David Cameron risks making "premature" and "opportunistic" demands in Europe and weakening Britain's power in Washington and other major capitals, the most senior diplomat to leave government in recent years has warned.
Sir Nigel Sheinwald, Britain's ambassador to Washington until last year and before that the senior British diplomat in Brussels, said in a Guardian interview that recent warnings by the US administration urging Britain against staging a distracting referendum was "a conscious decision by the Obama administration to intervene in the UK debate", reflecting a long-standing view that it wanted its closest political ally closely involved in Europe.
In his first interview on the politically charged subject of Europe – and using unusually candid language for an ex-diplomat – Sheinwald said: "If Britain is active and influential in Washington that makes us more influential in Brussels, Delhi and elsewhere. Equally if we are influential in Europe, then we have a bigger impact in Washington and the other power capitals of the world. These things are mutually reinforcing.
"I just cannot see any logical basis for thinking a move to the sidelines, or particularly a move out of Europe, would be anything other than diminishing to UK's capacity, standing, influence, ability to get things done and capacity to build coalitions internationally."
Sheinwald also warned that in the eyes of the Americans the Cameron intervention risked slowing the pace of European economic recovery. Nick Clegg spoke in similar terms on Monday, telling Cameron not to create a period of prolonged uncertainty because of the damaging effect on jobs.
The prime minister is preparing to tell his Conservative cabinet colleagues on Wednesday of the European negotiating strategy he plans to set out in a landmark speech in the Netherlands on Friday.
Sheinwald, who was ambassador to Washington between 2007 and 2012, is the most senior diplomatic figure to urge caution on Cameron. He was also the UK diplomatic lead in Brussels between 2000 and 2003, as well as chief foreign policy adviser to Tony Blair between 2003 and 2007. He is now a member of the thinktank and advocacy group Business for New Europe.
Sheinwald disclosed that US businesses were increasingly asking about Cameron's intentions and expressing alarm that Britain, as the main gateway to European investment, might be closed. He repeatedly urged Cameron to be cautious in his speech on Friday. "British business has been disappointed by the failure of the British political class to speak up on Europe for a long time, but they have realised the debate has taken a dramatic turn."
He added: "We have sold investment in the UK on the basis that the UK is the best gateway into the single market. That is the way we have presented ourselves. American firms and firms from the far east have based themselves in London for that reason. That has been such a success over the past decade or 15 years." Sheinwald cautioned Cameron against tabling demands for the repatriation of UK powers, saying it is too early to know what the rest of the EU might seek in negotiations after the European elections in 2014.
"To take the position some take here in the UK, which is our European partners are going to be asking for the moon, and therefore it won't be surprising if we put in a very large demand on the table – that seems to be at the very least premature. In any event other members of the EU would regard any really significant proposals by us to renegotiate as opportunistic, given the main areas they are going to be examining are ones they would say are necessary for the euro to survive and prosper.
"These issues are existential for them, and they would argue of a different character to the sort of proposals we might be putting forward."
Anything seen as an unravelling of the single market or the fragmentation of the EU would be "a bridge too far". He added: "Investors are worried by the thought that we are going to end up outside the EU by mistake, or without thinking through the economic consequences or end up with an inferior model like Norway or Switzerland."
Such a move would exclude many foreign owned financial services from Britain, he said.
Philip Gordon, the US under-secretary for European affairs, last week used a briefing in the UK to urged Cameron not to hold a referendum.
Sheinwald said the White House regard "another dose of uncertainty on top of the euro crisis as deeply unwelcome".
"They know it affects the pace of the recovery of the European economy. But they also know it will affect the ability of Europe to focus on other things so it will contribute to a weakening of European resolve for example in the middle east and whether Europe has a capacity in the area of security and defence. It will affect our ability to project our power and work with America on world problems."
He added: "The idea, if there were an idea, of going it alone being somehow appealing to our traditional partners or to our future partners in Asia or elsewhere in the world has been undermined very significantly by the comments made by the Obama administration."
Britain had succeeded in negotiations in Europe in the past 25 years, and there would always be efforts to accommodate a partner such as the UK. But he warned Cameron the referendum promise "would not be regarded as a knockout blow ... I certainly don't think it will be mean everyone will say 'fine, they have got a lock on the negotiations, we have to give them what they want'. There is too much at stake on the rest of the continent. They would worry about our government's successive statements, and the comments from others in the political system, and the impact they have on confidence in the EU and attitudes to the EU over the years. They would judge ultimately things according to their own economic and political interests."
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