Prime Minister: A Speech on the Economy

"The Eurozone is at a cross-roads. It either has to make-up or it is looking at a potential break-up."

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon David Cameron

We are living in perilous economic times. Turn on the TV news and you see the return of a crisis that never really went away. Greece on the brink; the survival of the Euro in question. Faced with this, I have a clear task: to keep Britain safe. Not to take the easy course - but the right course. Not to dodge responsibility for dealing with a debt crisis - but to lead our country through this to better times.

My message today is that it can be done. We are well on the way in this journey.

Since we took office two years ago, we have cut the deficit by more than a quarter.
Yesterday, we had encouraging news on unemployment, too.  The number of people in work - up by 100,000 in the last quarter. And the number of new business start-ups last year was one of the highest in our history. So now more than ever this is the time to stand firm.

Let me be clear: we are moving in the right direction - not rushing the task, but judging it carefully. And that is why we must resist dangerous voices calling on us to retreat. Yes, we are doing everything we can to return this country to strong, stable economic growth. But no, we will not do that by returning to the something for nothing economics that got us into this mess.

We cannot blow the budget on more spending and more debt.

It would squander all the progress we’ve made in these last two, tough years. It would mean tough decisions lasting even longer. It would risk our future. It’s not an alternative policy, it’s a cop-out.

The Challenges 

In keeping Britain safe and building the recovery we face three challenges.

First, the struggle to recover from a long and deep recession at home.

Second, the turbulence coming from the Eurozone.

And third, the uncertainty over whether the world is on the right economic path, with debates about trade policy and how to support growth.

We need to find the right answer to all three. And our answers must be rooted in the reality of the global situation. This is not a conventional economic crisis, of the kind Britain has had to deal with in the recent past. This is a debt crisis.

Deficit reduction and growth are not alternatives. Delivering the first is vital in securing the second. If markets don’t believe you are serious about dealing with your debts, your interest rates rocket and your economy shrinks.

Britain can not cut itself off from what happens elsewhere. As our biggest trading partner, the problems in the Eurozone are affecting Britain too. As we prepare for the potential storms we should be both resolute and confident. Resolute because we will do what it takes to shelter the UK from the worst of the storms.

Outside the Euro we do have greater flexibility. We have our own currency and our own central bank with responsibility for monetary and financial stability. We have trade relationships with all parts of the world.

We invest more around the world per capita than America. And last month our trade in goods with countries outside the EU hit a new record at £13 billion. We will make the most of this flexibility to drive the strong deficit reduction programme, and secure the strong banks that will be necessary to keep interest rates low. And we should be confident because of our strengths.

Just today General Motors has given Britain and its workforce a fantastic vote of confidence by backing continued production at Ellesmere Port.  The UK Government gave this its full backing.  The unions supported the necessary changes. The workforce has responded magnificently.  It is a British success story. And General Motors are not alone.

Look across the country, at Honda in Swindon, Jaguar Land Rover in the West Midlands, Toyota in Derby and Nissan in Sunderland. Britain’s car industry is growing.

Indeed, this week our balance of trade in cars turned positive in the first quarter - for the first time since 1976 when Jim Callaghan went to the IMF. And it’s not just our car industry which is strong.  Life sciences, pharmaceuticals, information technology, aerospace, the creative industries, services.  Britain has a stronger base from which to grow. 

We have a global language. A time zone where you can trade with Asia in the morning and America in the afternoon. Some of the best universities in the world. And a government that’s committed to making Britain the best place in the world in which to start a business.

With these strengths I believe we can see Britain through the storm. But to do so we need to act at home, and together with our European and global partners.

Recovery at Home

First, we must continue to get to grips with the deficit and build recovery at home. Let’s be clear about what we inherited: an economy built on the worst deficit since the Second World War: the most leveraged banks; the most indebted households; one of the biggest housing booms; and unsustainable levels of public spending and immigration.

With a budget deficit of over 11 per cent of GDP, one pound in every four that the last government spent was borrowed.  Britain still spends over £120 million every single day just to pay the interest on our past borrowing - and that amount will continue to increase every day until we start to live within our means as a country.

A central promise of this government - and one of the key tasks that brought the Coalition together - was to deal with this deficit. That is the only path to prosperity.

And that is exactly what we are doing. Despite headwinds from the Eurozone, we are on track.  It is a long-term project. It is painstaking work. But the tough decisions we have taken on deficit reduction really are beginning to yield real results. And there can be no deviation from this.

Those who argue we should spend more want us to borrow more, driving up our deficit and our debt and putting our hard-won credibility and low interest rates at risk.

Higher interest rates would mean higher mortgages, lower employment and even more of the money people work so hard for wasted paying the interest on our national debt.  We must not and will not let this happen.

