Testing Times Collapse of European Industry Worse than Expected

New statistics released on Thursday show that Europe's industrial woes are even worse than expected. Many are concerned that the bad economy could lead to more protectionism.

There are few left who don't think the current economic crisis is bad. Still, there is still room for surprise when it comes to degree. When it comes to the economy in the European Union, new evidence published on Thursday shows that the crisis has hit the industrial sector with unforeseen force.

European industry is suffering.
Getty Images

European industry is suffering.

Eurostat, which compiles statistics on the European Union economy, announced that production had plummeted at the end of 2008. In December, the amount of goods rolling off the conveyor belts was 2.6 percent lower than November -- and fully 12 percent lower than during the same time period a year ago.

The numbers confirm a Financial Times Deutschland article, citing an internal EU report, that both construction and manufacturing in Europe were being hit hard. In describing the downturn, Günter Verheugen, the European Union's Industry Commissioner, did not mince words: "The extent and speed of the crisis is completely new," he told the paper.

The report added to a slew of bad news. On Wednesday a closely-watched survey painted a dismal picture of mood of European business. The Ifo Institute for Economic Research survey showed that sentiment within the 16-country euro common-currency zone declined for the sixth consecutive quarter -- sinking to its lowest point since the survey started 16 years ago. Meanwhile, Spanish figures released on Thursday showed the once resilient economy had sunk into its first recession in more than a decade and a half.

And with the economic machine stuttering, an every-man-for-himself tone is creeping into politics. French President Nicholas Sarkozy is at the forefront of the new nationalism, clashing with EU officials about his plan to lend €6 billion to French carmakers Renault and Peugeot Citroen on the condition that they protect French jobs and keep French plants open.

His policy, a European echo of the "Buy-American" policy, has this week sparked divisions within the European Union. The clash became public when the Prime Minister of the Czech Republic Mirek Topolanek, who also holds the European Union's rotating presidency, vocally rejected Sarkozy's criticism of auto companies outsourcing production to the Czech Republic. His criticism of the nationalistic slant was later supported by a number of politicans, including German Chancellor Angela Merkel. "These are issues that affect us all ... and we must make sure that there is a level playing field where EU competition law applies," Merkel said on Wednesday.

Shortly after, speaking from Kuwait City during a tour of the Gulf, the French leader defended his country's support plan for the car sector, saying it "had nothing to do with protectionism."


Topolanek on Wednesday admitted that the high-profile spat was counter-productive: "I will not continue this media exchange with my friend Sarkozy, which is very damaging for both of us.... It's better to call each other up." But he also noted, without pinpointing specific countries, that "some member states call for more protectionism, others call for adherence to the rules."

Indeed, Sarkozy's rhetoric is not unique within Europe. Italian Premier Silvio Berlusconi has warned appliance maker Indesit SpA not to uproot jobs to Poland. Meanwhile, in Britain, workers are calling for: "British jobs for British workers."

But protectionism, though politically tempting, will hamper Europe's ability to maneuver itself out of the downturn, experts say. "In an economic crisis there is a tendency that states initially deal with the crisis at home before they think of others," Fabian Zuleeg, a Senior Policy Analyst at the European policy Center, told SPIEGEL ONLINE. "But it is important to recognize that in Europe, cooperation regarding economic problems should not simply be motivated by "good will." The close linkages within the European economy make it absolutely necessary to work together on a European level, especially within the Euro zone."

And the European Union has signalled it wants to challenge protectionism head-on. On Wednesday it scheduled a duo of emergency meetings: on March 1, EU heads of state will discuss their tactics to deal with the financial sector's ills. The gathering is seen as a bid to boost member-states' support for the bloc as a single internal market. A second meeting of national leaders in Prague has been scheduled for May, in addition to a planned gathering in March 19-20, which will primarily tackle the state of the economy. "Only by co-ordinated and united action will we overcome the crisis," stressed Topolanek on Wednesday. "The internal market is the vehicle that will drive us out of it."

jas -- with wire reports


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