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Business warns Cameron's EU gamble could strangle economy

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By Kate Holton

LONDON, Jan 23 (Reuters) - Leading British business figures warned Prime Minister David Cameron on Wednesday that his plan for an in-out referendum on the European Union membership was a risky gamble that could damage the economy and throttle foreign investment.

Speaking after Cameron's call for a vote by 2017, business leaders in London and at the World Economic Forum in Davos said Britain's $2.5 trillion economy would face uncertainty now that its future position in the 27 country-bloc was in question.

"Having a referendum sometime between 2015 and 2018 creates more uncertainty and we don't need that," Martin Sorrell, the chief executive of the world's largest advertising group WPP , said in Davos.

"If I'm looking at it from the point of WPP, it is not good news," he said, of the group that employs 162,000 people across 110 countries. "This is a political decision. This is not an economic decision. You added another reason why people will postpone investment decisions."

Investors and CEO's worry that Cameron could fail to secure a new settlement with the European Union, and that whether he does or not, he is tied to a referendum that could see voters demand an EU exit that would wreak havoc on trade ties.

"It's an extremely high risk strategy," said Phillip Souta, director of Business for New Europe (BNE), a group formed by companies to make the case for Britain to staying in the EU.

"If you have a full in-out referendum in 2017 then it is impossible to ignore the uncertainty.

"You can't have your cake and eat it. You can't have this full in-out referendum without risking potentially quite severe damage to the British economy and people losing their jobs if investment decisions aren't made in our favour."

In an attempt to counter rising anti-European sentiment in Britain, leading business figures from Sorrell to Virgin Group's Richard Branson have started to speak out about the ramifications of Britain slipping out of the EU.

"I am deeply disturbed," Peter Sutherland, a former chairman of BP, WTO director general and European Commissioner for Ireland, told Reuters. "It's an appalling speech in my view."

"Seeking a new settlement for Britain is bound to create a great deal of uncertainty, which is not good for business. It will take years to negotiate, if there is one at all."

'BREXIT LIMBO'

Some business groups such as the Confederation of British Industry, which speaks for some 240,000 businesses, and the British Chambers of Commerce, which represents firms that employ over five million people, said the threat of withdrawal would give Cameron a strong hand in talks.

But they accept that the five year wait would increase uncertainty and undermine investment in a Britain whose economy is stagnating.

"Announcing plans for a referendum on British membership puts the onus on the rest of Europe to take the Prime Minister seriously," BCC Director General John Longworth said.

"However, the lengthy timescale for negotiation and referendum must be shortened. Although EU membership is not the biggest issue facing businesses in a world filled with uncertainty, the prime minister must be mindful of the need for pace and ambition."

Cameron says he is confidant he can persuade the other 26 EU countries to allow Britain to renegotiate its membership terms, and that as long as he gets the reforms he wants he will campaign for Britain to stay in the bloc. After his speech, he twice avoided a direct answer when asked if he would campaign for Britain to exit the EU should he fail to secure the reforms.

"The policy is confused because he wants to present it as in/out, wants to campaign for staying in, and then says he wants to change the way the EU is run," Marc Ostwald, a fixed income strategist at Monument Securities said.

"But the UK is just one of 27 members. The question on everyone's lips is you may want that, but how do you get it?"

Many of the executives who have spoken on Europe say they want to see the bloc reformed, but believe it is better to do so from within the group than risk finding Britain on the outside.

Dropping out of the European Union could endanger the City of London, Europe's most important financial centre.

"The single market is the EU's greatest asset and is of crucial importance to the banking and financial services industry in the UK," said BBA Chief Executive Anthony Browne, the head of the trade association for the UK banking and financial services sector.

"We are clear that we want the UK to remain an active participant in the single market, helping to write the rules and push for greater trade and economic growth."

http://www.globalpost.com/dispatch/news/thomson-reuters/130123/business-warns-camerons-eu-gamble-could-strangle-economy