23rd January 2013
The United Kingdom will seek to renegotiate the terms of relationship with the European Union and then put the matter to a vote in 2017. A no vote will see the United Kingdom leaving the European Union.
The speech sees the Prime Minister focusing on the single market legislation but emphasising that he does not want Britain to be part of moves towards ever closer union which he says some States, particularly those in the eurozone, appear set on. He rejects the notion of a two speed Europe but is asking for a structure that accommodates every country. He also takes issue with a phrase in the European treaty which pledges countries to seek ever closer union between their peoples. He would like the UK freed from this.
There has been a lot of political posturing. The UK Independence Party would like a referendum now. Many Tory MPs are happy. The Lib Dems and Labour party are much less so with some suggesting that Cameron has been taken hostage by the right wing of his own party.
But we think Matt Persson director of think tank Open Europe gives a brilliant assessment of the speech.
"There is a trade-off in his speech: as insurance to his own party and the electorate he's now on a strict timetable, which may or may not coincide with that of the eurozone. If he doesn't get concessions, is he willing to recommend "Out" in a referendum in 2017?”
"European partners who feared an imminent dawn raid on Brussels will be relieved. He has set out a plausible and powerful case for EU reform. For this, he should get a fair hearing in national capitals."
We think that Persson has hit upon the big question though it involves two ifs – if he is still Prime Minister will David Cameron campaign to leave the EU if he doesn’t get what he wants in negotiations.
For now politically, and given that Cameron has probably done enough to square his right wing critics, we think the two most important reactions are first that of the Labour leader Ed Milliband because how he reacts will set one of the big themes of the next election and second that of German chancellor Angela Merkel. Her attitude to Cameron’s renegotiation ideas have run hot and cold, though she also has to get elected later this year. Others in Europe will be angry that in the midst of a crisis, the UK is making this move but the 2017 date may assuage some of their anger.
For British business, we think the reaction of the CBI is instructive. It has, at least, publicly aligned itself with the Prime Minister with his focus on the single market and no further integration.
But what does the news mean for savers and investors and those managing their savings and investments in retirement?
Because of the 2017 date, we suspect that stock markets and bond markets will not yet start reacting in any meaningful way to the risk of a British departure or even the benefits of a new found freedom outside the EU. The inflation picture is also more difficult to call though of course because we sit outside the single currency one of the biggest potential ruptures can be avoided.
Even with a no vote, it would be in the interests of the EU and the UK to make any divorce as smooth as possible.
In Mindful Money’s ongoing coverage we will concentrate on looking at the investment and economic implications at local, regional and national levels including the position of the four home nations and the City of London. We will stay out of the political side. On that you will no doubt make up your own mind, but will aim to furnish you with what it may mean financially and economically to help you decide.