PM warns that crisis in eurozone has far to go

The Prime Minister said struggling economies across the channel, which receive 40 per cent of all UK exports, were harming the UK’s prosperity.

He said: “I don’t think we are anywhere near halfway through it because what’s happening in the eurozone is a massive tension between the single currency that countries are finding very difficult to adapt to.

“It’s going to be a very long and painful process in the eurozone as they work out, do they want a single currency with a single economic policy and all the things that go with it, or are they going to have something quite different?”

The PM admitted last week’s figures showing that the UK economy shrank by 0.2 per cent in the first three months of the year – plunging Britain back into recession – were “extremely disappointing”, but pledged to “strain every sinew” and “redouble all our efforts” to spark growth.

“What we absolutely mustn’t do is throw away our plans for dealing with the debt, dealing with the deficit, making sure public spending is properly reduced in the appropriate areas,” he said. “The low interest rates we have are absolutely vital.”

He said the UK was going through “a very difficult, painstaking process” of rebalancing, moving away from a focus on financial services in England’s south-east.

Meanwhile, shadow chancellor Ed Balls claimed Britain faced a “lost decade” of sluggish growth and high unemployment if the government failed to change course on the economy.

Mr Balls said there was a risk of prolonged stagnation in the UK like that experienced by Japan in the 1990s.

He said lacklustre growth could be an issue for “a very long time”.

“I am not predicting years of recession, although we could well be in for a long ‘lost decade’-style period of slow growth and high unemployment,” he said.

He added there was a danger “the economy continues to underperform and, Japanese-style, it grows below trend and therefore unemployment stays high”.

“There are big choices to be made about how we get out of this very deep hole,” he said.

“We have to find a way to talk this through and try to get to a better place.”