LONDON — Fears over Spain's economy impacted Britain on Thursday as Santander UK's credit rating was downgraded just hours after David Cameron warned fellow European leaders that the eurozone must take "decisive action" to ensure stability.
Moody's credit ratings agency downgraded the bank to an A2 rating - one notch higher than its parent institution in Spain.
The agency said the rating was appropriate given the bank's "general funding independence" from Banco Santander, the fact that it was "a systemically important bank in the UK" and that it had "no direct exposure to the Spanish government (or regional governments)".
"Moody's believes there is a low likelihood that the FSA would allow Santander UK to substantially weaken itself in order to support the parent," it concluded.
The downgrade came just hours after Cameron issued his starkest warning yet of the dangers posed by the debt crisis in Greece during a speech in Manchester on Thursday.
Cameron urged core countries in the 17-member eurozone, of which Britain is not a member, and the European Central Bank to support demand and cut deficits.
He admitted that his message would be unpopular in Europe where he angered many leaders by delaying a fiscal treaty last year, but said his priority was to protect Britain.
"The eurozone is at a crossroads," Cameron said in the speech to business leaders.
"It either has to make up or it is looking at a potential break-up," he said.
"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 uncharted territory which carries huge risks for everybody."
The Prime Minister said he would do "whatever it takes to keep Britain safe from the storm", but made clear that the UK would not be immune to the consequences of a euro collapse.
Cameron also took part in a 45-minute conference call with German chancellor Angela Merkel, French president Francois Hollande and Italian prime minister Mario Monti to discuss the eurozone crisis on Thursday.
It was arranged by president of the European Council Herman van Rompuy ahead of the G8 meeting in the US which starts tomorrow and which all of the leaders will attend.
A Downing Street spokeswoman said it was a "constructive discussion" about the priorities for the talks among some of the world's wealthiest nations in Camp David.
"He discussed with the others their priorities for G8: the eurozone - including Greece, growth and the importance of expanding trade relations between the US and the EU.
"The Prime Minister emphasised the importance of Greece and the Eurozone taking decisive action to ensure financial stability and prevent contagion," she said.
"He repeated what he had said in his speech earlier today: that there is a need for monetary action to stimulate growth, for structural reform to increase competitiveness in the EU, that the right governance arrangements had to be in place and that countries throughout the Eurozone should take the necessary action to tackle unsustainable deficits.". Chancellor George Osborne told MPs that the Treasury was "making the necessary contingency plans" to protect the UK as far as possible from the shockwaves of any Greek euro exit.
"But above all we will go on with the progress we have made in the last two years in reducing our structural deficit, keeping our credibility in the bond markets and our interest rates low," he said as he defended Mr Cameron's decision to talk publicly about a potential collapse.
Earlier this week, Mr Osborne warned that "open speculation" about the future of some eurozone members was damaging the European economy, but today he accepted the "genie is out of the bottle".
He said: "When eurozone central bank governors and finance ministers openly speculate on the possibility of Greek exit, then the genie is out of the bottle.
"That, and the Greek elections, make this a perilous time."
Speaking ahead of the talks, Labour leader Ed Miliband said Mr Cameron was part of the problem, not part of the solution, and accused him of failing to show leadership.
"The Prime Minister should be showing leadership, not looking like a man who is a bystander to events, shouting from the rooftops," he told the BBC.
"He is one of Europe's leaders, he should have been getting in there in the first place and getting these problems sorted out, and crucially he should have been saying to Europe's leaders 'We have failed over the last two years to sort out this problem. Unless we get a growth plan, unless we see Europe growing, it is not going to work'."
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