Europe's industrial base may never recover from crisis

The European Commission has issued a red alert over the unprecedented collapse of industrial production, warning that EU states are running out of money for rescue packages.

By Ambrose Evans-Pritchard
Last Updated: 7:38AM GMT 13 Feb 2009

Factory output plunged by a record 12pc in December year-on-year. Spain suffered the steepest fall of countries in the Eurozone with a 20pc drop. Among non-euro countries, the biggest declines were led by Latvia (-21pc), Sweden (-18pc) , and Romania (-17pc).

"What's completely new is the extent and speed of this crisis. The credit crunch is a reality, and even member states are having trouble financing their debts," said industry commissioner Gunther Verheugen.

"Blind activism is not going to help. EU states and the commission must not take on the role of white knights. We don't have a single euro in our budget to save companies. The financial options of the EU and member states are reaching their limits."

Julian Callow, from Barclays Capital, said an over-valued euro had slowly "hollowed out" Europe's manufacturing core over the last two or three years. "It takes time for currency effects to feed through. The damage was concealed during the global boom but the collapse in demand has exposed the vulnerabilities. We going to see a prolonged period of de-industrialisation," he said.

The commission said core sectors such as shipbuilding might never recover from the slump as Asian competitors lock up the next round of orders by offering "unfairly low prices". "European yards do not have the means to withstand a price war or to operate at below costs for long", it said. Europe still has 150 ship yards supporting almost 450,000 workers, and control 35pc of the global market.

The car and truck industry are in dire straits. Orders for heavy duty vehicles collapsed from 38,000 last January to 600 in November. The report said car sales may fall a further 18pc this year, cutting output by 2.5m vehicles. This has led to knock-on effects across industries. Flat steel orders have dropped 57pc. Ominously, Europe's steel output (-19pc) is falling at twice the global rate (-10pc).

While Daimler is still able to raise capital at a penal rate of around 9pc or 10pc, both PSA Peugeot Citroen and Renault have been unable to place bond issues. Renault said its car division had lost €873m (£783m) in the second half of 2008.

French president Nicolas Sarkozy has come to the rescue with a €6bn package of soft loans for France's car industry, provided it promises not to fire workers or shift plant abroad.

Brussels is examining whether this breaches EU law. Jose Barroso, the Commission's president, said it was imperative aid packages by different EU states do not degenerate into beggar-thy-neighbour protectionism.

He said: "We will be studying aid plans to ensure that there are no harmful collateral effects in other countries. If one country takes unilateral measures, the others could do it as well. We would lose Europe's greatest resource: the single market"

http://www.telegraph.co.uk/finance/news ... risis.html

we havent seen the worst of it yet... what you see happening in the EU is going to intensify here