Europe's debt crisis 'will last a decade': Merkel warns that we're in it for the long haul



German Chancellor warns 500million population will suffer for years to come



Gloomy outlook follows failure of G20 summit to bail out bankrupt Greece



Economic forecasters predict Britain's economy could be set back six years



Europe faces being crippled by debt until 2021, with devastating consequences for its population of 500million people, including those in Britain, Angela Merkel warned yesterday.



The German Chancellor’s gloomy forecast of ten years of economic misery followed the failure at the G20 summit in Cannes to agree how to bail out bankrupt Greece.



‘This debt crisis will not simply go away,’ Mrs Merkel said. ‘It will certainly be a decade before we are in a better position.’

Warning: Angela Merkel has predicted that Europe's debt crisis is unlikely to be resolved any time soon

In her weekly podcast to the German people, she added that to have any chance of solving the crisis, everyone in Europe had to ‘make an effort and do their homework’.

The grim message came as economic forecasters warned that the eurozone crisis could knock back Britain's economy by six years.

The Ernst & Young Item Club predicted that Britain's gross domestic product could fall by 4 per cent to below its levels during the 2008-09 recession, reported The Sunday Times.

Marie Delon, senior economic adviser at the firm, said: 'We could see a contraction of 5 or 6 per cent in the eurozone. Share prices could fall by 30 or 40 per cent and credit conditions would tighten as they did after the collapse of the Lehman Brothers.'

David Cameron, meanwhile, has stepped up the pressure on Mrs Merkel to use her clout as the eurozone’s most powerful leader to sort out the financial crisis.



The summit resulted in a poker-like stand-off that saw the British Prime Minister form a powerful new alliance with Barack Obama and the Chinese, with Mrs Merkel, France’s Nicolas Sarkozy and the rest of the EU on the other side.



Britain, the U.S. and China angered the German and French by vetoing a multi-billion rescue package for Greece by the International Monetary Fund. They said Germany, France and other eurozone countries must reach deeper into their own pockets first.



It led to angry exchanges, including another attack on Mr Cameron by Mr Sarkozy, who said the English ‘don’t understand Europe because you come from an island’.

Demonstrators protest against job cuts in central London yesterday. Leading economic forecasters have warned that the eurozone crisis could push back Britain's economy by six years

Meeting: Last week's G20 summit failed to find a resolution for the eurozone's problems

The row came as the Greek Prime Minister George Papandreou, who is clinging to power a day after narrowly winning a confidence vote from MPs, admitted his country was facing ‘critical times’ ahead of his attempt to push the EU’s bailout deal through parliament.



Without the money - contained in an agreement hammered out by EU leaders on October 27 - Greece would go bankrupt by Christmas, leaving the country unable to pay the wages of public workers such as doctors, nurses and police officers.



Mr Papandreou held talks with Greek president Karolos Papoulias in which he signalled his intention to form a ‘government of national unity’ focused on ratifying the deal, which offers loans and a write-off of Greece’s international debts in exchange for drastic spending cuts and other austerity measures.



The prospect of further cuts to their living standards has led to strikes and protests on the streets of Athens.



‘Co-operation is necessary to guarantee for Greece and for our partners that we can honour our commitments,’ Mr Papandreou said.

Under fire: George Papandreou's position as Greek prime minister hangs by a thread

Potential successor: Finance minister Evangelos Venizelos could take over from Mr Papandreou

Reports from Athens last night suggested that despite Mr Papandreou surviving the no-confidence vote, he could be soon replaced by his finance minister, Evangelos Venizelos.



Mr Venizelos was at the centre of farcical scenes last week when Mr Papandreou shocked his EU partners, and sent the financial markets into turmoil, by calling for a national referendum on the deal that they thought had already been agreed.



Mr Venizelos complained that he had not been consulted ahead of the announcement, and was then admitted to hospital with stomach pains.



He publicly criticised the referendum decision, cranking up the pressure that led Mr Papandreou to later abandon the plan.



Mr Papandreou won Friday’s late-night, knife-edge confidence vote by 153 votes to 145.

The markets will be watched nervously for their reaction when they open tomorrow after another weekend of economic turmoil.



The bond market – which determines the interest charged to governments – has been particularly influential in determining the pace of the crisis.



Italian borrowing costs have soared in particular, with the interest on ten-year loans now priced at more than 6.3 per cent.

Defiant: David Cameron opposes an IMF bailout for the troubled eurozone



Anything over six per cent is said to signal that a government is heading for a default on its debts and tends to lead to a knock-on rise in the interest rates charged to other vulnerable economies, such as Spain and Portugal.



Italian and French banks are heavily exposed to the sovereign debt problems in Athens and Rome, and have seen their share prices slide steeply throughout the year.



If major institutions collapsed it could have a domino effect on dozens of other banks, including those in the UK.



Mr Cameron is determined to stand by his refusal to approve an IMF rescue for Greece until the EU finalises plans for its own bailout.

‘How can the world economy do this kind of thing when Europe cannot sort out its problems?’ said a senior Government source.



‘We were ready to back the IMF deal but the Germans must do more to push the EU deal. Something has got to give.’



Another British source said the Germans’ reluctance to go further in helping out Greece stemmed partly from their fear that it might trigger a repeat of Thirties-style hyper-inflation in Germany that fuelled the rise of Adolf Hitler.



And it is believed that Mrs Merkel fears a backlash from German voters if they are asked to give more money to prop up countries such as Greece.



If a UK-backed multi-billion IMF rescue goes ahead, Mr Cameron is ready to resist moves to block it by Eurosceptic Tory MPs.



‘Countries which give money to the IMF always get it back,’ said a senior Whitehall aide.



‘If we gave £10 billion to the IMF it does not mean £10 billion less for schools and hospitals here. We would get it back.’



And Tory officials say there is no need for a Commons vote to approve any such deal, removing the threat of Conservative rebels teaming up with Labour to defeat Mr Cameron.



The turmoil in Greece has increased expectations that the country will crash out of the eurozone, with chaotic knock-on effects for economies across the continent.



Chancellor George Osborne has admitted that the return of the drachma would be ‘pretty traumatic’ for the UK. Treasury officials have been ‘war gaming’ about how to best protect the British economy if that happens.



‘The British Government prepares for all contingencies. You would expect us to do that. It is our responsibility to the British people,’ Mr Osborne said.

