Germany's Angela Merkel has warned she would rather see Britain leave the European Union (EU) than allow the U.K. any leeway in curbing the flow of immigrants from other EU states, German magazine Der Spiegel reported.
The magazine, which cites German government sources, said U.K. Prime Minister David Cameron's plans to impose a quota on the number of workers coming in to the U.K. had angered the German leader, who said it violates the key right of free movement of workers within the EU.
Merkel would be prepared to drop her support for keeping Britain in the EU if Cameron were to insist on the matter, Der Spiegel said.
Cameron's Conservative Party faces increasing pressure in the U.K. from members of his own party and increasingly popular U.K. Independence Party to grab back more power from the EU, including cracking down on the flow of migrants from other EU member states.
If brought back to power in the 2015 general election, Cameron has pledged to renegotiate the terms of the U.K.'s membership of the EU and run a referendum on whether the country remain in the 28-country group.
Rob Dobson, senior economist at Markit told CNBC that if there was a vote to leave Europe, there would be a lot of short-term financial market uncertainty and sterling would take a hit.
In the medium-term, a withdrawal would have a big impact on trade. "The U.K. would remain a member of the World Trade Organization which would allow access to markets but it would have no influence on setting the rules," Robson said.
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