Make up or break up, David Cameron tells Europe

When asked about the prospects for the eurozone at Prime Minister’s Questions in the House of Commons, Mr Cameron said: “If the eurozone wants to continue as it is, then it has got to build a proper firewall, it has got to take steps to secure the weakest members of the eurozone, or it is going to have to work out if it has to go in a different direction. It either has to make up or it is looking at a potential break-up.”

After Mr Cameron had left the Commons chamber, his aides stressed that the Prime Minister was not predicting the break-up of the euro.

“He would obviously rather it was ‘make up’. There would be huge implications for us if it was the ‘break-up’ option,” said one source.

Mr Cameron made his remarks on the same day that the Bank of England governor Sir Mervyn King said the single currency area was “tearing itself apart”.

Sir Mervyn confirmed the Bank was working on contingency plans to protect the UK in the event the euro collapses.

Sir Mervyn warned that the risk of “a storm heading our way from the continent” was the greatest threat to economic recovery in Britain.

While the Bank said it did not see a “meaningful way” of factoring into its projections an extreme financial event, it said the biggest risk to recovery stemmed from the eurozone.

As the Greek debt crisis continued to cast severe doubts over the future of the eurozone, the former Labour Chancellor Alistair Darling was another to predict a grim outlook.

Writing in today’s Scotsman, Mr Darling warns that if the eurozone crisis is not turned around it risks “dragging” the world economy down to “years of stagnation”.

The former chancellor argues that austerity measures imposed on Greece could fuel the extremism that has already seen the far-right Golden Dawn party win parliamentary seats for the first time this month.

He adds: “A Greek exit could start a fire that would spread all along the Mediterranean, as other countries would come under pressure. The repercussions, particularly in the banking sector, could cripple Europe for years to come. This is uncharted and highly risky territory.”

Mr Cameron’s intervention came just two days after Chancellor George Osborne warned that “open speculation” about the future of some eurozone members was damaging the European economy.

The Prime Minister has repeatedly made the case for the eurozone to take “decisive action” to restore stability, including agreeing a bailout fund of sufficient size to act as a credible “firewall” against contagion from troubled economies. He has also called for action to strengthen banks, as well as structural reforms to boost competitiveness. Uncertainty over the future of the euro heightened yesterday as Athens named 17 June as the date for fresh elections, after the collapse of nine days of negotiations to form a unity government.

Yesterday, Greece appointed a senior judge Panagiotis Pikrammenos to head a caretaker government for a month as it lurches through the political crisis that threatens its membership of the euro. The political uncertainty is worrying Greece’s international creditors as well as Greeks themselves, who have withdrawn hundreds of millions of euros from banks.

Meanwhile, European Commissioners met in Brussels to respond to pressure from France’s new president, Francois Hollande, for measures to boost growth across the continent, to balance the austerity demanded in countries like Greece in return for bail-outs.

Commission president Jose Manuel Barroso said a new “growth initiative” would be presented to national leaders at the European Council at a meeting scheduled for the end of June.

Mr Barroso said the EC would “work tirelessly” to allow Greece to remain a part of the EU and the euro. He said: “We want to stand by Greece. We want to work together with Greece. Now it is of course up to the Greek people to say if they want to work also with the euro area member states and with the European institutions.”