French general urges EU to equip "impoverished" Mali army

Analysis: Core problem for Europe as France, Germany drift apart

LONDON (Reuters)- Even as the euro zone periphery starts to spy some glimmers of hope, concern is mounting that Germany is drifting apart from other countries at the core of the single currency bloc, notably France.

Economically, the worry is that insistence on fiscal austerity by an out-performing Germany will delay an upturn in France, which has been steadily losing competitiveness to its larger neighbor.

Politically, the risk is that already uneasy relations between French President Francois Hollande andGerman Chancellor Angela Merkel could come under further strain when the euro zone needs strong, cohesive leadership to create a new institutional framework for the euro.

Philippe Waechter, chief economist at Natixis Asset Management in Paris, said signs of a solid recovery in Germany's economy were bolstering Merkel's position on economic policy going into September's general election.

Hollande, by contrast, was forced to acknowledge on Tuesday that growth would fall short of his government's 0.8 percent forecast. His government has already admitted it will miss its deficit target this year.

"The issue is how the balance of power evolves between Francois Hollande and Angela Merkel, knowing that France and Germany are extremely important in the political construction of the euro zone," Waechter said.

IMBALANCE OF POWER

Paris is more in tune with Italy and Spain than with Germany in wanting to put growth before deficit reduction and structural reform.

But the difficulty for Hollande as he seeks political support to counterbalance Berlin is that Italy holds a February 24/25 election that promises an uncertain outcome, while the authority of Spanish Prime Minister Mariano Rajoy has been dented by a party financing scandal.

"It's a balance of power that needs to be changed because otherwise Spain, Italy and France will be in even deeper difficulties, and that would be really problematic for the equilibrium of the euro zone," Waechter said.

Both Germany and France contracted last quarter, but business surveys this week have underscored how Europe's two largest economies are now growing apart.

France's all-industry business climate index for February was flat for the third month in a row, the state statistics office said on Wednesday, a day after Germany's ZEW sentiment index jumped to its highest level in nearly three years.

That tallied with a rise in Germany's Purchasing Managers' Index last month to 54.4, its highest level since June 2011. France's index dropped to 42.7, the lowest since March 2009.

Financial markets seem unperturbed. Yields on 10-year French bonds remain below 2.30 percent.

Nicholas Spiro with Spiro Sovereign Strategy, a London consultancy, said France is treated as a core euro member by the bond markets but, judged by many economic and structural indicators, it should be classed as a ‘lucky peripheral'.

"France's perceived creditworthiness is strong not because of fundamentals - which are shockingly bad in a number of areas and deteriorating by the day - but because investors do not have many options in terms of deep liquid and relatively safe bond markets as an alternative to Germany," he said.

GROWING APART

Since the birth of the euro in 1999, growth in both France and Germany has averaged 1.4 percent a year, bang in line with the euro zone average.

In the period 1999-2007, France outperformed Germany. Since the crisis, however, France's economy has shrunk 0.1 percent a year on average, while Germany's has grown 0.8 percent, according to economists at JP Morgan.

Germany is reaping the benefits of a fall in its real exchange rate by 16.4 percent since 1999, achieved by dint of wage discipline.

By contrast, France's rate has risen 4.5 percent over the same period. That helps explains why France has lost a bigger share of global markets since 1999 than any other member country except for Italy and Greece, the bank said in a report.

On the budget front, Germany enjoys structural and primary budget surpluses, while France is in the red on both counts.

"France's fiscal, competitive, and structural challenges are substantial, and the economy looks to be taking a step down even as the rest of the region starts to move up," the bank said.

At the same time, the political relationship with Germany has become increasingly unbalanced in the latter's favor. "In the longer term, France has a difficult choice to make between the protection of the existing social model and its political influence within Europe," JP Morgan concluded.

TROUBLE AT THE CORE

France is not the only core euro member struggling to keep up with Germany. Finland contracted in 2012, hurt by weak exports and troubles at one-time telecoms growth engine Nokia.

The Netherlands is in recession as a depressed housing market saps confidence and consumption.

Given how closely entwined the Dutch and German economies were, the monthly sentiment index produced by the Ifo institute in Munich used to be a good leading indicator of Dutch jobs growth, according to economists at Jefferies in London.

But that relationship has all but broken down since 2010, partly because of the Netherlands' over-reliance on exports to an enfeebled euro zone. If the poor news flow continues, the Netherlands could lose its prized AAA credit rating in coming months, they said in a report.

So how might divergence give way to convergence at the core?

Normalization of euro zone financial conditions will help. Because of a flight to the safety of German banks, lending rates for households and companies are about half a percentage point lower in Germany than they are in France and the Netherlands. That gap should close as banks gradually resume normal service.

