PM Warns Of Eurozone Damage To UK Economy

Prime Minister David Cameron has warned that every day the eurozone debt crisis remains unsolved it further damages the world and UK economies.

Speaking during the G20 summit which ended in Cannes on Friday the British PM said: "This is having a chilling effect on our economy.

"The world can't wait for the eurozone to go through endless questions and changes about this.

"The world has shown it is ready to act but I'm not going to pretend all of the problems in the eurozone have been fixed. They haven't."

Leaders of the world's top 20 economies agreed in principle to increase the resources of the International Monetary Fund (IMF) but refused to contribute directly to the eurozone bailout fund.

Mr Cameron said: "Britain will not contribute to the eurozone bailout fund and we are clear that the IMF will not contribute either."

A decision on how much money to add to the IMF has been left until another meeting in February but Conservative backbenchers have calculated that a proposed £10bn increase in Britain's contribution would cost UK households £400 each.

The government has insisted however that contributions are made in the form of loan guarantees rather than loans and that no government has ever lost money by paying into the IMF.

Mounting fears about Italy's public finances have seen borrowing costs for the eurozone's No.3 economy reach a dangerously high 6.4%.

Italian leader Silvio Berlusconi , who is resisting calls for him to quit, rejected the offer of an IMF loan made at the G20 summit but has invited IMF inspectors to Rome to report on the effectiveness of austerity measures aimed at reducing its 1.9-trn-euro national debt.

Ongoing uncertainty over how much eurozone debt will ultimately be repaid has caused banks to become increasingly reluctant to lend to each other, to businesses and consumers which threatens to cause another recession.

Economist Dawn Holland told Sky News: "The worst case scenario is beyond most people's thinking.

"Banking systems in Europe are very closely intertwined. So what happens to the banks in Greece affects banks in Germany and France which in turn affects the banking system here.

"Businesses can't borrow in order to keep running so they fold."

The European Central Bank's new head, Mario Draghi, has forecast "a mild recession" is on the horizon for the eurozone which consumes 40% of Britain's exports.

Steve Brittan, who runs a factory in Birmingham, told Sky News that the effects are already apparent: "Nobody knows what's going on and there's panic everywhere.

"Nobody's sure. Nobody's spending. Therefore nobody's investing which makes it very difficult. The market in Europe for us is very quiet."