UK's renegotiation with EU hits stumbling blocks

In a letter to Council members ahead of December's meeting, the Pole said "substantial political differences" remained but said that good progress had been made on at least two of the Prime Minister's four demands.

However, Tusk's statement suggested the EU had substantial problems over Cameron's issues with benefits and free movement of persons.

The Council president said the latter was the most "delicate" issue and "will require a substantive political debate" at the December meeting.

"While we see good prospects for agreeing on ways to fight abuses and possibly on some reforms related to the export of child benefits, there is presently no consensus on the request that people coming to Britain from the EU must live there and contribute for four years before they qualify for in-work benefits or social housing."

Tusk said Cameron would be expected to make further persuasive arguments at the meeting before the debate could proceed further.

On the issue of the 'emergency-brake' for non-Eurozone countries, which has been fiercely backed by Chancellor George Osborne, it was suggested that a mechanism will be developed so that such member states will be able to raise and debate concerns if they feel their interests or the integrity of the single market are in jeopardy.

On the whole, Tusk offered up a positive and optimistic tone.

"Consultations have shown that the issues raised by the British Prime Minister are difficult," he said. "At the same time there is a strong will on the part of all sides to find solutions that respond to the British request while benefiting the European Union as a whole."

"We believe that 2016 will be dominated by a close referendum over UK membership of the EU, which will hit growth, drive market volatility and could delay rate hikes," analysts at Morgan Stanley wrote in a research note sent to clients and dated 7 December.