Is Britain Headed Out of the EU?

Not just yet. But domestic pressure over immigration has made a once remote possibility more plausible.

German Chancellor Angela Merkel, left, reportedly warned U.K. Prime Minister David Cameron that anti-immigration policies may lead to London's departure from the European Union. (Rebecca Naden/Reuters)

Since it joined the European Union in 1973, Britain's relationship with it has never been easy. But until recently, the possibility that the United Kingdom might leave has always been remote.

Not anymore. According to a report in Der Spiegel, German Chancellor Angela Merkel warned British Prime Minister David Cameron that efforts to impose immigration quotas in the U.K. would be a "point of no return" after which Berlin would no longer oppose London's withdrawal from the union.

EU countries are legally barred from limiting immigration from other member states, a decision that has had a great effect on migration patterns on the continent. In Germany, the arrival of eastern and southern Europeans in recent years has brought the country's foreign population to 7.6 million, its highest number since records began in 1967. In the U.K., the number of Polish residents increased ten-fold from 2001 to 2011, engendering opposition from Britons complaining that the new immigrants strained social services and placed downward pressure on wages.

Whether these effects are real is debatable. A study conducted this year by the University of Oxford's Migration Observatory found that immigration has a "small effect on the average wages of existing workers" and that rising wages and employment in the long run balance out temporary hardship for low-income workers. But anti-immigration sentiment has had a marked effect on British politics.

Consider the rise of the United Kingdom Independence Party. Once a right-wing party operating on the fringe of mainstream British politics, UKIP has recorded significant gains in 2014, winning 27.2 percent of British votes in European parliamentary elections and a high-profile by-election. Its surprising popularity has pressured David Cameron to shift to the right on immigration. The prime minister has promised to hold a referendum on Britain's place in the EU in 2017 if his Conservative Party wins national elections scheduled for next year.

UKIP and its supporters argue that a British exit (dubbed "Brexit") would greatly benefit the British economy. Freed from regulations imposed by the EU, London would negotiate fresh agreements with European trading partners on its own terms.

"We’re the seventh-largest economy in the world, and we’re Great Britain," Paul Nuthall, the deputy UKIP leader told The Guardian, "And because we run a huge trade deficit with the EU, they’d need us far more than we would need them."

Others disagree. Membership in the EU accounts for an estimated 5 percent of Britain's GDP, and observers have warned that the transition itself would take years and cost billions of dollars.

A Cameron victory next year would give London two years to negotiate with Brussels before the 2017 referendum. According to Charles Lichfield, a Europe analyst at Eurasia Group, a political risk company, the two sides may still reach a compromise on benefits accorded to new immigrants in the country. But within Britain, a long-term solution may continue to be elusive.

"It's an impossible debate that neither side can really win," he said.