Britain Braces for Battle Over Europe After Cameron Surprise Win
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David Cameron persuaded U.K. voters to give him a second term as prime minister. Now he needs to persuade them to stay in the European Union.
The Conservatives’ surprise win came after a campaign that saw Cameron’s pledge of a referendum on EU membership by 2017 share almost equal billing with his record of delivering economic stability. Cameron, who has said he wants the country to stay in the EU, will first seek to renegotiate Britain’s membership terms.
The Conservatives “may even try and bring things forward to stop this wrecking the next two years for them,” said Tim Bale, professor of politics at Queen Mary University in London. “It’s a very tight majority which means he will have to make promises to people and do things to keep them on board on Europe, in particular as Cameron has a record of backing down under pressure to euro skeptics.”
While the pound surged on Cameron’s victory amid optimism that an economic recovery will solidify under his administration, some investors warned that the euphoria could be short lived as a EU referendum draws closer into view. The vote is intended to settle a question that’s divided the nation since the U.K. joined Europe’s common market in 1973, and split the Conservatives for a generation.
“Initial short-term cheer could be followed by a medium-term chill,” said Fabrice Montagne, an economist at Barclays Plc. “The referendum is likely to generate a substantial amount of uncertainty, particularly if polls fail to show more substantial support for EU membership in the coming weeks and months.”
A BBC projection puts the Conservatives on course to win 329 of Parliament’s 650 seats, confounding polls which suggested no party was likely to have a majority in the House of Commons.
While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat so far, the party won 13 percent of the popular vote, according to the BBC. Last year, UKIP won the most votes in elections for the European Parliament, taking almost a third of Britain’s seats.
UKIP’s rise forced Cameron onto the defensive during the campaign. Cameron spelled out measures to curb access to benefits for new arrivals from the EU, and in the run-up to the election, when asked by a television studio audience member what his “red lines” would be in any potential coalition he chose the in-out EU referendum.
Polls show a mixed picture on British attitudes to leaving the EU. Thirty-nine percent of voters are in favor of exiting the EU against 40 percent wanting to stay, according to a Populus poll last month. A YouGov poll published this week gave supporters of staying in the EU a 12-point lead.
William Hill Plc, the biggest U.K. bookmaker, puts the odds of the U.K. staying in the EU at 1/2, meaning a successful 2 pound bet wins 1 pound. The odds of an exit are 6/4. Both the Labour Party and the Liberal Democrats oppose the U.K. exiting the EU.
“The city is the major earner for the United Kingdom,” Saker Nusseibeh, chief executive officer at Hermes Investment Managers, which oversees about $45 billion of assets, said in an interview on Bloomberg Television with Anna Edwards. “It is a major earner because it’s the financial center of Europe. If there is a Brexit it cannot be the major center of Europe.”
Every opinion poll before Thursday’s election had indicated the Tories were neck-and-neck with the Labour Party, causing market volatility on concern months of uncertainty lay ahead as Britain struggled to form a government.
“Last night’s election result shows that opinion polls on party support were misleading -- so the outcome of any referendum on EU membership is all the more uncertain,” said Conall MacCoille, an analyst at Davy, the Dublin-based securities firm, and a former economist at the Bank of England. “A scenario where the U.K. electorate shun the risks of EU exit to the economy can’t be dismissed.”
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