Cameron's risky EU strategy could isolate Britain

British negotiators have long been adept at achieving their objectives in Europe without threatening to walk out – but David Cameron has chosen a different and dangerous path, says think-tank

In a much anticipated speech on Wednesday, British Prime Minister David Cameron put forward a positive vision of Britain's continued European Union membership, promising the negotiation of a new settlement following the 2015 general election and an "in-out' referendum. Cameron hopes that this will rally eurosceptics in his Conservative Party and in the electorate, and neutralise the divisive EU issue until after the election.

But Cameron's strategy is risky, for it assumes that a new settlement can be negotiated. The prime minister did not address the situation that would arise if he failed to deliver a satisfactory package in line with five principles enunciated in his speech: competitiveness, flexibility, a return of powers from the EU to the member states, democratic accountability with more power for national parliaments, and fairness, notably in the treatment of non-eurozone EU member states. In particular, repatriation – the return of powers to the UK from the EU, an iconic issue for eurosceptics – may not be negotiable. Most European leaders see it as a Pandora's Box: once open, others will try to claw back competences in fields that are important to them.

For the City of London, Britain's financial hub, a modus vivendi with the eurozone that safeguards British business is far more important than repatriating powers from Brussels in secondary areas like fisheries and regional policy. With diplomatic acumen, Cameron could find allies among the 10 non-eurozone members for keeping responsibility for the single market in the 27-member union, avoiding a shift of power in this key area to the eurozone. But Cameron has little to say about any of this in his speech. Instead, the implicit threat of withdrawal could well alienate member states that otherwise might have cooperated with Britain. The UK will be seen, again, as opening up secondary but contentious issues, distracting attention from efforts to resolve the eurozone crisis.

British negotiators have long been adept at achieving their objectives in Europe without the threat of withdrawal, as with the opt-outs from the single currency and the Schengen agreement on free movement across borders. Varied patterns of participation in different policy areas have existed for years. The EU treaties provide for enhanced cooperation among the willing in many fields, with other member states entitled to stand aside. For example, the EU does not prevent Britain and France from integrating their nuclear industries while Germany plans to phase out nuclear power entirely. The same goes for military cooperation, as seen in Libya and Mali. Presenting the present EU as a one-size-fits-all structure is somewhat misleading.

Many British observers will see the prime minister's speech primarily in domestic political terms. The Conservatives appear intent on stealing the clothes of the nationalist UK Independence Party, which might well win next year's European Parliament election in Britain, and could then syphon off Conservative votes in the 2015 general election. But British public opinion – which is increasingly eurosceptic – has to some extent been shaped by the government itself. Leading ministers have encouraged the growth of a large anti-EU caucus within the Conservative Party and have failed to explain to the public the advantages of EU membership. To his credit, Cameron did take time in his speech to remind his audience of the EU's historic achievements.

The political dangers in announcing an 'in-out' referendum several years in advance are evident. The resultant uncertainty does nothing to improve Britain's investment climate, as the Labour Party and business leaders have pointed out. The Conservatives' response that uncertainty is there anyway is unlikely to reassure worried foreign investors. The increased likelihood of eventual UK withdrawal from the EU may also reignite separatist pressures in Scotland, where, on the whole, the EU is held in less opprobrium. In turn this could encourage separatists in Flanders and Catalonia.

Finally, a UK on the path to withdrawal from the EU could find itself increasingly isolated internationally. No convincing alternative international strategy for Britain has been put forward. Cameron has rightly rejected the Norwegian or Swiss model as a basis for Britain's future relations with the EU, as these impose obligations without granting a say in decision-making. United States President Barack Obama and senior figures in his administration have expressed their preference for a strong Britain in a strong EU. Britain's 'special relationship' with the US could come under strain in the event of British withdrawal, especially if the Americans were to conclude a free trade agreement with the EU.

The prime minister's tone during his speech was measured. But while it may have pleased EU critics in Britain, it will not reassure investors, governments of other member states, or Britain's friends in the international community. Still, the referendum, if it is held at all, is at least four years away. Political and economic circumstances throughout the EU may well have changed considerably by then.

Sir Michael Leigh is a senior advisor to the German Marshall Fund of the United States in Brussels. The GMFUS first published this article as part of its Transatlantic Take Series: Cameron's Europe plan fraught with risk