Economists will also be looking for signs that reforms are working. The Netherlands is overhauling mortgage tax relief, while France has passed some labor reforms and given employers a 20 billion euro tax break to narrow the competitiveness gap with Germany.

But Spiro said the task facing Hollande remained immense.

"France is not making sufficient headway relative to the scale of the challenge. It's tinkering at the edges as far as reforms are concerned," he said.

(Reporting by Alan Wheatley, editing by Mike Peacock)

Japan posts record $17.4B trade deficit in Jan

FILE - In this Dec. 20, 2012 file photos, cars for export park at a port in Yokohama, south of Tokyo. Japan's Finance Ministry says a rebound in exports in January failed to keep pace with growth in imports, leaving a record 1.63 trillion yen ($17.4B) trade deficit. The provisional data released Wednesday, Feb. 20, 2013, show exports rose 6.4 percent to 4.8 trillion yen ($51.2 billion) in January from a year earlier while imports jumped 7.3 percent to 6.43 trillion yen ($68.6 billion.(AP Photo/Koji Sasahara, File)

TOKYO (AP) — Japan posted a record 1.63 trillion yen ($17.4 billion) trade deficit in January as rebounding exports lagged behind surging imports of crude oil and gas due to rising prices and the weakening yen.

The provisional data released Wednesday show exports for the world's third-biggest economy rose 6.4 percent to 4.8 trillion yen ($51.2 billion) in January from a year earlier, the first year-on-year increase in eight months. Imports jumped 7.3 percent to 6.43 trillion yen ($68.6 billion.)

A weakening in Japan's currency over the past few months has helped boost exports by making its products more price competitive overseas. But it has also inflated the value of resource-scarce Japan's imports of crude oil and other commodities, which offset a recovery in demand for Japanese-made vehicles and machinery.

The trend is hindering Japan's long-time strategy of relying heavily on exports to drive growth and adds to pressure for stronger domestic demand at a time when the workforce is aging and shrinking and corporate investment remains feeble.

Prime Minister Shinzo Abe is expected to seek help from Japan's ally the U.S. in a visit later this week to Washington, where he plans to appeal to President Barack Obama for wider access to cheaper exports of U.S. shale gas, Kyodo News Service and other local reports said Wednesday.

Abe's office would not confirm those reports. But it did say that "the government of Japan attaches utmost importance to the necessity of cooperation in the areas of resources and energy, particularly considering our current stringent energy situation," after the March 2011 disasters.

The Fukushima Dai-Ichi nuclear accident, triggered by a massive earthquake and tsunami, led to the closures of most of Japan's nuclear power plants, necessitating a sharp increase in imports of oil and gas.

Abe took office in December vowing to boost the economy by restoring Japan's export competitiveness, while at the same time stimulating demand at home through higher public works spending. He also has promised to push ahead with politically tough reforms needed to sustain growth in the longer term, though such efforts have not made much headway in the past.

Trade with the United States and major Asian trading partners rose early this year as the global recovery strengthened and the economic impact of friction with China over a territorial dispute appeared to recede. But trade with European countries remained weak, with a 6 percent decline in exports from a year earlier. Imports from Western Europe climbed 6.3 percent.

Exports to the United States jumped 11 percent from the year before to 839.8 billion yen ($8.97 billion), while imports rose 5.8 percent to 521.1 billion yen ($5.6 billion). That boosted Japan's surplus with the U.S. by 20 percent from a year earlier to 318.7 billion yen ($3.4 billion)

Exports to China climbed 3 percent but imports also surged, leaving a deficit of 654.6 billion yen ($7 billion), up 11 percent from the year before. Shipments of Japanese products to other Asian nations rose sharply, however, as manufacturers stepped up efforts to boost production and sales outside of China. Exports to Taiwan jumped 28.8 percent from a year earlier, to Thailand by 23.7 percent, to Vietnam by 21 percent and to Hong Kong by nearly 12 percent.

Japan's imports of crude oil and other fuel rose 8.8 percent to 2.26 trillion yen ($24.1 billion), accounting for over a third of its total import bill, pushed higher by the yen's weaker purchasing power and rising prices.

Exports of transport equipment climbed 25 percent, mainly due to rising exports of auto parts, while exports of machinery increased 18 percent.

Japan's trade deficit rose to a record 6.93 trillion yen ($78.3 billion) in 2012 as fuel imports surged and a bitter territorial dispute with China provoked anti-Japanese riots, hammering exports to the world's No. 2 economy.

The trade deficit narrowed to 641.5 billion yen ($7.25 billion) in December from the 954.8 billion yen shortfall in November. That was despite a 5.8 percent drop in exports for the month.

