Cable warns of euro collapse threat

Business Secretary Vince Cable has warned that Europe could be plunged into conflict if the euro was to collapse.

The senior Liberal Democrat said the consequences would be "incalculable" and said there was "no automatic guarantee" that Europe would not disintegrate into conflict.

"I think we need to take stock that if the eurozone were to unravel in a way that destroyed the European project - and there is a risk that could happen - the consequences would be absolutely incalculable," Mr Cable said.

"We tend to forget, until we were reminded last week of that Nobel Prize, the European project was constructed in order to rescue Europe from extreme nationalism and conflict. There is no automatic guarantee that won't return."

Mr Cable spoke during an event at the Cheltenham Literature Festival called Austerity, the euro and us. The minister described the euro as "very valuable" and had to be maintained - otherwise Britain would suffer.

"We are not in the eurozone so we cannot directly influence it. We will be heard very loudly if it does unravel," Mr Cable told the audience. "My sense is that the Germans in particular realise how much is at stake. I think deep down there is enough common sense and a sense of survival to prevent this getting out of control. If it does, I'm afraid the consequences for us will be awful."

The Business Secretary said the challenge for the Government over the next year was how to balance the need to stimulate growth while at the same time maintaining confidence on the money markets.

"How does Government do that without at the same not undermining the reputation we have acquired for being able to manage the Government's finances sensibly and maintaining the confidence to lend to us?," he said. "Contrary to a lot of perception the Government is being quite flexible in the way it is cutting the budget deficit.

"We started off aiming to deal with the structural deficit in four years and we've now said we'll deal with it in six because the economy has slowed down making it more difficult. It's not far from what Alistair Darling set out to do... he said seven years."

Mr Cable criticised the banks for becoming "over-conservative" in the wake of the financial crisis. "One of the long-term consequences is that the banks are no longer functioning properly," he said. "And this means that large numbers of small and medium sized companies find it difficult to get credit. There's a dilemma here."