Cameron: EU financial tax would be madness

PM urges fellow leaders to take 'bold and decisive action' to solve the eurozone's debt crisis

David Cameron: 'The crisis is still weighing down on business confidence and investment' (AP)

David Cameron delivered a blistering message to European leaders, urging them to take bold action to sort out the eurozone debt crisis, and describing their proposals for a financial transaction tax as "madness".

In a message aimed squarely at the German Chancellor, Angela Merkel, Mr Cameron warned: "Tinkering here and there and hoping we will drift to a solution simply won't cut it any more. This is a time for boldness not caution."

The Prime Minister, speaking at the World Economic Forum in Davos, conceded there were some signs of stabilisation of European bond markets since the European Central Bank injected almost half a trillion euro into the Continent's banking system last month. But he said uncertainty about the future of the single currency was undermining the global economy.

"We need to be honest about the overall situation," he told an audience of politicians, business leaders and academics in the Swiss ski resort. "The crisis is still weighing down on business confidence and investment."

Mr Cameron pointed out that the borrowing costs of nations on the periphery of Europe were still dangerously high. "A year ago, bond rates were 5 per cent in Spain, nearly 5 per cent in Italy and more than 7 per cent in Portugal. Today, they are still 5 per cent in Spain, up to 6 per cent in Italy and 14 per cent in Portugal. So we still need some urgent short-term measures."

The Prime Minister, pictured, identified these measures as a speedy conclusion to the Greek debt restructuring talks, the rapid recapitalisation of vulnerable European banks and an increase in the size of the EU's bailout funds. "The uncertainty in Greece must be brought to an end, Europe's banks recapitalised ... [and] the European firewall needs to be big enough to deal with the full scale of the crisis," he said. He also vehemently criticised the European Commission for undermining Europe's economic competitiveness and called for an entirely new approach to single market legislation.

"Here's the checklist: all proposed EU measures tested for their impact on growth; a target to reduce the overall burden of EU regulation; a new proportionality test to prevent needless barriers to trade in services and slash the number of regulated professions in Europe," he said.

Mr Cameron contrasted European leaders' slow movement through the eurozone crisis with his government's radical deficit-reduction plan, which was outlined in George Osborne's emergency Budget in June 2010.

"By taking bold decisions to get to grips with the debt, Britain has shown it is possible to earn credibility and get ahead of the markets," he said.

Mr Cameron's rejection of the EU's proposed financial transaction tax, advocated by Chancellor Merkel and the French President, Nicolas Sarkozy, was his strongest yet. The Prime Minister said the European Commission's own analysis showed that such a levy would cost 500,000 jobs across Europe.

"Even to be considering this at a time when we are struggling to get our economies growing is quite simply madness," he argued.

Despite his stark warning about the eurozone, Mr Cameron did attempt to rebuild some bridges with Britain's European partners after he used the UK's veto in Brussels last month to block a new EU Treaty.He insisted that he saw Britain as a constructive and committed player in the bloc.

"Let me be clear. To those who think that not signing the treaty means Britain is somehow walking away from Europe let me tell you, nothing could be further from the truth," he said. "Britain is part of the European Union. Not by default but by choice."

Mr Cameron will meet other European leaders, including Ms Merkel, on Monday.