General Motors has sold Chevrolet vehicles in Europe through the Great Depression, World War II and the partition of the continent by the Iron Curtain.
What the automaker could not weather was Europe’s current blend of economic stagnation and high unemployment with no clear change on the horizon. Last week, GM pulled Chevrolet out of Europe, thanked its customers and dealers “for their loyalty,” and said it wanted to focus on parts of the world “where the opportunity for growth is greatest.”
That would be anywhere but Europe, where the 17-nation euro zone has entered a netherworld where it is neither in crisis — with the urgency of action that goes along with it — nor clearly recovered. The most troubled countries have avoided default, and new tools are in place to ensure that the euro monetary union remains intact. But what is left behind is not pretty — 12 percent unemployment and twice that much in some countries, tepid growth, and fear about a downward spiral of wages and prices.
As the United States debates a shift toward tighter monetary policy and analysts speculate optimistically about how new energy finds may boost future growth, the euro zone confronts this dismal fact: Regional economic output remains below where it was before the 2008 crash, and is not projected to return to earlier levels for at least another year. Had the euro zone performed simply the same as the United States in the past five years, its annual gross domestic product would be about $2.7 trillion higher than it is today. This is a massive loss of wealth, buying power and tax revenue that has left a hole in the world economy and become a major headache for American firms plotting a global strategy.
It is a region of “deep scars” from what now has been five years of crisis and an only recently ended recession, Mark Otty, Ernst & Young managing partner for Europe, wrote in a recent forecast. He projects that the current pattern of low growth and high unemployment will settle in like a stalled weather system.
On Sunday, Ireland will begin writing what should be the epilogue of the euro zone’s troubles when it exits from its International Monetary Fund bailout. One of five euro-zone countries to need outside help in recent years, the island nation is the first to complete its three-year bailout program. It is stable enough to once again sell bonds on the open market to finance its government deficits. Its levels of government debt are expected to decline next year, and its economy is growing — slowly.
More notably, said Irish jobs minister Richard Bruton, private companies are adding jobs and foreign firms are investing at record levels.
“There is a lot of optimism that most of the heavy lifting is done,” Bruton said in a telephone interview from Dublin.
Yet that positive development is an isolated one in a sea of disagreement over how the euro zone — and each country — should conduct itself. There are other bits of good news — Spanish exports and productivity are growing, and investors are no longer gun shy. Just as U.S. tech firms are pumping new capital into Ireland, American casino magnate Sheldon Adelson is laying plans for a $20 billion “EuroVegas” development outside Madrid.
But there also is a steady drizzle of downsides: declining industrial production in France and Germany, an ongoing contraction in bank lending, slow progress in paring household and government debt.
For every bit of political progress — a long-debated banking union is taking shape — major disputes remain. Much of the world is leaning on Germany, for example, to find ways to consume more and lower its large export surpluses with other nations. Within Germany, proposals to set a minimum wage have created a backlash among an economic elite that argues it would damage competitiveness and hurt the 5.5 percent unemployment rate.
In a recent analysis, Jean-Michel Six, Standard & Poor’s chief economist for Europe, suggested that the small bit of economic growth expected for the euro zone this year and next is itself a bit of an illusion — attributable more to the fact that government budget cutting won’t be as much of a drag, than because of any bounce in demand or investment.
Unlike earlier in the year, when the focus was on the end of the euro zone’s recession, the latest data suggest a more “sobering” picture about an economy that may stay at or near a stall for a long time to come.
The situation is important to the United States. Combined, the euro-zone countries form the world’s second-largest economy, and are among the United States’ chief trading and investment partners. Next week, a visiting European delegation will be in Washington for the latest round of negotiations over a treaty to create the world’s largest trade zone — an idea pressed by Germany, among others, to try to boost regional growth.
GM’s decision involves more than just the state of the euro: the company also owns the European Opel and Vauxhall automobile companies that compete for the same customers as Chevrolet. After years of trying to sustain all of those brands in Europe, the company came close to selling Opel in 2010. Instead, it has decided to disentangle Chevrolet from the mix.
But that GM sees only a limited future there for Chevrolet, a car named after a company founder, runs counter to the global ambitions U.S. companies typically set for major brands. Given Europe’s history, size and central place in the world economy, it is a decision akin to McDonald’s or Coca-Cola giving up on a part of the world — something that is perhaps driven by corporate strategy but also a reflection on the region itself.
“Can a crisis really be over when 12 percent of the labor force is without a job?” IMF Managing Director Christine Lagarde, the former finance minister of France, said in Brussels last week. “When unemployment among the youth is in very high double digits . . . and when there is no sign that it is becoming easier for people to pay down their debts? Indeed, looking past the headlines, there are clearly signs that not all is well.”