G20 summit: Europe must act now to save single currency says David Cameron

PRIME Minister David Cameron warned that the eurozone will face “perpetual stagnation” or break-up if its crisis is not resolved quickly.

• PM in Mexico for G20 summit

• Leaders encouraged by Greek election result

• Eurozone crisis set to dominate talks

In a keynote speech at the G20 summit in Mexico, he made it clear that he believes Germany needs to pump more money into the struggling economies of the southern eurozone states if the currency is to be saved.

His comments were a direct rebuke to German Chancellor Angela Merkel, who had insisted yesterday morning that there would be no more help for Greece or loosening of the austerity conditions surrounding its bail-out package.

This came as the centre right New Democracy party was locked in negotiations with other Greek parties to try to form a pro-bailout coalition government, with its leader Antonis Samaras promising to renegotiate the bail-out conditions.

While Mr Cameron agreed with Mrs Merkel that struggling economies had to accept austerity measures, he said that the “core members of the euro-zone” also had to make sacrifices.

The Prime Minister said: “The eurozone has two choices. Either they try to force down wages and prices in the periphery as fast as they can to restore competitiveness, with all the political and economic tensions that will entail, or the core of the eurozone has to do more to support the periphery through greater fiscal burden sharing.”

Demanding that speedy action is taken, he went on: “If the eurozone is to stay together then it has to make at least some of these difficult decisions.

“The alternatives to action that creates a more coherent eurozone are either a perpetual stagnation from a eurozone crisis that is never resolved or a break up caused by a failure to address underlying economic fundamentals that would have financial consequences that would badly damage the world economy, including Britain.”

He also warned that central banks in Europe must now do their part in trying to bring the crisis to an end and “cannot stand idle.”

His comments were particularly aimed at the European Central Bank, which has been blocked by the German government from pumping money into the European banking system through printing more euros.

Germany is concerned that such a measure, which has been used twice recently by the Bank of England, will lead to uncontrolled inflation.

The Prime Minister argued in support of banking union in the eurozone which has been proposed by the European Commission.

Mr Cameron insisted that this needed to be the first step in greater political union and integration in the 17-state currency union to support the integrity of the euro.

He said: “Either way the path would be made easier by more being done to support demand, through greater monetary activism by the European Central Bank.

“But in the end this is the remorseless logic of a currency union and a banking union is a natural extension of that.

“If banks in one part of the single currency area are in trouble then it’s right that other parts of the union should protect depositors to avoid a threat to the currency as a whole.”

Mr Cameron, who is leading a trade delegation to the G20 summit of the world’s richest nations, also raised concerns that the world economic crisis had seen a new rise in protectionism.

He said: “Protectionist measures imposed since the start of the crisis are now affecting almost 3 per cent of world trade.

“In the last eight months, investment too has been subject to restrictive measures. We’ve seen the expropriation of a multinational company requirements that export revenues in oil, gas and mining sectors be exchanged in local financial institutions, new regulations on foreign exchange assets of residents, insurance companies required to repatriate foreign assets and limits imposed on investment in farmland. And that’s just from one G20 member.”

He added: “We have to do better than this. We all know that Doha has come off the rails but that doesn’t mean we give in to the protectionists.”

The Prime Minister also appeared to criticise the new French President Francois Hollande’s plan to impose 65 per cent tax on the wealthy,

Mr Cameron said he would “roll out the red carpet” for French citizens who want to come to the UK to pay lower tax rates.