UK urges action to resolve euro crisis

18 May 2012, 7:53 am   -   Source: AAP

The British prime minister has urged Europe to sort out its currency crisis or risk the collapse of the eurozone.

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British Prime Minister David Cameron has urged Europe to sort out its currency crisis, calling on the 17-country eurozone "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 said in a speech in Manchester on Thursday.

Cameron said that if Greece is forced out of the single currency union, the possible collapse of the eurozone poses huge risks to the UK economy but he said Britain was prepared to weather the fallout.

"Whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system," Cameron said.

The prime minister added that the danger for the eurozone lay in its peripheral economies such as Portugal, Spain and Italy and that these "high deficit, low competitiveness countries" in the eurozone need to cut spending, increase revenues and undergo structural reform.

"We all need to address Europe's overall low productivity and lack of economic dynamism, which remains its Achilles heel," Cameron added.

"Most EU member states are becoming less competitive compared to the rest of the world, not more."

In a news conference on Wednesday, Bank of England Governor Mervyn King warned there would be no trouble-free outcome to the euro crisis, whether it stays together or fractures.

"Whatever happens, there are major problems ahead; there are credit losses to be realised, and however they choose a solution here this is going to be a very difficult path to go through because countries like Germany and the Netherlands have yet to face up to their rebalancing which will be required, as well as the rebalancing of counties in the south."

In its quarterly Inflation Report, the Bank of England warned that there was no way to quantify the most extreme possible outcomes in the Eurozone.

King said Britain was already was feeling the impact in the form of bank funding costs, asset prices, exchange rates and business and household confidence.

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