British Prime Minister David Cameron promised if he wins the next election, an In-Out referendum within five years on membership of the EU!!

Marooned

British Prime Minister David Cameron promised if he wins the next election, an In-Out referendum within five years on membership of the European Union. He said, “It is time for the British people to have their say. It is time to settle this European question in British politics…….I say to the British people, this will be your decision. And when that choice comes, you will have an important choice to make about our country’s destiny…..I know there will be those who say the vision I have outlined will be impossible to achieve. That there is no way our partners will cooperate. That the British people have set themselves on a path to inevitable exit, and that if we aren’t comfortable being in the E.U. after 40 years, we never will be. But I refuse to take such a defeatist attitude, either for Britain or for Europe…..When the referendum comes I will campaign for it with all my heart and soul……I never want us to haul up the drawbridge and retreat from the world….I am not an isolationist……We have the character of an island nation, independent, forthright, passionate in defence of our sovereignty. We can no more change this sensibility than drain the English Channel….“The biggest danger to the European Union comes not from those who advocate change but from those who denounce new thinking as heresy….And my point is this,  more of the same will not secure a long-term future for the euro zone. More of the same will not see the European Union keeping pace with the new powerhouse economies. More of the same will not bring the European Union any closer to its citizens.”

Mr. Cameron’s speech will further inflame tensions with his European colleagues, German Foreign Minister Guido Westerwelle recently said, “Germany wants the United Kingdom to remain an active and constructive part of the European Union. But cherry picking is not an option.” In a sporting analogy French Foreign Minister Laurent Fabius previously said, “You cannot do Europe à la carte….Imagine the E.U. was a soccer club: once you’ve joined up and you’re in this club, you can’t then say you want to play rugby.” Last week, a White House spokesman quoted President Obama as telling Mr. Cameron by telephone that, “The United States values a strong U.K. in a strong European Union, which makes critical contributions to peace, prosperity and security in Europe and around the world.”

Mr Cameron’s pro-European, Liberal Democratic coalition partner Mr Clegg, vented his distain with Mr Cameron’s speech saying, "We should always be governed by what’s in the national interest, and my view is that years and years of uncertainty because of a protracted, ill-defined renegotiation of our place in Europe is not in the national interest because it hits growth and jobs….It’s entirely for the Prime Minister as leader of the Conservative Party to set out what he wants to put in the Conservative Party manifesto and what he wants to do if there was a Conservative majority government…..My priority remains, and will always remain, yes, reform in Europe, yes, a referendum where the circumstances are right, as we’ve set out in law, but above and beyond anything else, promoting growth and jobs and building a stronger economy in a fairer society."

Lord Mandelson, the former Labour minister and EU trade commissioner said, "I think that many people, including many people in Brussels…will regard this speech as much more unvarnished, much more unqualified than they were expecting, but also unworkable…..(I) think other member states will not negotiate such a new settlement as the special state for Britain within the European Union. I don't think they will provide a new treaty to accommodate Britain's demands and I don't think they will agree a timetable for negotiation that suits Britain's needs. David Cameron will be left rather like a man without a plan."

Rebuked

In a public rebuke of his successor Mark Carney, Bank of England Governor Mr King last night in Belfast defended BoE policy since the crisis started, and the UK's inflation targeting regime. He argued that the BoE has played its part in supporting growth by implementing a powerful combination of medicines, he continued on to say that relying on generalised monetary stimulus alone is not a panacea. He argued instead for the implementation of supply-side reforms and suggested that UK banks may require further capital. Mervyn King said that credit conditions have improved, and “should improve further as the impact of the FLS kicks in……We could provide even more monetary stimulus through further asset purchases…..We will continue to assess the benefits and costs of further reductions in overnight interest rates. Be in no doubt that we are ready to provide more stimulus if it is needed.”

The UK’s Monetary Policy Committee released the minutes of its most recent meeting, it voted 9-0 to keep rates unchanged and 8-1 to maintain the total level of QE at £375bn. The committee highlighted the pound’s strength may prove a hindrance to the rebalancing of the British economy. The committee said, “Substantial headwinds to recovery remained, including the drag to activity from fiscal consolidation, a further squeeze in household real incomes, and the deterioration in U.K. competitiveness over the past couple of years….The sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy.” Miles Davies requested the expansion of QE by £25bn. The MPC continued on to say, “Tensions associated with the imbalances within the euro area appear to have eased further,…. Developments had contributed to better financial market sentiment and generally higher asset prices…(Developments)…had not substantially altered the balance of risks associated with maintaining and increasing the size of the monetary stimulus, they had strengthened the belief of some of these members that no further asset purchases were required at the current juncture….There was a risk that the prospect of continued above-target inflation could result in an erosion of credibility in the monetary policy framework which could affect wage and price- setting behaviour.”

Mr King received some good news as British benefit claims data dropping by 12k to 1.56m, this is the lowest level in over eighteen months. The International Labour Organization (ILO) also released its unemployment measure for the UK, showing it unexpectedly dropping to 7.7% from 7.8% in the three months to November, the lowest since April 2011.

The issuance calendar was again relatively active, most importantly Portugal tapped its 10/17 issue (MS +395), ahead of the results of the auction, the benchmark 5y yield was off 7bp. Madrid sold €1bn 5y (SPGB +190). Further issuance included Toyota launching a €1bn 4.5y (MS +35) and a €750m 10y (MS +65). Unicredit issued €500m 5y (MS +163), CBA €600m 6y (MS +55), Veneto €400m 2.5y (MS +350), Terra Boligkreditt €1bn 10y (MS +43), NRW €1.25bn 3.5y (MS -8) and Deutsche Pfandbriefbank €500m 4y (MS +8). The EIB also issued £500m 6y (MS +36).