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Eurozone Crisis Spreads To France As Car Sales Decline

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A street musician plays violin near a restaurant displaying a giant sticker of a Euro coin on its window and offering pizzas for one euro in the center of Madrid on December 08, 2011. France and Germany drummed up support for their plan to fix the eurozone as European leaders geared up for a last chance summit to save the debt-laden currency union from collapse. (Getty)
A street musician plays violin near a restaurant displaying a giant sticker of a Euro coin on its window and offering pizzas for one euro in the center of Madrid on December 08, 2011. France and Germany drummed up support for their plan to fix the eurozone as European leaders geared up for a last chance summit to save the debt-laden currency union from collapse. (Getty)

Fewer French people bought cars in 2011, the latest indication that the European economic crisis is taking a toll on the continent's second largest economy.

As skittish investors awaited news on Tuesday about a possible downgrade to France's AAA credit rating, Barclays Capital released a research note highlighting that new car registrations in France plunged 14.4 percent in December compared to the same period last year.

The drop is likely less drastic than it initially appears. December 2010 saw a surge in car sales in France as consumers aimed to take advantage of a government subsidy for trading in old cars, according to Barclays. Still registrations as a whole declined 0.4 percent in 2011, according to data from the Committee of French Car Manufacturers cited by Barclays.

The decrease highlights the reluctance of French consumers to spend on high-ticket items. As French consumers ease back on spending, that could hurt both euro-area manufacturers and the overall (already ailing) economy.

A weaker French economy could make France the next target for bearish investors. Already on Tuesday, the country's borrowing costs spiked as the interest rate on 10-year French government bonds rose three percent to 3.31 percent. That's still far lower than the more troubled European countries, yet France has seen its interest rates rise in tandem with the interest rates of other troubled eurozone countries.

While France struggles, Germany remains Europe's safe haven. New car registrations in Germany actually rose 8.2 percent in 2011, according to national data analyzed by Barclays. The interest rate on 10-year German government debt is just 1.90 percent: even lower than the interest rate on 10-year U.S. Treasury bonds.

In Italy, on the other hand, new car registrations plummeted 9.8 percent, and new car registrations in Spain plunged 16.9 percent.

The French economy has been struggling and is likely to shrink in 2012. IHS Global Insight projects that the French economy will shrink 0.7 percent in 2012. The number of jobless people in France recently hit a 12-year high, and the unemployment rate in mainland France has risen to 9.3 percent, according to French government data cited by The Financial Times.

Though France is not in immediate danger of a debt crisis, its government debt burden is still substantial. France's government debt is currently worth about 85 percent of its total economic output, according to French government data cited by Dow Jones Newswires. France's projected deficit is 5.7 percent of economic output, which could make it difficult for France to bail out its banks, which are exposed to more than $782 billion, or 600 billion euros, in Italian, Spanish, and Greek debt: by far the most of any banking system in the eurozone, according to Reuters.

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