Getting our debt under control is necessary for growth. But it’s not sufficient. Our responsible fiscal policy is being matched by active monetary policy. That’s the best way to support demand and help rebalance our economy away from debt-fuelled consumption and towards exports and investment. And the independent Bank of England is able to do more to support the economy if necessary or if inflation falls below their target.

Fiscal responsibility and monetary activism is the right macroeconomic mix for our
over-indebted economy. But the additional ingredient that government will deliver and needs to do even more of is a radical programme of microeconomic reform to make our economy more competitive -including competitive tax rates, planning reform and deregulation.

All the key things business has rightly asked for, we are delivering. Some things are absolutely essential in the short term. Companies need to invest more so we are cutting corporation tax to the lowest level in the G7.

Banks need to lend to small and medium sized businesses so we are creating the National Loan Guarantee Scheme that will provide £20 billion of cheaper credit for small businesses.

Builders need to build more so we’re scrapping almost 1,000 pages of planning rules.

And those who want a home of their own need the confidence to enter the market  so we’re backing mortgages for people to get new homes, because it’s clear that there’s a massive shortage of housing in a market that’s stalled and we need to get it moving again.

Then there are things that take longer but still make a vital difference.

We need to rebalance our economy so we are supporting the new enterprises that will spread jobs and growth right across the country with 24 enterprise zones and a £2.4 billion Regional Growth Fund that’s securing 328,000 jobs.

We need to get behind the industries of the future so we’re backing the skilled, high-value industries like green technology, aerospace and life sciences in which Britain has a real comparative advantage.

We need to make it easier to take on new workers so we are reforming employment law, including tribunals.

And we need to develop the skills of our workforce which is why we’ve delivered over 450,000 new apprenticeships in the last year alone, a success welcomed today by the Public Accounts Committee.

But we need to do more, embedding high quality vocational education, which is why we are creating University Technical Colleges for 14-19 year olds.

And then there are things for the very long term. But this is a government about the long term, so we’re absolutely focused on delivering them.

We’re investing in infrastructure, building High Speed rail, finding new ways to finance roads and securing the power supplies of tomorrow.

We’re reforming welfare so that it always pays to get a job and we build a culture that that commits everyone to work, not a life on benefits.

And we’re reforming our schools so the next generation have the knowledge and ambitions to match the very best in the world.

This is our plan for growth - short, medium and long term.

But I believe that there is more that we can do. We can use the hard-won credibility of the government’s balance sheet to help the economy grow without adding even further to our debt.

Let me tell you what this means.

In many areas we are already using the credibility we have earned to pass on the benefits of low interest rates to businesses and families. We have the credit easing programme for small businesses we have mortgage help for people who want new homes and then there are the guarantees for new infrastructure projects.

I want us to go further, so I’ve asked the Treasury to examine what more we can do to boost credit for business, housing and infrastructure.

We’ve taken the tough decisions to earn those low interest rates - so let’s make sure we’re putting them to good use. Building recovery is hard work because we are not reinflating the bubble but building a new model of growth. Some people asked why we didn’t have more economy Bills in the Queen’s Speech.  If you could legislate your way to growth, obviously we would. The truth is you can’t.

You need to get in there, pick the problems apart, find the things that hold our economy back and sort them out, step by step, hour by hour.

A government resolutely committed to being on the side of enterprise, entrepreneurs, businesses large and small, wealth creation of all types and descriptions and hardworking people right across the country and that is what I am committed to delivering.


Just as in Britain we need to deal with the deficit and restore competitiveness, so the same is true of Europe.

This is a debt crisis. And the deficits that caused those debts have to be dealt with. But growth in much of the Eurozone has evaporated completely. Indeed without the recent German growth figures, it would be in recession.

I realise that countries inside the Eurozone may not relish advice from countries outside it - especially from countries, such as Britain, with debts and difficulties of their own.

But this affects us too. As the Governor of the Bank of England said yesterday: “the biggest risk to recovery [in the UK] stems from the difficulties facing the Euro area”.

Based on trade flows alone Britain is more than six times as exposed to the Eurozone as the United States - and that’s before you factor in the impact on confidence and our closely connected financial systems.

This Coalition Government was formed in the midst of a debt crisis in the Eurozone. Two years later and little has changed. That’s the backdrop against which we have to work. So it’s only right that we set out our views. We need to be clear about the long-term consequences of any single currency. In Britain, we have had one for centuries. When one part of the country struggles, other parts step forward to help. There is a remorseless logic to it.

A rigid system that locks down each state’s monetary flexibility yet limits fiscal transfers between them can only resolve its internal imbalances through painful and prolonged adjustment.

So in my view, three things need to happen if the single currency is to function properly.

