PM warns over eurozone break-up

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2 October 2011 Last updated at 12:27 GMT David Cameron warns that the UK cannot shield itself from the crisis in the eurozone Prime Minister David Cameron has warned that it would be "very bad" for the UK if the eurozone was to break up.

Speaking to the BBC's Andrew Marr Show, he said the debt crisis in the eurozone was "a threat not just to itself, but also a threat to the UK economy, and a threat to the world economy".

He reiterated that eurozone leaders had to take quick and decisive action.

Mr Cameron said that, as 40% of UK exports went to the eurozone, it could not shield itself from the problem.

The prime minister said the UK government had "a very clear view" of what needed to be done, and that it was pushing this with its partners in Europe and the International Monetary Fund (IMF).

He said eurozone leaders had to strengthen the region's financial mechanisms, ensure the greater involvement of the IMF, and deal decisively with the high levels of sovereign debt.

Mr Cameron added: "Action needs to be taken in the next coming weeks to strengthen Europe's banks, to build the defences that the eurozone has, to deal with the problems of debts decisively."

He said these emergency measures were needed before any long-term plans of more economic coordination across the eurozone were introduced, such as a single tax system.

Greek fears

European stock markets again fell heavily on Friday due to concerns about the debt crisis in the eurozone.

Continue reading the main story Use the dropdown for easy-to-understand explanations of key financial terms:AAA-rating GO The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.It meant that for the three months from July to September, the main UK share index, the FTSE 100, recorded its biggest quarterly fall since 2002.

The concerns centre on Greece, the most indebted eurozone nation.

Greece needs its next 8bn euros (￡6.9bn; $10.9bn) instalment of European Union (EU) and International Monetary Fund (IMF) bailout loans by the middle of this month to be able to continue paying its civil servants and teachers.

This tranche was delayed in September after EU, IMF and European Central Bank officials said the Greek government was not carrying out sufficient austerity measures.

The wider fear is that Greece will ultimately default on its debt payments, and of the knock-on effect this would have on banks across Europe which own Greek government bonds.

Some commentators also warn that Greece may ultimately have to leave the eurozone, plunging the region's economic and political systems into chaos.

Eurozone leaders and the IMF are now continuing to work on a solution to the debt crisis, with French President Nicolas Sarkozy and German Chancellor Angela Merkel due to speak again this week.

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Budget watchdog warns of fiscal unsustainability

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Canada's aging population and other factors mean the country's finances are not sustainable over the long term, according to a report released Thursday by Parliament's budget watchdog.

Government debt can't grow faster than the economy in order for a country to be considered fiscally sustainable, and in his report, Kevin Page estimates the amount of fiscal action required to achieve sustainability.

He says that to fill the gap between debt and gross domestic product (GDP) and to restore sustainability to the public finances, it would require policy actions worth 2.7 per cent of Canada's GDP. To do this, the government either has to raise taxes, reduce overall program spending, or deliver a combination of the two.

Page's estimate of the fiscal gap would mean $46 billion worth of fiscal action this fiscal year alone, and that amount could increase over time in accordance with GDP.

The parliamentary budget officer's report looks at the sustainability of the federal and provincial and territorial governments over a period of 75 years, based on assumptions about program spending, demographics and the tax base.

Page's report cautions that the projections are not necessarily the most likely scenarios, but they attempt to capture what would happen if governments do nothing different over the coming years.

The report highlights the effects of a shrinking and aging population on the economy. Slower labour force growth because of those factors could mean annual average real GDP growth will drop from 2.6 per cent during the period of 1977-2010 to 1.8 per cent over 2011-86.

The aging population will drive down economic activity and the size of the tax base, while increasing demand on social programs, it says. The end result will be vanishing budget surpluses over the medium term (the federal government is aiming to be back in a surplus position after 2015) and instead, "sizable deficits" over the long term.

Page's report says governments can wait until the economy is fully recovered to take action, but that they shouldn't delay too long or the fiscal gap will grow even larger. Delaying fiscal action by five years, for example, would expand the gap from 2.7 to 3.0 per cent, according to the report's projections.

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