about the benefits of EU membership and resentment at what are seen as overly intrusive decisions from Brussels, eagerly covered by a largely eurosceptic British press.

Another Conservative MP, Andrew Rosindell, who urged Cameron before last week's summit to show some "bulldog spirit," said Britain had reached a fork in the road.

"We no longer want to go down the road of more centralization of power. What we do want is trade and cooperation," he said.

"I believe there should be a referendum at the right time - I voted for one in parliament," added Rosindell, who has a bull terrier dog which he dresses in a Union Jack waistcoat.

"It doesn't have to be an in/out referendum -- there could be an alternative that is good for business, good for the country and which others could follow if they want."

"In/out is rather a false choice. If we get a new relationship sorted out, Switzerland, Turkey and Norway would want to be part of that."

Such fighting talk alarms British businesses who fear it could cost Britain influence over crucial EU economic decisions.

Martin Sorrell, chief executive of advertising group WPP (WPP.L) told Reuters it would be "better to be on the inside of the tent than the outside."

The Confederation of British Industry, the main business lobby group, expressed concern that the debate would distract from the key goal of resolving the eurozone crisis.

LINES CROSSED

With the euro zone crisis fuelling hostility to the EU among British voters, there is a good chance they would opt to pull out of the bloc if given a chance.

Citigroup Global Markets said in a note for clients that, over the long term, "exposing the UK public's widespread euro-skepticism to the light of day may accelerate support for an ultimate exit for the UK from the EU."

"We believe this is currently a low probability and long-term prospect, but one that will introduce significant doubt over the UK's dealings with Brussels and fellow member states," it said.

Government sources scorned the idea that Cameron's decision put Britain on a path that could lead it out of the EU.

"They said that when we didn't sign up to the euro 20 years ago and it didn't come to pass. The idea that when you don't sign up to everything you are isolated is nonsense," one source said.

"We are a very big economy and therefore a big influence in the EU," the source said, adding that this would remain the case.

Economists say that Britain must protect its trade ties whatever the political posturing.

"I think UK disengagement from the European Union in terms of trade and financial linkages is really very unrealistic," said Jens Larsen, economist at RBC.

"What I see going on is the more political dimension to that where Britain might lose influence on how the European Union is being shaped, but I don't think anyone in government, or anyone in opposition, is seriously considering diminishing the economic and financial links," he added.

COALITION TENSIONS

Cameron is desperate to avoid feuding over Europe that wracked previous Conservative governments dating back to Margaret Thatcher in the 1980s.

But the new intake of Conservative MPs who came into parliament in 2010 are more eurosceptic than many of their predecessors and public attitudes are changing too.

The Conservatives are in coalition with the pro-Europe Liberal Democrats and the issue has the potential to bring down a government that hopes to rule until 2015.

The government has promised that any future transfer of power to Brussels will be put to a referendum. But Cameron was forced to water down a pledge to repatriate some powers from Brussels as the price of a coalition deal with the Lib Dems.

Cameron knows that if he weakens his stance on Europe, he risks losing supporters to the avowedly anti-EU UK Independence Party (UKIP), which won 16 percent of the vote in the 2009 European election, its best ever result.

UKIP leader Nigel Farage took heart from Cameron's decision last week, saying Britain had started its "great escape" from the EU, recalling the famous film made about a World War Two escape by Allied prisoners from a German camp.

"David Cameron has inadvertently opened up the real debate. Logic tells you there is only one of two things to be done - either we leave or we go further into it. Where we are now is untenable," Farage told Reuters.

Elsewhere, signals are mixed.

A Reuters poll of economists this week found that Cameron's veto had not significantly increased the chances that Britain would leave the bloc.

Despite the veto, Britain has still been invited to participate in talks on new eurozone fiscal controls and some EU nations have attempted to make contact since the summit to encourage Britain back into the fold.

John Kerr, a former British ambassador to the EU who famously passed notes to Prime Minister John Major from under the table during talks on the Maastricht Treaty 20 years ago, said it was not clear how long Britain would be out in the cold.

"It's not clear what exactly was decided in the middle of the night -- the Brits stormed off in a huff and France announced a version of what had been decided," he told Reuters.

"It's still all to play for."

(Additional reporting by Mohammed Abbas, Matt Falloon and Tim Castle)