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Notes From Davos, Day Two: UK Reconsiders Relationship With EU

A view of the city of Davos, Switzerland, venue of the World Economic Forum (WEF) on Jan. 21, 2013. Photo by Pascal Lauener/REUTERS.

I’ve just come in off the hushed streets, a light snow is falling in the crisp cold, and conference-goers are making their way to restaurants, bars, and back to hotels. Thursday at the World Economic Forum brought a lot of talk about money, politics, and the way politics presses on what money is worth and who has it to spend.

Earlier this week British Prime Minister David Cameron made a splash by announcing his intention to put his country’s continued membership in the European Union to a vote. There’s rising resentment of the European common market in Britain, especially among Cameron’s own Conservative Party. The British only belatedly joined in the first place, long after a group of core continental nations began decades of greater economic consolidation with the Treaty of Rome in 1957.

British Prime Minister David Cameron and Queen Rania of Jordan at the World Economic Forum. Photo by Denis Balibouse/Reuters.

The prime minister followed up on his comments Thursday in Davos, endorsing a “competitive, open, flexible Europe,” while at the same time airing his misgivings that banking union would inevitably follow monetary union, even though half the members of the EU are, like the United Kingdom, not using the common currency, the Euro. Cameron declared his intention to use the coming years to negotiate a new relationship with the EU, as his country prepares to put membership to the voters.

A few hours later, German Chancellor Angela Merkel — who put her power and prestige on the line inside Germany by saving the Euro using her country’s considerable resources — reminded her audience that the EU embarked on the common currency in the first place with the idea that one day all members would be part of the Eurozone. The British and the Danes, Merkel said, have repeatedly decided to stay out of the Euro, but that would have no impact on the drive to strengthen the currency. Austerity will continue, Merkel said, because even though the Euro was in a lot better shape than it was a year ago, there was still plenty of hard work to do.

The last word went to the veteran currency trader George Soros at a small dinner. The man who has made billions trading currencies, and has given billions away, said that since he is retired he “is no longer in the money-making business.” But he had plenty to say about the European common currency, which he has regarded with skepticism during its short life.

The Hungarian-born financier said the 2008 market collapse “exposed a flaw in the Euro,” when credit markets seized up and sovereign credit — that is, governments — rushed in to take the place of bankers. While he pronounced the Euro crisis “not yet solved,” Soros drily conceded “the Euro is now here to stay.”

By opting out of both the currency and the efforts to save it, and hinting that the United Kingdom could decide to leave the EU all together, Soros said the country is surrendering influence. Prime Minister Cameron might not have much choice, he said, since “Cameron has to finesse the pressure from his own back-benchers.”

Could Britain really leave? Even U.S. government representatives have told the British that Washington looks at continued UK membership being in U.S. national interests. The highly influential CEO of the investment management firm PIMCO, Mohamed El-Erian, told the BBC Thursday night that international markets watching Britain flirt with quitting the EU could start putting a risk premium on investments, injuring the British economy for just talking about going. It is no surprise that the Cameron-Markel “debate,” was one of the most closely watched aspects of day three of this year’s World Economic Forum.

I’ll have more from Davos Friday.

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