Dec. 7 (Bloomberg) -- Chancellor of the Exchequer George Osborne urged European leaders to stem the region’s worsening debt crisis, saying the turmoil posed a “very significant” danger to Britain’s already downgraded economic forecasts.
Speaking to lawmakers in London today, Osborne said banks across the world are facing “very stressed” funding conditions as the crisis saps the confidence of investors
“It would make life a lot easier for British banks if the crisis was resolved in the sense that people had confidence that there were a set of solutions that were going to work, even if they didn’t produce results overnight,” Osborne told Parliament’s Treasury Committee. He called for “a path that gives confidence to investors to purchase the debt of euro-zone countries or provide unsecured lending to euro-zone banks.”
Osborne made his comments as Prime Minister David Cameron prepares to join fellow EU leaders at a crisis-fighting summit this week. Cameron earlier today pledged to use negotiations over how to overhaul EU rules to win back powers from Brussels.
“The biggest shot in the arm the British economy could have this autumn is the resolution of the euro crisis,” Osborne said. “If the euro zone deteriorates that will have a very significant impact on the economy.”
The Office for Budget Responsibility predicted last week Britain will grow 0.9 percent this year, not the 1.7 percent seen in March, and by 0.7 percent in 2012 instead of 2.5 percent.
The fiscal watchdog also estimated the 2008 financial crisis and the ensuing recession inflicted far more damage than previously thought, meaning potential output in 2016 is probably 13 percent lower than was forecast before the crisis.
“The financial crisis has had a bigger impact than has been previously calculated by everyone and that is causing a more prolonged recovery than anyone would have hoped, but I have not seen any evidence that there is a permanent, forever damage to the British economy,” Osborne said.
Cameron is facing growing pressure to use any new EU-wide treaty to recover powers ceded to the bloc. A quarter of his Conservative Party lawmakers voted in favor of a referendum on British membership of the EU in October.
--Editors: Andrew Atkinson, James Hertling
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