France, Italy present united front before crisis

By Sarah Dilorenzo

Associated Press

Published: Friday, Jan. 6 2012 10:49 p.m. MST

Portuguese broker Luis Gouveia reacts while talking with a colleague in a trading room of a Portuguese bank, Wednesday, Jan. 4, 2012, in Lisbon. Portugal has paid a markedly lower interest rate amidst a government austerity program aimed at winning back market confidence. Portugal's government debt agency said it sold 3-month Treasury bills after a similar auction last month. (AP Photo/ Francisco Seco)

Associated Press

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PARIS — Italy and France sought to present a united front Friday as grim economic news threatened to push Europe back into recession and exacerbate a spiraling 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 U.S. dollar on Friday, drove Italy's borrowing rates to unsustainable levels and is threatening France's prized AAA credit rating.

With the debt jitters regarding 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 Friday, while unemployment in the 17-nation eurozone is stuck at 10.3 percent.

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 International Monetary Fund, was downgraded to junk status on Friday.

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 up Friday to reassure investors, vowing they saw eye-to-eye on how to resolve the crisis and promising coordinated action.

"Italy and France share a perfectly identical view on the future of Europe and the way to solve the crisis of confidence," Sarkozy told reporters after their meeting.

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," Monti said. "It is essential that all the member states work together on the same level."

Monti became prime minister late last year after worries that Italy couldn't pay off its debts pushed its yield past 7 percent — 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 Monti was initially greeted with relief, the pressure is rising again. The yield on Italy's 10-year bond rose above 7 percent again Friday, adding urgency to Monti's drive to pass the promised austerity measures.

In a sign of the increasing focus on Italy's problems, Sarkozy said he and German Chancellor Angela Merkel — who as leaders of the biggest economies in the eurozone have led much of the crisis response — would travel to Rome on Jan. 20 to prepare for eurozone meetings at the end of the month.

First comes a meeting in Berlin on Monday between Sarkozy and Merkel. On the agenda are talks about a tax on financial transactions sought by Sarkozy. Merkel also supports the idea, but wants it implemented at the European level.

On Friday Sarkozy said France would forge ahead with the tax even without support from its European partners. "We won't wait until everyone is in agreement to put it in place," Sarkozy said, "We'll put it into effect because we believe in it."

Stocks and bonds mostly fell on Friday, while the euro dropped as low as $1.2681, its weakest since early September 2010.

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