Cameron snubs Merkel on euro amid turmoil
Updated on 21 May 2010
European markets volatile amid fears the area's debt crisis could spread around the world.
British, German and French indexes were more than 2 per cent down today, with London's FTSE 100 dipping below the 5,000 level for the first time since November 2009. Although it has since recovered slightly.
The US benchmark - the Dow Jones - also fell 1.5 per cent to 9,919 when it opened, before recovering to above the 10,000 level again, as fears spread over debt in the euro zone.
Earlier in the day, Japan's Nikkei index fell by 2.5 per cent, while other Asian markets in Singapore, Taiwan and Australia also fell.
Ray Barrell, director of macroeconomic research and forecasting at the National Institute of Economic and Social Research, told Channel 4 News: "Sometimes it is puzzling to see why a crisis exists, and this is true of the euro at present.
People should perhaps be more worried about the US and especially California, defaulting on its debt than about Economic and Monetary Union (EMU) and Greece. But they are worried.
This means the euro will weaken, and risk premiums charged to EMU borrowers will rise. The euro area will slow down and this will spill over to trade with the UK. Our recovery will be made more sluggish. If the UK is seen as safer, then risk premiums in the UK could fall, and borrowing could increase.
The lower borrowing costs would boost output and would probably increase output by more than weak trade would cut it.
This minor gain should be set against the risk of another financial crisis that could slow output growth noticeably. It would be wise to support action to prevent such a crisis, even if we stand outside the euro, as our banks are all interlinked.
Contributing to a bail-out might be inevitable, but should only be done if there was a vey high chance of getting money back."
The market slump came as European ministers meet to discuss a way forward on financial regulation, and David Cameron held his first meting with German Chancellor Angela Merkel.
At a joint press conference, Mr Cameron said: "This relationship between Germany and Britain is a very strong and powerful partnership."
However, the prime minister insisted Britain would not be "drawn further" into supporting the currency area.
Mrs Merkel had suggested that all European countries need to be willing to surrender more sovereignty to give the EU powers to prevent another Greek-style eurozone crisis. But Mr Cameron was quick to pour cold water on the idea.
He said: "There is no question of agreeing to a treaty that transfers power from Westminster to Brussels. That is set out 100 per cent clearly in the coalition agreement.
"Britain obviously is not in the euro and Britain is not going to be in the euro, and so Britain would not be agreeing to any agreement or treaty that drew us further into supporting the euro area."
"It goes without saying that any treaty, even one that just applied to the euro area, needs unanimous agreement of all 27 EU states including the UK, which of course has a veto. I think these are very important points to understand."
The leaders were speaking as the German parliament narrowly approved the country's part of a 750 billion euro package of loan guarantees for Greece, designed to stabilise the currency.
The markets had a torrid week after the German chancellor Angela Merkel warned the euro was in danger, sending the single currency spiralling to four year lows.
Meanwhile, British chancellor George Osborne has met with European Union finance ministers to begin work on closer economic governance in Europe.
European Council President herman Van Rompuy said EU treaty changes had not been ruled out to deliver new economic rules.
Channel 4 News economics correspondent Faisal Islam said the markets had been "spooked" due to the "generalised incoherence" among European countries.
However he believed the crisis would mean more monitoring of countries' economic performances.
"What we're seeing through the backdoor because of this crisis is the slow integration of the eurozone's tax and spending policy," he said.
"Today in Brussels, Europe suggested that each country should allow Brussels to have a look at their budgets.
Mr Osborne's US counterpart, Treasury Secretary Timothy Geithner, is due to visit Britain and Germany next week en route home from a China tour.
US markets slid four per cent yesterday amid fears that the eurozone's efforts to restore calm would fail, hitting the global economy.
