Euro crisis puts continent's future in doubt, warns Fiat boss

• Sergio Marchionne warns eurozone politicians they are 'playing with fire' and need to 'get serious'
• Fitch suggests Italy faces fresh credit downgrade
• Banks lodging record overnight deposits with ECB

Europe is "playing with fire" and its future is in doubt if it doesn't "get serious," the boss of the Italian car giant Fiat has warned, as ratings agency Fitch put Italy on notice of a credit downgrade.

Sergio Marchionne, chief of Fiat and Chrysler, said the European debt crisis was likely to flatten his business for the next two years. Speaking at the Detroit motor show, Marchionne said he was looking at adding a new partner to his car alliance as Europe's debt woes drag down Fiat's business.

Marchionne said: "We are playing with fire. One of the things we need to realise is that the world is fundamentally interconnected. We have ended up being accountable to a lot of people who financed our public debt.

"Europe is being called to task to solve a number of issues. If we don't acquire the confidence of the financial markets, the future of Europe is doubtful."

His strongly worded warning to Europe's politicians came as Fitch said Italy could see its A+ rating cut by the end of the month, despite new prime minister Mario Monti's insistence that his latest austerity measures would bring the country's finances under control.

David Riley, Fitch's head of global sovereign ratings, speaking in London, said Italy was on the "frontline" of the mounting eurozone debt crisis. "The future of the euro will be decided at the gates of Rome," he said.

Italy has seen its borrowing costs rise to eye-watering levels as confidence in the future of the single currency has been rocked. Yields on 10-year Italian bonds, which determine the interest rate Rome has to pay to borrow, stood at 7.14%. A rate of 7% is widely viewed as unsustainable and was the point at which Portugal, Greece and the Irish Republic were forced to seek a bailout.

Fitch's warning came as Europe's leaders began a punishing schedule of meetings in the run-up to a crucial summit at the end of this month.

After Greece's warning last week that it will be forced to drop out of the single currency unless it receives the €130bn second bailout it was promised in October, German chancellor Angela Merkel and Christine Lagarde, the managing director of the International Monetary Fund, held talks in Berlin.

Lagarde will be in Paris on Wednesday to meet French president Nicolas Sarkozy, amid reports that the IMF is losing patience with Athens. The Greek government is being urged to crack down on tax avoidance, sell off state assets and implement a series of economic reforms before it can receive the new rescue loan.

Also on the agenda for eurozone leaders is the new "fiscal compact", to tighten the rules on tax and spending for euro members, and how to boost the euro bailout fund, the European Financial Stability Facility.

Fresh evidence of the scale of the continuing crisis in Greece also emerged, with news that bank deposits in the recession-hit state declined by 2% in November alone. During the first eleven months of 2011, nervous Greek consumers and businesses withdrew €36.7bn from the country's shaky banking sector, 17.5% of the total cash on account.

The IMF is also due to pronounce on Ireland's progress on tackling its deficit. Enda Kenny, the Irish prime minister, expressed confidence that the "troika" of the European Central Bank, the European commission and the IMF would give the republic a positive report after their officials' 10-day fact-finding mission to Dublin.

The taoiseach and the Irish government played down comments from Citigroup's chief economist, Willem Buiter, that Ireland might need another international bailout by the end of the year. The European commission said that talk of a second round of international aid to Ireland was "not helpful".

Responding to Buiter's remarks, Amadeu Altafaj, spokesman for Olli Rehn, the EU economic commissioner, said that Ireland had made strong progress in export growth, banking sector reform, structural reform and in its general fiscal position. "It is not particularly useful to open a public debate on a successor programme when the first programme is delivering," he said.

The talks in Berlin and Paris were lent fresh urgency by news that struggling banks deposited a record €481.9bn in the European Central Bank's overnight facility on Monday.

These deposits receive a rock bottom interest rate of 0.25%, so the sharp rise suggests banks are increasingly anxious about lending among themselves, and instead are parking their cash in Frankfurt.

Meanwhile Britain's status as a relatively safe haven amid the turmoil on the continent was underlined as investors snapped up £700m-worth of inflation-linked government bonds, driving the real yield below zero for only the second time.

Back in Detroit, where American carmakers are banking on a revival in the world's largest economy, Marchionne predicted that Fiat could lose 500,000 vehicle sales annually as a result of the European debt crisis. "We need to get serious, really serious," he said.

Fiat is planning to merge with Chrysler by 2014. Under Marchionne the US car firm has bounced back from bankruptcy. Chrysler sales soared 26.2% last year and were up 37.1% in December. The US firm expects to report a profit of about $600m for 2011 and Marchionne has forecast Chrysler will make $3bn in operating profit in 2012.

The company recently announced it would add 1,100 jobs to the Detroit plant that makes the Grand Cherokee and Dodge Durango.


Heather Stewart, Dominic Rushe and Henry McDonald

The GuardianTramp

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