French Prime Minister Manuel Valls warned on Thursday that it would be a "very bad thing" if Britain left the EU, but warned that British demands cannot be met at any price.

A British EU exit "would undoubtedly be a bad thing, a very bad thing," Valls told reporters on the sidelines of the World Economic Forum in Davos. "There needs to be a deal, but not at any price."

Valls was speaking just hours before British Prime Minister David Cameron was set to lay out his vision of Britain's place in the world in a speech at the Swiss ski resort.

Cameron hopes to strike a deal on renegotiating Britain's ties with Brussels at an EU summit next month, before calling a referendum on the country's membership on the EU. He will campaign to stay in the union.

An in-or-out referendum on British membership of the bloc will be held by the end of 2017, with commentators believing it could come this year if a deal is reached in February.

Britain needs the backing of France and Germany, the decisive powers in the EU, for any reform deal.

British Foreign Minister Philip Hammond on Tuesday said his government is willing to consider alternatives to one of its key demands for a four-year ban on top-up benefits for low-paid EU migrants working in Britain.

Critics in Europe say the proposal is discriminatory and threatens freedom of movement in the EU.

If a deal was struck next month, the referendum could take place as early as June.

But Hammond indicated it may not come before September if the agreement is delayed until March, as this would make organising a referendum for any earlier "very tight".

Source: AFP