David Cameron called for action from eurozone states and institutions to support weaker economies like Greece or see the single European currency break up.
The Prime Minister said he would do “whatever it takes to keep Britain safe from the storm”, but made clear that the UK could not be immune from the consequences if the euro collapsed.
He insisted he would not ditch the coalition Government’s deficit-reduction strategy in the face of demands from Labour – echoed by new French president Francois Hollande – for a shift in focus from austerity to growth.
Britain should be “resolute” as it faces the potential storms from the eurozone, but also “confident” that it can get through to a brighter future if it stands firm and resists the “dangerous voices calling on us to retreat”, he said.
In his starkest warning yet of the dangers created by the debt crisis in Greece, the Prime Minister said that Britain is going through “perilous economic times”.
Citing Bank of England governor Sir Mervyn King, who yesterday warned that the eurozone seemed to be “tearing itself apart”, Mr Cameron told business leaders in Manchester: “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.”
In a message directed at Germany – which yesterday registered strong growth while other eurozone countries saw their economies shrink – Mr Cameron said the “remorseless logic” of monetary union meant that successful economies must be prepared to do more to shore up weaker states on the periphery.
While high-deficit countries like Greece need to take steps to get their budgets in order, “it is becoming increasingly clear that they are less likely to be able to sustain that necessary adjustment economically or politically unless the core of the eurozone, including through the European Central Bank, does more to support demand and share the burden of adjustment”, he said.
The eurozone needs to put in place long-term governance arrangements – such as eurobonds – which will deliver collective support and put an end to speculation about the future of the single currency.
And Europe needs to implement structural reforms to address its overall low productivity and lack of economic dynamism, he said.
“The eurozone is at a crossroads,” said Mr Cameron. “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.
“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.”
Despite the market turmoil across Europe sparked by the failure to agree a new government in Greece, Mr Cameron insisted there was reason for optimism in the UK.
He hailed today’s announcement of a £125m investment by General Motors in its Vauxhall plant in Ellesmere Port, which he said was part of a wider revival in the British car industry which had seen the balance of trade in cars turn positive for the first time since 1976.
He dismissed Labour’s call for a relaxation in the Government’s austerity programme in order to stimulate growth as “a cop-out”, which would drive up interest rates and put recovery at risk.
He insisted: “We are moving in the right direction - not rushing the task, but judging it carefully. And that is why we must resist dangerous voices calling on us to retreat.”