UPDATE 1-Merkel warns Britain against European Union exit

by on November 7, 2012 6:20 pm GMT

Wed Nov 7, 2012 1:20pm EST

* Merkel says wants a “strong GB inside the European Union”

* German and British leaders to meet in London

* PM Cameron: “Never had very high hopes” for deal

By Peter Griffiths and Claire Davenport

LONDON/BRUSSELS, Nov 7 (Reuters) – Germany’s Angela Merkel
on Wednesday warned Britain not to turn its back on Europe ahead
of talks in London with Prime Minister David Cameron aimed at
overcoming divisions that threaten to block a European Union
budget deal later this month.

Cameron has said he is ready to veto the EU’s seven-year
budget and has attacked its “ludicrous” spending plans, in
comments likely to fuel a view among many in Europe that London
is drifting away from the 27-nation union.

German officials are exasperated by what they see as
London’s move towards Europe’s margins, a feeling reinforced
last week by the British parliament’s vote calling for a
real-terms cut in the EU’s 1 trillion euro ($1.28 trillion)

Before the talks, Merkel told the European Parliament she
could not imagine a Europe without Britain, the world’s sixth
largest economy which relies on the EU for half its trade.

“I believe you can be very happy on an island, but being
alone in this world doesn’t make you any happier,” Merkel said
after British politician Nigel Farage, leader of the
anti-European UK Independence Party, urged her to tell Cameron
that Britain should leave the EU.

Cameron, who wants to stay in the bloc, will back a
real-terms freeze in its budget for 2014-2020. He argues the EU
must tighten its belt at a time of austerity and shrinking
household budgets in many countries.

He was humiliated by the parliamentary defeat and opponents
have accused him of losing control over his Conservative Party’s
anti-Europeans, a group that helped bring down former leaders
and that wants a referendum on Britain’s EU membership.

Cameron said there should be a separate budget for the EU’s
crisis-hit, 17-state, euro zone currency union, of which Britain
is not a member.

“They are proposing a completely ludicrous 100 billion euro
($128.01 billion) increase,” Cameron said. “I never had very
high hopes for a November agreement because you have got 27
different people round the table with 27 different opinions.”

Debate over a referendum on Britain reworking its EU role or
even leaving has risen up the political agenda. A YouGov survey
in October found 49 percent of those polled would vote to leave
the EU if they were given a say, against 28 percent who would
vote to remain in it.


Before the talks with Merkel, Cameron’s spokeswoman denied
suggestions Britain was slowly disengaging with Europe after
nearly 40 years as a member of the EU and its predecessors.

“The prime minister is very much engaging with discussions
on the EU budget and wants to ensure that we get a good deal for
the British taxpayer,” she said.

Cameron’s threat to block a budget deal could delay a
funding increase for the poorest east European member states and
isolate Britain from disgruntled EU nations. He has already
ruffled feathers by talking of using closer euro zone
integration as a chance to repatriate some powers from Brussels.

France and Denmark have also threatened to block a budget
deal to press their own interests, highlighting the obstacle
course facing EU leaders later this month.

The budget accounts for just over 1 percent of EU gross
domestic product, compared to between 40 and 56 percent spent on
national budgets. Most EU money is spent on agriculture (around
40 percent) and regional development in poorer parts of the bloc
(about 35 percent), with the balance going on research, overseas
development aid and 6 percent on administration.

Merkel said last week that veto threats would not help the
EU’s budget negotiations. Germany is the biggest net contributor
to the budget while Britain, which receives an annual rebate on
its payments, is the fourth largest net payer after France and