Italy’s car giant Fiat on Monday agreed with Serbia to invest €940m ($1.4bn, £750m) to revive Zastava, the failing state-owned carmaker, in the country’s most important foreign investment since the Yugoslav breakup, officials said.

The Italian company is to hold 67 per cent of a joint venture with the state to build new car models – starting with an updated Fiat 500 by the end of next year, industry analysts said.