France and Italy present united front before crisis
Italy and France sought to present a united front yesterday as grim economic news threatened to push Europe back into recession and exacerbate a spiralling debt crisis.
European leaders are scrambling again to stem the march of the crisis, which pushed the euro to a 16-month low against the US dollar yesterday, drove Italy's borrowing rates to unsustainable levels, and is threatening France's prized AAA credit rating.
With the debt jitters affecting core economies, economic indicators show that even powerhouse Germany hasn't been spared. Economic sentiment and retail sales are falling across the region, according to new data released yesterday, while unemployment in the 17-nation eurozone is stuck at 10.3pc.
For already struggling countries like Hungary, which is not in the eurozone, a weaker regional economy is spelling disaster. The credit rating of the country, which has requested help from the European Union and the IMF, was downgraded to junk status yesterday.
European governments are trying to regain investors' confidence in their public finances, but doing so will be all the more difficult as their economies slow down or contract. There are also signs of splintering in their pledges to forge closer fiscal ties to calm markets.
So French President Nicolas Sarkozy and Italian Prime Minister Mario Monti stepped yesterday to reassure investors, vowing they saw eye to eye on how to resolve the crisis and promising co-ordinated action.
"Italy and France share a perfectly identical view on the future of Europe and the way to solve the crisis," Mr Sarkozy said after their meeting.
Mr Monti, meanwhile, urged other countries to fulfill the promises they've made.
"In a situation so delicate for the EU and the eurozone, we agree . . . that each member state has to do what's necessary in terms of budget cutting and reform," Mr Monti said. "It is essential that all the member states work together on the same level."
Mr Monti became prime minister late last year after worries that Italy couldn't pay off its debts pushed its yield past 7pc -- a level that eventually forced other countries to seek bailouts.
His technocratic government was meant to carry out stringent austerity measures aimed at reassuring investors and hopefully bringing Italy back from the brink. Europe cannot afford to rescue Italy as it has smaller economies.
While Mr Monti was initially greeted with relief, the pressure is rising again. The yield on Italy's 10-year bond rose above 7pc again yesterday, adding urgency to Mr Monti's drive to pass the promised austerity measures.
In a sign of the increasing focus on Italy's problems, Mr Sarkozy said he and German Chancellor Angela Merkel -- who have led much of the crisis response -- would travel to Rome on January 20 to prepare for eurozone meetings at the end of the month.
Stocks and bonds mostly fell yesterday, while the euro dropped as low as $1.2681, its weakest since early September 2010.
France, whose bond yields have also been rising steadily, though less dramatically than Italy's, faces the loss of its prized AAA credit rating.
Any downgrade would have far-reaching consequences for Europe since Paris's credit rating is one of the bedrocks of the continent's bailout system. (AP)