The Greek crisis may be closer to resolution, but Europes economy needs greater economic growth to reduce unemployment and lift consumer and business confidence

The Greek crisis may be closer to resolution, but Europe's economy needs greater economic growth to reduce unemployment and lift consumer and business confidence

The news on Greece's debt crisis (which is also Europe's currency crisis with potential economic spillover) appears positive this morning. Lengthy - and at times fraught - negotiations over the weekend have finished with a result. An agreement between Greece's creditors and its leaders appears to have been struck for another mammoth bailout in return for measures such as structural reforms to the Greek economy. The markets have reacted positively to the news (on the surface) that makes a Greek exit from the euro currency - with all the uncertainties that entails - less likely.

As I have said before, this European crisis is being watched closely by Europe's auto industry because it threatens the weak car market recovery that is in place (but with sales still running well below the previous peak). Business conditions across the region remain extremely challenging. With interest rates on the floor and national governments either unwilling (Germany) or unable (virtually everyone else) to give a fiscal boost, a return to conditions of economic recession in Europe would be very grim news indeed for car manufacturers struggling to be profitable.

So, all's now well, the iron has been pulled from the fire and we're out of the woods, then? Not exactly. This saga has had plenty of twists and turns and there could be more. Greece has to take the latest agreement to its national parliament this week and it's going to be a pretty tricky one for Greek PM Tsipras to sell. He will say it's the best way forward for Greece, but it will certainly be difficult for Greeks to accept it after the recent referendum result and previous promises from Mr Tsipras that he has had to go back on. There is a fair chance it will be rejected (and that's just hurdle one; the German parliament also votes on the deal later this week).

If that happens, Greece's debt position and the implications for the eurozone unravel, yet again, and the likely outcomes become less favourable for Europe's economy. The rest of this year and 2016 would start to shape up as weak for car sales, full recovery in Europe put even further back. Bad news for a number of OEMs. However, if Europe-based OEMs can shift plenty of volume in the relatively buoyant US market, there is a very favourable dollar exchange rate (both euro-dollar and sterling-dollar) that is likely to remain that way for some time to come. So, there is some upside to Europe's turbulence and its underperforming economy, but that's cold comfort.

Western Europe's car market peaked at 14.8m units in 2007. The downturn that began in the autumn of 2008 with the banking crisis took the market down to 11.55m units in 2013. It's been a long haul to get the market back up to a projected 12.8m units this year - still 2m units under the last peak. Many markets have a long way to go to be 'back to normal'.

On its latest forecasts, the EU Commission expects real GDP in the EU this year to rise by 1.8% (just 1.5% in the euro area). For 2016, the Commission forecasts growth of 2.1 % in the EU and of 1.9 % in the euro area. If these modest levels are not achieved, unemployment will remain worryingly high in some countries (the unemployment rate is around 25% in Spain; car market growth there is off a low base and being achieved with a scrappage incentive).

What Europe badly needs is much faster economic growth - which is proving elusive. When this immediate crisis is finally over, that needs to be high up on the agenda for Europe's leaders.

Where did market volume go? A comparison of the last peak with 2014 sales (new car markets in selected European countries)

2007 and 2014 (ranked by scale of market fall in units)


2007 2014 %ch Units change
Italy 2,493,106 1,359,616 -45.5 -1,133,490
Spain 1,614,835 855,308 -47.0 -759,527
France 2,064,543 1,795,885 -13.0 -268,658
Greece 279,745 71,279 -74.5 -208,466
Netherlands 505,538 387,835 -23.3 -117,703
Germany 3,148,163 3,036,773 -3.5 -111,390
Ireland 186,325 96,338 -48.3 -89,987
Portugal 201,816 142,826 -29.2 -58,990
Belgium 524,795 482,939 -8.0 -41,856
Finland 125,285 106,259 -15.2 -19,026
Sweden 306,799 303,948 -0.9 -2,851
Luxembourg 51,332 49,793 -3.0 -1,539
Austria 298,182 303,318 1.7 5,136
Norway 129,195 144,202 11.6 15,007
Switzerland 284,688 300,262 5.5 15,574
Denmark 159,347 188,612 18.4 29,265
United Kingdom 2,404,007 2,476,435 3.0 72,428
Total 14,777,701 12,101,628 -18.1 -2,676,073

Data source: ACEA

LMC Automotive data for first half Western European new car sales is below: 

 Sales (units)Selling rate (units/year)
  Jun 2015 Jun 2014 Percent change Year-to-date 2015 Year-to-date 2014 Percent change Jun 2015 Year-to-date 2015 Year 2014 Percent change
WESTERN EUROPE 1,313,045 1,150,107 14.2% 6,901,761 6,388,717 8.0% 13,209,202 12,863,844 12,102,144 6.3%
AUSTRIA 30,528 29,100 4.9% 161,699 166,607 -2.9% 293,299 299,175 303,318 -1.4%
BELGIUM 49,426 43,018 14.9% 288,424 287,824 0.2% 510,592 488,330 482,939 1.1%
DENMARK 20,128 17,572 14.5% 103,408 98,783 4.7% 198,213 203,437 189,031 7.6%
FINLAND 8,976 9,209 -2.5% 57,076 59,142 -3.5% 100,632 99,368 106,231 -6.5%
FRANCE 225,645 196,233 15.0% 1,015,998 958,752 6.0% 2,058,115 1,908,328 1,795,720 6.3%
GERMANY 313,539 277,614 12.9% 1,618,949 1,538,268 5.2% 3,280,833 3,194,807 3,036,791 5.2%
GREECE 6,107 7,964 -23.3% 40,249 37,469 7.4% 61,807 73,510 71,217 3.2%
IRELAND 1,449 1,684 -14.0% 82,708 65,631 26.0% 81,195 109,173 96,283 13.4%
ITALY 146,682 128,272 14.4% 869,929 758,034 14.8% 1,569,141 1,567,295 1,357,742 15.4%
LUXEMBOURG 4,363 4,416 -1.2% 25,496 27,145 -6.1% 49,289 44,041 49,793 -11.6%
NETHER LANDS 36,999 32,699 13.2% 201,522 198,953 1.3% 331,464 358,092 388,539 -7.8%
NORWAY 14,207 11,441 24.2% 74,392 72,385 2.8% 167,859 149, 668 144,202 3.8%
PORTUGAL 21,067 15,751 33.8% 100,625 75,807 32.7% 186,423 186,919 142,812 30.9%
SPAIN 111,333 90,175 23.5% 555,212 455,000 22.0% 1,041,686 996,897 855,283 16.6%
SWEDEN 32,257 28,749 12.2% 167,984 151,747 10.7% 349,050 334,383 303,866 10.0%
SWITZERLAND 32,523 27,919 16.5% 161,202 149,905 7.5% 303,560 308,093 301,942 2.0%
UK 257,817 228,291 12.9% 1,376,889 1,287,265 7.0% 2,626,044 2,542,326 2,476,435 2.7%

Notes:

Austria, Denmark, Greece, Luxembourg and Switzerland: estimates for latest month

The percent change in the final column compares the average selling rate in the year-to-date with the last full year.

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