German Chancellor Angela Merkel will offer U.K. Prime Minister David Cameron a compromise on immigration, pledging support for welfare curbs so long as Europe’s freedom-of-movement rights are not called into question.

Merkel agrees with Cameron that European Union countries must be more effectively shielded from abuse of benefits, if necessary by changing EU laws, according to a German government official who asked not to be named discussing strategy. The chancellor will seek common ground with Cameron on the matter today during a visit to London, the official said.

More from Bloomberg.com: Bill Gross Says the Good Times Are Over

Consensus on one aspect of EU immigration is unlikely to defuse a subject that’s put the two leaders at odds. Merkel publicly criticized Cameron’s plans last year to clamp down on immigration, saying that the fundamental right to freedom of movement in the EU is unassailable. If he chooses not to heed that warning, she cannot help him any further in the EU, the German official said.

“Our red lines have been long known to the British government,” German Deputy Foreign Minister Michael Roth said in a phone interview two days ago. “We would welcome it if difficulties with the EU were to be identified concretely — and it was made clear what the U.K.’s expectations of the EU are.”

More from Bloomberg.com: Love Him or Hate Him, Bill Ackman Now Runs the World’s Top Hedge Fund

Merkel is making her first visit to London since giving a speech last February to both houses of Parliament calling for a stronger EU. She arrives in the U.K. four months to the day before a general election in which Britain’s future in Europe has become a core campaign issue.

Labour Referendum

The talks at the prime minister’s office will focus on ways to boost economic growth and reduce bureaucracy for business, Merkel and Cameron said in a joint statement e-mailed by the chancellery in Berlin. They will pursue “long-term” plans to consolidate budgets, according to the statement.

More from Bloomberg.com: Oil Extends Drop Below $48; U.S. Stockpiles Seen Rising

Cameron is struggling to fend off both the main opposition Labour Party and a challenge to his Conservatives by the anti-immigration U.K. Independence Party. With UKIP advocating Britain’s exit from the EU, Cameron has pledged to hold a referendum on British membership in the 28-nation bloc by 2017 if he wins a second term on May 7, and has hinted he might bring that vote forward.

While Labour says it doesn’t plan to hold a ballot on EU membership, Merkel sees it as inevitable that the party leader, Ed Miliband, will have to put it on his agenda because of the strong euroskeptic sentiment in Britain, according to the German official. That’s a scenario increasingly alien to policy makers in Germany, where no mainstream party campaigns on an anti-EU platform.

‘Not Working’

Merkel doesn’t plan to meet Miliband or any other opposition leaders in London since she is visiting the U.K. in her capacity as chairwoman this year of the Group of Seven nations and not to discuss German policy, according to two German officials.

Talks with Cameron will mainly focus on the G-7 agenda, for which Germany will host a summit in the Bavarian Alps in June, the officials said. At the same time, they acknowledged that Merkel will be unable to avoid the debate over Europe and immigration.

“We’ve been providing employment for a lot of people around Europe; now I want to change that,” Cameron said in a BBC Television interview Jan. 4. “If we’ve got a Europe that isn’t growing, a European Union that isn’t working, migration arrangements that don’t work for countries like Britain, we’ve got a problem, and I believe in confronting and dealing with problems rather than just putting them off.”

Cameron has pledged to reform the EU, including a block on welfare payments to Europeans under certain conditions, before holding a referendum. That raises the prospect of Britain’s exit from the EU unless he’s able to win backing from European leaders for his aims. Merkel, the head of Europe’s biggest economy and dominant power, is key to Cameron’s goals.

Persuading Britain

The German chancellor has made repeated calls for the U.K. to remain in the bloc. She said in November that she has “very good German reasons” to stand by Britain, citing the U.K’s dynamism and global perspective.

“We need the U.K.,” Merkel said on Nov. 17 after a speech at the Lowy Institute for International Policy in Sydney. “I’ll do everything I can and I hope that we will be able to persuade them to remain members of the European Union.”

Germany‘s talks with the U.K. on immigration have sought to find domestic changes to current European law that could resolve the differences, said Roth, who is the minister responsible for European matters. Movement of labor in the EU’s single market has been a “great success story,” he said.

Merkel has recently championed openness to immigration, particularly in response to anti-Islamist rallies centered in the eastern city of Dresden by a group known as Patriotic Europeans Against the Islamization of the West, or Pegida.

She used her New Year’s address to urge Germans to spurn the demonstrations, saying the organizers “all too often have prejudice, coldness, and yes, hatred in their hearts.”

To contact the reporters on this story: Arne Delfs in Berlin at adelfs@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka, Ben Sills

More from Bloomberg.com

• Russia Shows Off Military Hardware in AirAsia Search
• How $50 Oil Changes Almost Everything
• Oil Below $60 Tests Economics of U.S. Shale Boom

• Politics & Government
• Foreign Policy