First, the high deficit, low competitiveness countries in the periphery of the Eurozone do need to confront their problems head on. They need to continue taking difficult steps to cut their spending, increase their revenues and undergo structural reform to become competitive. The idea that high deficit countries can borrow and spend their way to recovery is a dangerous delusion.

But it is becoming increasingly clear that they are less likely to be able to sustain that necessary adjustment economically or politically unless the core of the Eurozone, including through the ECB, does more to support demand and share the burden of adjustment.

In Britain we are able to ease that adjustment through loose monetary policy and a flexible exchange rate. And we are supplementing that monetary stimulus with active interventions such as credit easing, mortgage indemnities for first time buyers and guarantees for new infrastructure projects.

So I welcome the opportunity to explore new options for such monetary activism at a European level, for example through President Hollande’s ideas for project bonds. But to rebalance your economy in a currency union at a time of global economic weakness you need more fundamental support.

Germany’s finance minister, Wolfgang Schauble is right to recognise rising wages in his country can play a part in correcting these imbalances but monetary policy in the Eurozone must also do more.

Second, the Eurozone needs to put in place governance arrangements that create confidence for the future. And as the British Government has been arguing for a year now that means following the logic of monetary union towards solutions that deliver greater forms of collective support and collective responsibility of which Eurobonds are one possible example. Steps such as these are needed to put an end to speculation about the future of the euro.

And third, we all need to address Europe’s overall low productivity and lack of economic dynamism, which remains its Achilles Heel. Most EU member states are becoming less competitive compared to the rest of the world, not more.

The Single Market is incomplete and competition throughout Europe is too constrained. Indeed, Britain has long been arguing for a pro-business, pro-growth agenda in Europe.

That’s why ahead of the last European Council I formed an unprecedented alliance with 11 other EU leaders setting out an action plan for jobs and growth in Europe and pushing for the completion of the Single Market in Services and Digital.

The Eurozone is at a cross-roads. It either has to make-up or it is looking at a potential break-up. Either Europe has a committed, stable, successful Eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the Eurozone.

Or we are in unchartered territory which carries huge risks for everybody. As I have consistently said it is in Britain’s interest for the Eurozone to sort out its problems.

But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.

Global Economy

Protecting Britain’s economy is not just about the measures we take at home - or even the steps our neighbours take in Europe.

In a world that is ever more connected and ever more competitive, it is also about the steps we take with our global partners to protect ourselves against global contagion and promote global trade.

So over the coming weeks I’ll be flying to Camp David and to Los Cabos in Mexico to fight for what is right for Britain at the G8 and G20 summits.

That means committing together to make the reforms we need to our economies to get growth in the global economy working again, including involving organisations like the IMF.  It means persisting with reforms to make our banks safe, by implementing high-quality, global financial regulatory standards. It means recognising the risks to the recovery from rising and volatile energy prices and working together to ensure our energy security. And most of all it means getting together to give the world economy the one big stimulus that would really make a difference an expansion of trade freedoms, breaking down the barriers to world trade.

We all know the Doha trade round is going nowhere.  But that doesn’t mean we have to give up on free trade. Far from it.  There is good work from Doha that we can salvage. Like the measures to break down the bureaucracy over getting goods across borders. I want to see a commitment to open markets and to rolling back protectionist measures already in place.

And most importantly, I want us to move forwards with “coalitions of the willing”, so countries who want to, can forge ahead with ambitious deals of their own because we all benefit from the increased trade and investment these deals foster.

For us that means getting EU agreements finalised with India, Canada and Singapore launching negotiations with Japan and, above all, preparing to negotiate with the US - the single biggest bilateral deal that could benefit Britain.

Why is this so important?

Because the opportunities for Britain abroad have never been so big. And we need to work harder than ever before to seize them. Yes, competition for every job and every contract has increased. The last ten years has seen the extraordinary rise of powerful new economies in Latin America and Asia. And the globalisation of supply has meant new competitors making products, and more jobs going abroad. But now these countries aren’t just producers; they are consumers too.

As nations get richer they spend more money on products where Britain excels. On everything from financial services and pharmaceuticals to jet engines, music and computer games.

The globalisation of demand means new countries demanding our products, fuelling new jobs at home. If we make the most of this, there is a huge opportunity to secure a great future for our country. And that is why as we get through crisis, I believe we can look ahead with confidence.


I cannot predict how this crisis will end for others. And I cannot pretend that Britain will be immune from the consequences, either.  But this I can promise: that we know what needs to be done and we are doing it.

Get the deficit under control, get the foundations for recovery in place, defend the long-term interests of our country and hold our course.

As Prime Minister, I will do whatever it takes to keep Britain safe from the storm.

Published 17 May 2012