U.K. Prime Minister David Cameron said he won’t swerve from his austerity plan, warning members of the European single currency that their failure to end the region’s debt crisis carries “huge risks for everybody.”
Euro-area countries are “at a crossroads” and must either “make up” or face possible “break up,” Cameron said in a speech today in Manchester, England. Bank of England Governor Mervyn King warned yesterday that the euro region was “tearing itself apart” and Britain was not immune from the fallout.
Cameron spoke as the crisis deepened, with the European Central Bank saying it will temporarily stop lending to some Greek banks to limit its risk and President Mario Draghi acknowledging for the first time that Greece could leave the monetary union.
Cameron vowed to do what it takes to protect the British economy and financial system from the “worst of the storms” coming from the euro area, the biggest market for U.K. exports. In subsequent talks today via video link with German Chancellor Angela Merkel and other European leaders, Cameron urged “decisive action” to stem contagion from Greece’s crisis, his office said in an e-mailed statement.
The opposition Labour Party has renewed calls for Cameron to ease his deficit-reduction plans, pointing to the election of French President Francois Hollande as a sign that Europe is starting to take a different course. The prime minister rejected that argument, saying that deficit-cutting is needed for growth.
“We are moving in the right direction -- not rushing the task, but judging it carefully,” Cameron said. “And that is why we must resist dangerous voices calling on us to retreat.”
Cameron will have his first meeting with the French president in Washington tomorrow, before the Group of Eight summit at Camp David. Hollande has already met with Merkel. Cameron conferred today via video link with both Merkel and Hollande as well as Italian Prime Minister Mario Monti, European Union President Herman Van Rompuy and European Commission President Jose Barroso, his office said.
Greece is heading for new elections after a political stalemate that’s sent stocks lower, pushed up bond yields and raised concern the nation may leave the euro area. European stocks fell for a fourth day, with the Stoxx Europe 600 declining 0.8 percent at 2:30 p.m. in London.
Cameron urged countries to continue their fiscal programs and said the ECB should do “more to support demand and share the burden of adjustment.”
The prime minister said he has asked the U.K. Treasury to examine what more can be done to boost credit for business, housing and infrastructure and the Bank of England can add more stimulus to the U.K. economy if needed.
“Our responsible fiscal policy is being matched by active monetary policy,” he said. “That’s the best way to support demand and help rebalance our economy away from debt-fueled consumption and towards exports and investment. And the independent Bank of England is able to do more to support the economy if necessary or if inflation falls below their target.”
Cameron reiterated that “there’s a need for monetary action to stimulate growth” in his video talk later with European leaders, his office said.
Speaking later in the House of Commons, Chancellor of the Exchequer George Osborne said Britain is making “necessary” contingency plans to cope with the impact of a Greek exit from the euro region.
The fact that European finance ministers and central bankers are openly speculating that Greece could be forced out meant “the genie is out of the bottle,” he said.