By Matt Falloon
MANCHESTER, England, May 17 (Reuters) - Prime Minister David Cameron urged Europe's rulers on Thursday to do more to quell the euro zone debt crisis and raised the prospect of a Greek default to argue he must stick to his unpopular attempt to cut spending and reduce debt at home.
Warning that the survival of the euro was now in question, Cameron showed growing alarm and frustration that the crisis was spinning out of control, threatening Britain's $2.5 trillion economy and his own electoral prospects in 2015.
"Greece is on the brink, the survival of the euro in question," Cameron told business leaders on a grey and damp morning in the northern English city of Manchester.
"Faced with this, I have a clear task: to keep Britain safe. Not to take the easy course - but the right course," he added.
Echoing the words of Bank of England Governor Mervyn King, Cameron said the crisis in the European Union - Britain's biggest trading partner - had lasted more than two years but the "storm" was far from over.
"We are in unchartered territory which carries huge risks for everybody. As I have consistently said, it is in Britain's interest for the euro zone to sort out its problems."
He said Europe's problems showed the dangers of scrapping his government's attempt to cut Britain's vast budget deficit, though he called on the European Central Bank to stimulate demand to help peripheral euro members.
"It is becoming increasingly clear that they are less likely to be able to sustain that necessary adjustment economically or politically unless the core of the euro zone, including through the ECB, does more to support demand and share the burden of adjustment," Cameron said.
He added that the Bank of England could do more to support the economy if inflation fell below its target, a barbed way of asking Governor King to help boost demand.
After snubbing Francois Hollande when the Socialist candidate came to London weeks before the French election, the Conservative Cameron said he now welcomed the new French president's idea of launching project bonds to drive demand by funding big infrastructure deals.
But since Cameron refused to sign up to an EU economic pact last year that was supposed to help shore up the euro zone, his comments may have more resonance in eurosceptic Britain and his own divided party than in the EU's 26 other member states.
For Cameron, the gale winds from Europe threaten to undermine the central purpose of the coalition government he has headed since 2010: to nurture Britain back to growth after the most serious crisis since the Great Depression.
Turmoil in Europe could deepen Britain's recession by crippling the European banking system and dampening already battered demand.
"People are holding back from investment decisions because of that uncertainty - it's the worst enemy for business, uncertainty is the big killer," said Les Harvey, a business consultant who specialises in construction and infrastructure and who attended Cameron's speech.
"It's a concern. It's such a major trading partner - whatever affects them is going to affect us."
Cameron said the storm showed Britain must continue to cut the deficit, which in 2009-2010 reached a record 11 percent of gross domestic product, rather than throwing money into the economy in an attempt to kick-start growth.
"We must resist dangerous voices calling on us to retreat," Cameron said. "If markets don't believe you are serious about dealing with your debts, your interest rates rocket and your economy shrinks."
But even the government's own figures show Britain's public sector net debt will rise over the next four years, hitting a record of 1.48 trillion pounds ($2.36 trillion) in 2016, while the deficit cannot shrink as fast as expected if the economy continues to contract.
That economic minefield makes Cameron's position even more precarious as he faces an electorate upset at the gloom of recession and an unruly anti-European Union wing of his Conservative party that wants Britain to leave the club.