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UK's relationship with Germany just got cosier

The ongoing saga of Britain's often fractious relationship with the European Union (EU) took another turn Friday, as the U.K. and Germany signaled closer co-operation over the country's role within the trading bloc.

George Osborne, the U.K.'s Chancellor of the Exchequer, and his German counterpart Wolfgang Schaueble wrote of their wish to "guarantee fairness" for non-euro-zone European Union countries, in an article in the Financial Times on Friday.

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As the euro zone's monetary ties get stronger, Schaueble also endorsed the possibility of a "two-speed solution" for Europe.

Germany's commitment to protect both those inside and outside the euro will be seen as a victory for U.K. Prime Minister David Cameron, and help him to sell EU membership to his own party and the broader British population. The topic was top of the agenda during German Chancellor Angela Merkel's visit to London in February.

Cameron has committed to a referendum on whether to remain in the 28-state union if he wins the next general election. This has raised eyebrows in the City, where many view continued U.K. membership of the EU as vital to economic success.

George Osborne
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George Osborne

City fears march of the populists

The U.K. is one of ten countries in the EU which did not adopt the single currency. Those who did are slowly moving closer, both economically and politically, after the euro zone debt crisis exposed some fault lines of the currency.

One key tenet of this process is banking union, which has caused concerns that the U.K. will be left out of major decisions which affect the EU, its biggest trading partner.

The increased popularity in polls of the anti-EU U.K. Independence Party has worried the three mainstream parties: Cameron's Conservative Party, its coalition partner the pro-European Liberal Democrats, and the Labour Party. All are jostling for popularity ahead of next year's general election.

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