Andrew Grice: Darkening clouds of euro crisis make life perilous for the PM

"It's a rotten time to be Prime Minister," David Cameron is said to remark privately as he contemplates what he described publicly this week as "living in perilous economic times". In 2006, in his first Conservative conference speech as party leader, an upbeat Mr Cameron said "let sunshine win the day". Now it is raining in Britain and dark clouds gather ominously again on the Continent. "We will do what it takes to shelter the UK from the worst of the storms," the PM said on Thursday. Previous talk of sunny uplands after the deficit has been cleared has vanished; austerity will last for at least two years beyond the 2015 election. If the euro breaks up, it could last longer.

Some fellow modernisers think Mr Cameron would have been a better PM for the era of plenty Labour enjoyed for most of its 13 years in power. He could have launched social reforms, like his initiative yesterday on parenting skills, to his heart's content – and backed them with lots more money.

Instead, Mr Cameron is doomed to be more like a wartime leader as we face what Vince Cable, the Business Secretary, has called "the economic equivalent of war." The PM is getting on with the battle. A planned speech about family policy on Thursday was overtaken by events and devoted to the economy.

The election of the Socialist François Hollande in France on a "growth before austerity" ticket threatens to tip the EU balance in favour of growth. Mr Cameron argues that it is a false choice: deficit reduction is a vital step towards achieving growth, and if financial markets judge governments are not serious about reducing debt, interest rates will rise and growth stall.

The opinion polls suggest that, while the public still buy into the Coalition's core mission to clear the deficit, they increasingly doubt the cuts strategy after the return of recession. Despite that, there is no sign of a Plan B. "The worst thing we could do now is to retreat under fire," said one Downing Street insider. "We have got to hold our nerve and see it through."

It won't be easy. A euro meltdown could leave Britain with the biggest debts in the world because our banks are so exposed and form such a big part of our economy – something Tory Eurosceptics should remember as they excitedly predict the collapse of the single currency.

Blaming it all on the eurozone may not help Mr Cameron and George Osborne, and they know it. Ten governments in Europe have been thrown out in the past year. The message is: incumbents take the rap, even if it is not entirely their fault. So Mr Cameron is straining every sinew, as he puts it, to secure UK growth. Ministers and officials are scurrying around for ways to boost infrastructure and housing projects. This could be a Plan A-plus but they won't admit it, of course. This week the Cabinet's Home Affairs Committee refused to sign off the Enterprise and Regulatory Reform Bill, originally due for publication yesterday, in the hope of including some last-minute pro-growth measures.

Tory MPs, led by the former Cabinet minister Liam Fox, blame the Liberal Democrats for preventing the Government from adopting stronger labour market reforms such as allowing employers to fire workers at will. The Tories' main target is Mr Cable. That's a bit rich, since he identified the need for a more pro-active growth strategy in a letter to Mr Cameron in February, later leaked. The Lib Dem Business Secretary warned that the Government had missed "valuable opportunities" for growth, that its industrial strategy is "piecemeal" with "no connected approach across government", and there is no "compelling vision of where the country is heading beyond sorting out the fiscal mess".

Mr Cameron and Mr Osborne were underwhelmed at the time but now seem more interested in Mr Cable's diagnosis, including the need to get banks lending to business. Perhaps they should have listened in February.

Labour senses an opportunity in the changing debate over austerity and cuts in Europe. Ed Miliband and Ed Balls now look more mainstream. Their claim that Britain has cut "too far, too fast" looks more credible after the slide back into recession. The Tories' opinion poll lead over Labour on economic trust has disappeared.

And yet Labour is not cracking open the champagne after Mr Hollande's election: if France were to lose the confidence of the markets, the Cameron-Osborne claim Britain is a "safe haven" would not look as flimsy as it does now.

The two biggest threats to Mr Cameron's premiership are the euro crisis and the Leveson Inquiry, which next week will again shine an unflattering light on his Government's close links with the Murdoch empire. What do the two dangers have in common? The Prime Minister is powerless to control either. Perilous times indeed.