The European single currency is “at a cross roads” and must either “make up” or “break up”, prime minister David Cameron will say in a speech to business leaders on the economy.
The prime minister will say the British economy faces “huge risks” posed by the difficulties the euro is in, providing his starkest warning yet that the currency could fail.
But if the euro does fall apart, Cameron promises to do “whatever is necessary” to keep Britain safe.
However, he will snub Labour’s call to change course on economic policy and reiterate the Conservatives’ deficit-reduction plan is bearing fruit and turning back now would result in a longer and deeper austerity in the future.
The backdrop to Cameron’s speech is continuing market turmoil across Europe due to the political uncertainty in Greece. The country is now set for a second election in just over a month because discussions to form a coalition government have failed.
Sir Mervyn King, the governor of the Bank of England, warned the eurozone was “tearing itself apart without any obvious solution” and said he and his colleagues are developing plans in the event the currency breaks up.
The governor ruled out the possibility of returning to pre-financial crisis levels of growth before 2014 as he slashed growth forecasts for this year.
Cameron will express his frustration with the failure of France and Germany to take the steps he thinks are needed to help the eurozone’s weaker economies.
The prime minister will tell business leaders in the North West: “The eurozone is at a crossroads. It either has to make up or it is looking at a potential break-up.
“Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks, a system of fiscal burden-sharing and supportive monetary policy across the eurozone.
“Or we are in uncharted territory which carries huge risks for everybody.”
Cameron will add: “As I have consistently said it is in Britain’s interest for the eurozone to sort out its problems.
“But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”
Cameron will call Labour’s plan to increasing borrowing to stimulate economic growth a “cop-out” and warn they would “squander” progress made in cutting the deficit, leaving the UK more at risk to instability from the eurozone.
He will vow to “stand firm” against calls for the loosening of his austerity programme which Labour claims is to blame for Britain sliding into a double-dip recession.
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