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Sun, 2nd Oct 2011 14:36

By Matt Falloon and Keith Weir

MANCHESTER, England Oct 2 (Reuters) - Europe must urgently fix its banks and deal with its debts, British Prime Minister David Cameron said on Sunday, warning that the euro zone crisis risked harming Britain's economy and stunting global growth.

Speaking on the opening day of his Conservative Party's annual conference, Cameron said that he would stick to his coalition's deficit-cutting plans despite signs that the British economy is stalling.

He also said Britain must remain part of the European Union, disappointing right-wingers in his party who see the continental crisis as a chance for an abrupt end to four decades of closer integration with EU partners.

Any prolonged economic crisis in the rest of Europe, the UK's main export market, would hurt Britain when the government is trying to rebalance a struggling economy by increasing the sale of British goods and services overseas.

'The euro zone is a threat not just to itself but also a threat to the British economy and a threat to the worldwide economy,' Cameron told BBC television.

'Action needs to be taken in the next coming weeks to strengthen Europe's banks, to build the defences that the euro zone has, to deal with the problems of debt. They've got to do that now. They've got to get ahead of the markets now.'

The Conservative-Liberal Democrat coalition government, in power since May 2010, is increasingly concerned about a lack of growth in the British economy, with critics saying its tough austerity plan is only making matters worse.

Thousands of flag-waving, whistle-blowing union members marched past the conference venue in the northern English city of Manchester to protest over deep cuts in public spending that will lead to over 300,000 job losses.

The coalition argues that dealing with Britain's debts decisively is the only way to restore long-term growth and stability, and to also keep financial markets at bay.

'You can't suddenly tear up your borrowing plans and your debt plans because it is those plans that give us the low interest rates that are absolutely key to economic recovery,' Cameron said.



HOUSE BUILDING BOOSTED

Cameron said everything must be done to 'fire up the engines of the British economy'.

He unveiled plans to make state-owned land available in a 'build now, pay later' scheme for property developers which he said could mean 100,000 homes were built and 200,000 jobs created.

Britain's economic destiny will dominate much of the Conservative Party's annual gathering after a leading parliamentarian criticised finance minister George Osborne for lacking a coherent growth strategy.

With no spare cash to spend on stimulus, the government has looked to the Bank of England to keep monetary policy loose to support growth and ministers have ramped up pressure in recent weeks for more action.

The BoE meets this week for its monthly policy meeting with some expecting the central bank to start printing money again, despite inflation running at more than twice the two percent target.

The Conservative conference also is likely to see a renewed focus on Britain's relationship with Europe. Many backbench Conservative MPs are angry that Cameron has not taken a tougher line with the European Union over funding and human rights.

Cameron said he wanted to claim back some powers from European institutions but slapped down party members who want to leave the EU.

'I think what most people want in this country is not actually to leave the European Union but to reform the European Union and to make sure the balance of powers between a country like Britain and Europe is better.'



(Additional reporting by Peter Griffiths in London; Editing by Rosalind Russell)

Keywords: BRITAIN EUROPE/CAMERON



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