David Cameron issued a stark warning yesterday that the eurozone is facing a renewed threat of collapse as he blamed economic woes on the Continent for Britain's double-dip recession.
In comments which will infuriate other European leaders ahead of elections in France and Greece next weekend, the Prime Minister said Europe was not "anywhere near half-way through" its currency crisis.
And he predicted that the euro could yet fall apart as countries such as Spain, Greece and Italy struggle to cope with the economic constraints imposed upon them.
Yesterday, thousands of people took to the streets across Spain to protest against government cuts aimed at tackling a debt crisis that has pushed the country back into recession and sent unemployment close to 25 per cent.
Next weekend, voters will go to the polls in both France and Greece in elections which are likely to boost opposition to German-backed austerity measures.
Hedge funds are already anticipating François Hollande's likely victory next Sunday will lead to a sharp deterioration in markets' opinion of France's creditworthiness and are betting against the bonds of "core" eurozone countries.
In Greece, voters look likely to punish both the country's two main political parties, with some polls predicting that smaller groups opposed to the EU-IMF economic-recovery plan could gain as much as 50 per cent of the vote.
Against this background, sources in the European Commission described Mr Cameron's remarks as "unhelpful". "We do not agree with him," they added.
An adviser to the French presidential front-runner said: "With the British economy shrinking in the last quarter, Cameron should perhaps give his attention to problems nearer to home. All European leaders, inside and outside the euro area, should be careful not to encourage market volatility by speculating about future difficulties. We have problems enough." A German government source added: "I would say we are more optimistic than he is."
In an interview with the BBC, Mr Cameron said struggling economies across the Channel, which receive 40 per cent of all UK exports, were harming Britain's prosperity. "I don't think we are anywhere near halfway through it [the crisis] 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 as they work out: do they want a single currency with a single economic policy, or are they going to have something quite different?"
Asked why the US was growing after implementing a less strict austerity policy than the UK, Mr Cameron said: "They don't have the eurozone on their doorstep, and we've seen in the last couple of weeks Spain going into recession, Holland going into recession, Italy going into recession."
His remarks drew condemnation from both Labour and some senior Liberal Democrats. Lord Oakeshott of Seagrove Bay, the former Liberal Democrat Treasury spokesman in the House of Lords, suggested Mr Cameron was deliberately playing up the European crisis to distract voters from domestic problems.
"It's unstatesmanlike and so short-sighted for a British Prime Minister to rock the European boat to distract attention from his own troubles," he said. "Our EU membership is essential for British jobs and prosperity."
Ed Balls, the shadow Chancellor, said attempts to blame the eurozone for pushing Britain back into recession "just won't wash". "Britain's recovery was choked off 18 months ago – well before the recent eurozone crisis," he said.
But Mr Balls conceded that the difficulties facing the eurozone were significant. "What is now happening in the eurozone is deeply concerning. It still has no plan for the jobs and growth. And eurozone leaders have still not taken the action necessary to prevent contagion spreading."
Privately, Downing Street is concerned about Mr Hollande's campaign pledge to demand a new EU growth pact in return for France signing the German-initiated fiscal treaty.
Sources insisted his public comments were not an attempt to deflect attention from the government problems ahead of this week's local elections but an attempt to raise awareness of a problem that has not gone away even if it is not in the headlines.
"Frankly, the fundamental problems faced by the eurozone are as bad, if not worse, than they were," they said. "What the Prime Minister was trying to get across was that this has a significant impact on the British economy too."
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