The survival of the European single currency is in question, creating "huge risks" for Britain's economy, Prime Minister David Cameron said today.
In his starkest warning yet of the possible failure of the euro, Cameron said that the single currency now stands "at a crossroads" and must choose between "make up" or "break up".
He promised to do "whatever is necessary" to keep Britain safe if the euro falls apart.
But he rejected Labour calls for a change of course on economic policy, insisting that his deficit-reduction strategy is bearing fruit and any relaxation now would mean longer and deeper austerity in the future.
Cameron's warnings, in a high-profile speech on the economy, come amid continuing market turmoil across Europe fuelled by political uncertainty in Greece, which yesterday announced a second election in little more than a month after talks to form a coalition government failed.
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Unconfirmed reports suggested that the European Central Bank has stopped lending to some Greek banks which have not been adequately recapitalised, while the country's president acknowledged that savers are withdrawing millions of euros from accounts out of fear of default and exit from the single currency.
According to The Times, UK homeowners could be hit by an increase in mortgage rates as the eurozone crisis puts pressure on Britain's ailing financial system.
Bank of England governor Sir Mervyn King yesterday said the eurozone was "tearing itself apart without any obvious solution" and confirmed he and his colleagues are working on contingency plans in the event of a worst-case scenario. According to The Guardian, huge sums of money are being spirited out of Greece, with a Greek exit likely to cost the eurozone more than $1 trillion.
Warning that the UK was at risk of being in the path of the eurozone storm, the Governor slashed growth forecasts for 2012, and ruled out a return to pre-financial crisis levels of growth before 2014.
On Thursday, Cameron made clear his frustration with the failure of Berlin and Paris to take the steps he believes necessary to support weaker economies in the eurozone.
Speaking to business leaders in the North West, he said: "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."
The Prime Minister said: "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."
He branded Labour plans to increase borrowing to stimulate economic growth a "cop-out", warning they would "squander" progress in reducing the deficit and leave the UK more vulnerable to instability from the eurozone.
And he promised to "stand firm" against calls to relax his austerity programme, which Labour blames for plunging Britain into double-dip recession.
"We are living in perilous economic times," Cameron will said.
"Turn on the TV news and you see the return of a crisis that never really went away: Greece on the brink, the survival of the euro in question.
"Faced with this, I have a clear task: to keep Britain safe.
"Not to take the easy course - but the right course. Not to dodge responsibility for dealing with a debt crisis but to lead our country through this to better times.
"My message today is that it can be done.
"We are well on the way in this journey. Since we took office two years ago, we have cut the last government's deficit by more than a quarter. Yesterday, we had encouraging news on unemployment, too.
"So now more than ever this is the time to stand firm."
Cameron rejected Labour claims that the UK is suffering "a recession made in Downing Street", insisting that the country is moving in the right direction under the coalition Government.
"Let me be clear: we are moving in the right direction - not rushing the task, but judging it carefully," he said.
"And that is why we must resist dangerous voices calling on us to retreat.
"Yes, we are doing everything we can to return this country to strong, stable economic growth.
"But no, we will not do that by returning to the something-for-nothing economics that got us into this mess.
"We cannot blow the budget on more spending and more debt. It would squander all the progress we've made in these last two, tough years. It would mean more austerity, for even longer. It would risk our future.
"It's not an alternative policy, it's a cop-out."
Shadow chancellor Ed Balls said: "David Cameron is totally out of touch and deeply complacent if he thinks Britain is on the right course. His failed policies have pushed us into recession and the Government is now set to borrow an extra £150 billion to pay for this economic failure.
"Plan A has failed in Britain, but it is also now failing across the eurozone. David Cameron must recognise the austerity policies which are failing in Europe are the very same policies that have failed in Britain and which the British Government has been urging eurozone countries to stick with.
"Our Prime Minister should be pushing for a positive resolution to the crisis and a change of course in Europe, on austerity and on the role of the European Central Bank.
"And instead of using the eurozone crisis as an excuse for Britain's problems David Cameron must wake up to the fact that our economy has not grown for over a year and a half on his watch.
"When countries like France and Germany have avoided recession, despite the eurozone's problems, it's clear Britain's double-dip recession was made in Downing Street.
"Instead of more complacency, it's time the Prime Minister did something about it. Only a balanced plan, which puts jobs and growth first, will successfully get the deficit down and do so in a fair way."
Business Secretary Vince Cable urged against "panicking" and said there was "no reason" why the crisis affecting Greece should spread to other countries.
"We need to get the risks in perspective," he told BBC Radio 4's Today programme.
"There clearly are risks to the UK. Greece itself is a small country, it's only 2% of the European economy. The risks arise if the crisis were spread to other weaker, countries in southern Europe, but there is no reason why that should happen.
"They are in the process of creating firewalls to prevent the financial crisis spreading and we hope that they do.
"But as far as the UK is concerned we can't directly influence what is happening in the eurozone because we are not part of it.
"What we can do is to make sure that the UK is a well-run economy, and that's combining an approach to growth and job creation - and that's what we're doing on Merseyside this morning - with maintaining proper discipline over our finances."
Asked how Britain could prepare, Dr Cable stressed that the UK had no direct influence over events in the eurozone as it was not a member.
"I don't think there's any reason whatever why in the UK we should be panicking or taking an excessively negative view," he said.
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