Russia investigates adopted boy's death in U.S

Details emerge on Calif. shooting rampage; 4 dead

Associated Press/Tustin Police Dept. - This undated image provided by the Tustin Police Department shows Ali Syed, a suspect in a series of shootings Tuesday, Feb. 19, 2013 in southern California. In less than an hour, Syed, an unemployed part-time student, shot and killed a woman in her home and two commuters during carjackings early Tuesday, shot up vehicles on a Southern California freeway and committed suicide as police closed in on him, authorities said. (AP Photo/Tustin Police Dept.)

This photo provided by the California Department of Motor Vehicles shows Melvin Edwards. Edwards, 69, was one of 3 fatalaties during Ali Syed's shooting spree on Tuesday, Feb. 19, 2013. Edwards was forced from his BMW at a stop sign, marched to a curb and shot in the back of the head as other commuters watched in horror. (AP Photo/Dept of Motor Vehicles via The Orange County Register)

Tustin Police Chief Scott Jordan takes questions about the gunman, Ali Syed, a suspect in a series of shootings during a news conference in Tustin, Calif., Tuesday, Feb. 19, 2013. In less than an hour, Syed, an unemployed part-time student, shot and killed a woman in her home and two commuters during carjackings early Tuesday, shot up vehicles on a Southern California freeway and committed suicide as police closed in on him, authorities said. (AP Photo/Damian Dovarganes)

TUSTIN, Calif. (AP) — The early morning commute was just getting under way on suburban Orange County's network of freeways when Melvin Lee Edwards pulled up to a stop sign near a busy off-ramp.

It was just after 5 a.m. Tuesday and Edwards, 69, was on his way to work when, police say, a fleeing murder suspect forced him out of his BMW at gunpoint, marched him across the street and shot him three times from behind as horrified commuters watched.

The shooting was the second of three murders in a trail of carnage early Tuesday that spanned 25 miles — but lasted just an hour. The shooter, 20-year-old Ali Syed, killed a woman in the home he shared with his parents, killed two drivers during carjackings, injured two others and shot up cars on a busy freeway interchange before committing suicide as police closed in, authorities said.

Syed, an unemployed part-time community college student, had no known motive and acted alone, said Tustin police Chief Scott Jordan. The first victim, a woman in her 20s, has not been identified and was not related to Syed, he said.

The violence began at 4:45 a.m., when deputies responded to a call from Ladera Ranch, a sleepy inland town about 55 miles southeast of Los Angeles. They found the woman shot multiple times.

Syed's parents were in the house at the time, fled the residence when shots were fired, and reported it, Jordan said.

From Ladera Ranch, the gunman headed north and pulled off Interstate 5 in Tustin, about 20 miles away, with a flat tire, police said.

A man who was waiting in a shopping center parking lot to carpool with his son saw Syed had a gun and tried to escape in his Cadillac, Jordan said. Syed ran after the car as it drove away and fired his shotgun through the back window, striking the driver in head but not killing him.

The driver "noticed that he was loading his shotgun, so he simply gets back in his car and tries to escape," Jordan said. "He's driving through the parking lot trying to get away and the suspect is actually chasing him on foot, taking shots at him."

Syed then crossed the street to a Mobil gas station, where he approached the driver of a pickup who was filling his tank and asked for his keys, Jordan said.

"He says something to the effect of, 'I've killed somebody. Today's my last day. I don't want to hurt you. Give me your keys,'" the police chief said. "He hands over the keys and he gets in the truck and leaves."

Syed got back on the freeway, where he pulled to the side of the road at the busy I-5 and State Route 55 interchange and began firing at commuters, Jordan said.

One driver was struck in the mouth and hand. He didn't have a cellphone, but was able to drive home and call police. Two other cars were hit but their drivers weren't injured, Jordan said.

"All of this is happening so quickly," he said, estimating that Syed shot at drivers from the side of the freeway transition for about a minute.

The shooter then exited the freeway in nearby Santa Ana but ran the curb and got his car stuck, authorities said.

He approached Edwards, of Laguna Hills, who was on his way to his Santa Ana business. Syed shot Edwards three times, including in the back of the head and the back, Jordan said.

Onlookers "tried to get away. They saw what was going on, they tried to get away and they called police," he said.

Syed took Edwards' BMW and next popped up at the Micro Center, a Tustin business, where he shot and killed construction worker Jeremy Lewis, 26, of Fullerton. Lewis' co-worker rushed to intervene and was shot in the arm, Jordan said.

Syed took the second construction worker's utility truck and fled to Orange, this time with California Highway Patrol officers in pursuit. He jumped from the moving utility truck at an intersection in Orange, about five miles away, and shot himself in the head, Jordan said.

"There really wasn't a confrontation at the very end," he said. "It happened so quickly."

A shotgun was recovered at the scene and is believed to be the only weapon used.

A message left at Syed's parents' home wasn't immediately returned on Tuesday.