France's hopes die in car crash

Jobless: France’s industrial production has dipped again in January. (Lionel Bonaventure, AFP)

Jobless: France’s industrial production has dipped again in January. (Lionel Bonaventure, AFP)

France appears to be heading for a triple-dip recession amid concerns that a political deadlock in Italy could drag the eurozone back into crisis. French industrial production dropped by 1.2% in January despite a strong rebound in German imports that some analysts believed might rescue some of its neighbours.

Official figures from Paris showed that a long-standing slump in car buying across much of the eurozone has undermined efforts to maintain a 0.9% rise in December. Car-making dropped by 13.5% in January after a revised 8.8% increase in December.
Peugeot, Citroën and Renault have suffered a steep fall in sales during the past year and have cut production at many of their factories.

Analysts said the drop in overall output was a further sign that France's €2-trillion economy could slip into recession after contracting 0.3% in the final quarter of 2012 and following weak data this year.

A graveyard for car sellers
Italy has proved a particular graveyard for car sellers, prompting the boss of Fiat to say production in Turin may stop if the slide continues. Fiat, which owns Chrysler, has expanded production in the United States while restricting output in the eurozone.

Rome was yesterday battling to maintain some stability after figures showed its recession is likely to run into 2014 even with a resolution to the electoral stalemate. One analyst said Italy posed a "near and present danger" for the eurozone.

Gary Jenkins, of Swordfish Research, said the most likely outcome of Italy's inconclusive election would be a technocratic government that pledged to maintain reforms, but a coalition could refuse to abide by tough rules set by the European Central Bank, prompting a clash in Brussels.

Mario Draghi, president of the ECB, said last week that Italy "should continue first on the structural reform path, which is the only way that can restore growth". He said it was a priority to maintain credibility with the markets.

Conflict with politicians
Jenkins said Draghi "didn't sound to me like a man who thought that it was appropriate for Europe to move away from austerity". Thus it could bring him into conflict with politicians before very long if the economy does not recover and job creation remains nonexistent in the stressed countries of Europe. If Italy ends up with an anti-austerity government, the market may assume that the ECB's promise of support with its bond-buying programme, the so-called OMT, could be weakening. Such a move could cause Italy's borrowing costs to escalate.

Beppe Grillo, leader of the Five Star Movement that controls the lower house and has the largest bloc in the upper house, has continued to mock his social democrat rival Pier Luigi Bersani, dampening hopes that a coalition might be found.

The pressure on Brussels to loosen its purse strings and relax some austerity measures intensified after a speech in London by Irish Prime Minister Enda Kenny. He told a financial sector audience that he wanted Britain to stay in the EU to join calls for a strong internal market.

"While Ireland's future is closely tied to the EU, it is also closely connected to our nearest neighbours, here in Britain," he said. "Having the ability to work together within the EU on the many issues on which we are of like mind – the single market, trade and so on – amplifies the impact of our excellent relationship generally." – © Guardian News & Media 2013

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