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Germany's Chancellor Angela Merkel and British Prime Minister David Cameron pose for a family photo during an European Union leaders summit in Brussels February 12, 2015. As Britain’s May 7 general election approaches, investors are getting nervous about the possiblity of Britain’s exit from the EU. If Cameron’s Conservatives form the next government, Brexit will emerge as the defining geopolitical debate.FRANCOIS LENOIR/Reuters

The chances of Grexit – Greece's exit from the euro zone – are fading. The chances of Brexit – Britain's exit from the European Union – are not.

As Britain's May 7 general election approaches, investors are getting nervous about Brexit. Various economists and strategists are warning that the markets, especially the currency market, face tremendous volatility after the election. The only scenario that would take Brexit off the table is a win by Ed Miliband's Labour Party. But if David Cameron's Conservatives form the next government, Brexit will emerge as the defining geopolitical debate. That's because Mr. Cameron has promised an in-out referendum on Britain's EU membership in 2017.

Grexit was about the integrity of the 19-country euro zone, which does not include Britain. Brexit is about the integrity of the EU, still the world's biggest trading bloc. While it might be impossible to imagine the EU without Britain, which is close to displacing France as the region's second-largest economy, that scenario cannot be eliminated. Most of Corporate Britain is worried about it, as are millions of pro-EU Britons. They fear Britain would emerge as a cold-water Cayman Islands if were to go it alone.

Grexit is still a possibility, although a waning one. Greece's radical left Syriza government, elected in January, has backed down on demands for a debt "haircut" and the end of austerity. Its three main creditors – the EU, the European Central Bank and the International Monetary Fund – are drafting a new bailout program that, at best for Greece, would allow austerity-lite. Greece could still reject the program, default and leave the euro zone. But the rest of Europe is now healthy enough to absorb any Grexit shock waves.

Brexit would be more damaging to the EU than Grexit to the euro zone. Greece is tiny; Britain, by European standards, is a giant. Pro-Brexit sentiment has been rising, a result in good part to the surging popularity of Nigel Farage's UK Independence Party, which won last year's EU parliamentary elections and is polling at about 15 per cent in the British election.

UKIP thinks the EU and its regulation-mad gnomes in Brussels are a threat to British sovereignty and competitiveness. Mr. Farage wants Britain to clamp down on immigration, which would be easier if Britain were out of the EU and free to control its own borders. The trouble for Mr. Cameron, who doesn't want Britain to leave the EU, is that a large and unruly portion of his own party agrees with Mr. Farage. This lot thinks Britain is dragged down by rotting old Europe, not buoyed by it. "It's a European Union of economic failure, of mass unemployment and of low growth," Mr. Farage has said.

Britain has always had a lukewarm affection for the EU. The country was not part of the founding group of countries – Italy, France, West Germany, Belgium, Luxembourg and the Netherlands – that launched the EU's predecessor in 1957 under the Treaty of Rome. Britain finally gained admission in 1973, under a Conservative government (its previous attempt to sign up was blocked by French president Charles de Gaulle). In 1975, the new Labour government held a referendum on membership, with two-thirds of voters opting to stay put. In the early 1990s, Britain joined the exchange-rate mechanism, the first step toward adopting the euro, only to see the pound's trading band shredded by speculators in 1992's Black Wednesday.

Since then, Britain has ruled out euro membership and has pulled back from some EU treaties. Now, lawmakers and voters are wondering whether EU membership is worth all the fuss. Britain may have reached peak EU.

Britain would not fade away like an old rose if it were to leave. Switzerland and Norway are not EU members and their economic performance is just fine. Britain would negotiate free-trade arrangements with the EU, although strictly under the EU's conditions because it would not have a seat at the table. London probably would remain Europe's banking, trading and clearing centre, although the French and the Germans would no doubt use devious methods to try to shift the trading of euro-denominated instruments to Paris and Frankfurt (the ECB has tried to do so already, only to get slapped down by the European Court of Justice).

The EU would suffer more than Britain if London were to leave, for sure. The EU would lose its greatest proponent of liberal economics and its greatest military power, and its clout on the world stage would diminish. Shorn of Britain, the EU would be utterly dominated by Germany, which would not sit well with the austerity-ravaged Southern European countries.

The EU will play tough with Britain if London tries to renegotiate its EU membership. But Britain will not roll over like Greece did. The EU needs Britain more than Britain needs the EU. The best solution would be for the EU (read: Germany) to cut the Brits a deal that would encourage them to say Yes to EU membership in any referendum.

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