David Cameron this morning gave his eagerly awaited speech on the UK’s relationship with Europe and delivered an uncompromising message to his EU partners: repatriate some EU powers or the UK will leave.

As anticipated, the set-piece speech by the UK Prime Minister called for a new settlement, but what has alarmed his European partners is his commitment, if re-elected in 2015, to hold a straight “in-out” referendum within five years.

This is the red-meat that many hard-line Eurosceptics in his party have craved, with Cameron under relentless pressure from his back-benchers – in particular the so-called “Fresh Start” Group – to take a harder line on Europe.

Many Conservative MPs are concerned by the rise in support for the UK Independence Party (UKIP) and worry that they will lose parliamentary seats if the issue is not addressed.

The referendum pledge threatens to reduce the relevance of UKIP in British politics, since it will have largely served its purpose now that a referendum has been offered.

UKIP Leader, Nigel Farage, however, says that the Conservatives are just kicking the can down the road.

The status quo is not an option

The Conservative Party will enter the next General Election with a pledge to re-negotiate the terms of UK membership of the EU, based on an internal “Review of Balance of Competences”, and then put the result to a referendum.

The referendum will offer the stark choice between EU membership on the newly re-negotiated terms or the UK leaving the EU altogether. It will not offer the voters the choice of a third question – to keep the status quo.

Mr Cameron said: "Legislation will be drafted before the next election. And if a Conservative government is elected we will introduce the enabling legislation immediately and pass it by the end of that year. And we will complete this negotiation and hold this referendum within the first half of the next Parliament.”

"It is time for the British people to have their say. It is time to settle this European question in British politics."

Uncertainty about the UK’s Future

The opposition Labour Party has criticised the announcement.

Labour leader Ed Miliband says that legislation already exists to commit to a referendum if there were any treaty changes, adding that business will hold off from investing in British jobs while there is so much uncertainty about the UK’s future over the next four to five years.

Labour also says that Mr Cameron has made this announcement in the interests of his party, which is desperately split over Europe, rather than the national interest.

Mr Cameron, himself remains in favour of EU membership, and his speech was by and large, supportive of the European Union.

The Labour view is that, by being bounced into an in-out referendum pledge when Mr Cameron is himself pro-EU, he is showing a distinct lack of leadership.

Mr Miliband said today: “In October 2011, (David Cameron) opposed committing to an in/out referendum because of the uncertainty it would create for the country. The only thing that has changed since then is he has lost control of his party and is too weak to do what is right for the country.”

Deputy Prime Minister and Leader of the Liberal Democrats, Nick Clegg, says that renegotiation is not in the national interest and made it clear that Mr Cameron was speaking today not as the Head of the British Government, but rather as the Leader of the Conservative Party.

Nevertheless, it makes it difficult for the coalition to show a united front on Europe – and almost impossible for the coalition to start any re-negotiations before the next election.

If the Deputy Prime Minister thinks the Prime Minister has done something that will actively harm the economy, it does not bode well for the remainder of the coalition’s term in office.

Phony referendum campaign

Mr Cameron hopes that he has now “parked” the thorny issue of the UK’s relationship with the EU and that his back-benchers will now, as he puts it, “stop banging on about Europe.”

Fat chance! The issue is set to dominate British politics in the run-up to the next General Election.

Already, a cross-party group which campaigns for UK membership and leadership in the EU has been formed.

The Centre for British Influence through Europe (CBIE) brings together some of the big beasts in the British political jungle including former Commissioner Lord Mandelson and Conservative Cabinet Minister, Ken Clarke, to make the case for British membership. A phony referendum campaign is now underway.

Many business leaders in the UK have broken cover on the UK’s EU membership and called on Mr Cameron to recognize the benefits of the single market and make the case for being in the European Union.

Washington has also expressed alarm. Recently, the Obama Administration broke diplomatic protocol by saying that the US wants to see a strong British voice inside the EU.

Unilateral Renegotiation

Cameron’s EU partners will now have to decide how to respond, but a unilateral re-negotiation at a time when minds are focused on resolving the crisis in the Eurozone and building economic recovery is surely not helpful.

There are no guarantees that other EU governments will countenance repatriation demands when it could trigger a “beggar-thy-neighbour” response from other EU countries.

That is why the referendum pledge is such a huge gamble. France, in particular, has been critical of the UK’s bid to “cherry-pick”.

Having said that, some EU members see this is an opportunity to redefine the dynamics of the EU – not least given the recent trends towards closer integration within the Eurozone.

Shopping List

EU governments want the UK to remain in the fold, and it is possible – though by no means guaranteed - that they will concede certain terms.

The former Belgian Prime Minister and current Head of the Liberal group in the European Parliament, Guy Verhofstadt, has fiercely attacked Cameron for proposing to issue a shopping list and laying down an ultimatum to the EU.

However, Mr Cameron has not yet produced his list of demands – as some in his party would have liked. His coalition arrangement with the unreservedly pro-EU Liberal Democrats has perhaps prohibited him from doing that.

Slump in support for a “Brexit”

As it happens, public opinion in favour of a “Brexit” has slumped in the last two months. The percentage of UK voters wanting to exit has dropped 17 points to 34%, whilst those wanting to stay in has risen 10 points from 30% to 40%.

Today’s announcement does however present Mr Miliband with a headache. The Conservatives are likely to see a bounce in the polls after today’s news, and Mr Miliband will be under pressure to offer a referendum as well.

The stated intention of the Prime Minister is to campaign to remain in the EU “with all my heart and soul”.

By saying this, Cameron has run the risk of making the Conservatives appear so openly pro-EU that he may be challenged for the leadership by his Eurosceptic colleagues.

There are so many factors involved that it is impossible to predict how today’s events will play out, but one thing is for sure: Europe has suddenly become a defining issue for the beleaguered British Government.

Contact russell.patten@grayling.com