David Cameron has sent a strong warning message to eurozone countries as the situation in Greece becomes less stable and ripples begin to spread through the European banking system.
In a speech, Mr Cameron set out his view on the way eurozone member countries should deal with eurozone crisis. He said that the austerity measures British people were experiencing at the hands of his government were the right way to handle the problem of the deficit. He added that the British economy was “moving in the right direction” despite the double-dip recession.
The prime minister has urged other countries in the single currency zone to either support Greece whole heartedly or plan for the other outcome: its exit from the euro, or the collapse of the currency. Britain is not part of the eurozone, but it is not entirely immune from problems. Inter-bank lending causes a knock-on effect which could drag Britain close to the crisis. If Greece were to default on its loans, several of Europe’s biggest banks could be exposed, with France being particularly at risk.
Vince Cable, the business secretary, took an optimistic view. He stated that Greece was “a very small country” and this would limit the problems Greek debt could cause to the rest of Europe.
In his speech, David Cameron said that eurozone countries were “at a crossroads”. He urged leaders to throw their full weight behind supporting Greece, or make a decision to cut the country loose, a move which would inevitably result in the re-introduction of Greece’s own currency. Such a move would have catastrophic consequences for the nation with mass loan defaults and rapid devaluation of the new currency brought in to replace the euro in Greece.
Financial experts, and the new French president Francois Hollande, have urged the British government to change tack and promote economic growth in the hope that consumer confidence would be boosted. In turn, banks could be more willing to lend to small businesses, creating jobs. Mr Cameron made reference to these calls in his speech, calling them “dangerous voices” and resisting the calls to change course. He also described the overall economic climate as “perilous”, but said he would work with the Treasury to encourage lending.
The Bank of England have warned that mortgage rates are set to increase, and several charities have stated that new homes must be built urgently to bring high rents back down to manageable levels. Critics of the prime minister say that ongoing austerity plans are hitting business hard and damaging growth. Ed Balls, the shadow chancellor, said Mr Cameron was blaming the failings of his own policies on problems elsewhere in Europe.
The euro is currently weakening steadily against the pound, and British holidaymakers are enjoying a boost to their wallets as they escape the poor British weather. Some tourist exchange rates have reached €1.23 to £1 for the first time in five years as markets begin to turn.
The prime minister will now visit a series of summits intended to deal with the growing crisis of debt in Europe.