As European trade grew, The Coal and Steel Community evolved into a customs union. The spread of democracy in Europe helped further unify the economic institutions. This unity spread and deepened as more nations entered the community. When the dictatorships in Greece, Spain and Portugal fell, those nations entered into the union, followed by Eastern European nations after the fall of Communism. All of this was possible because of the success of the European multinational corporations and the increased government revenues realized from the trade between nations. This process took decades as borders opened and freedom of travel became guaranteed. The growing movement of people and goods led to the harmonization of product, food and safety standards. To facilitate this increase trade and travel, the Euro created as the next logical step. The growth of the multinational corporations and the increased growth of the gross domestic product of the member nations fueled the push to create and employ the Euro as a way to facilitate increased trade between the nations.
Like Germany that has a forty per cent gross domestic product from exports, multinational corporations profit by stable consumer-driven economies in Europe, especially those multinational corporations that are based in a European country. Unlike nations, these multinational corporations have no formal standing in the European Union. However, they do exert powerful influence on their home governments. Governments have national interests that parallel those of their multinational corporations. This includes the stabilization of debt in those nations that are insolvent and illiquid, without causing large-scale austerity programs that would constrain consumer spending and reduce imports from their more prosperous neighbors. If that occurred it would which would trigger a depression in those prosperous countries because of the negative effect upon the multinational corporations and the resulting effect upon the nation’s gross domestic product form exports.
American multinational corporations are less dependent upon a stable Euro than their European counterparts are. However, trade to the European Union is an integral part of all multinational corporation bottom lines. Further, deepening of the European Financial Crisis would have a ripple effect as perceptions as well as realities drives the American Stock Market. This was seen in the 2011 fourth quarter returns as reported by the Standard & Poor’s Index. The Standard & Poor’s Index reported 11.4% growth from Europe in the fourth quarter of 2001 as compared with the fourth quarter of 2010. That is slower than the growth seen from Europe earlier in the year and in the general 13.1% overall growth enjoyed by those corporations. Most of the McDonald’s corporate growth seen was in Northern European countries with Germany, France the United Kingdom and Russia bringing in particularly strong sales. However, many corporations saw a drop off in consumer goods. Xerox experienced a 15% drop in equipment leases and sales. Proctor & Gamble Co. saw a decline in sales of consumer goods such as high-end shampoos and razors. EBay reported the drop in the euro hurt trade and its PayPal unit did not grow as anticipated. Ford Motor Co. posted European losses for all of 2011. DuPont Co reported its fourth quarter sales increase by 18% but saw a slowing demand for the products used in automotive coating, which indicates that European automakers are also experiencing a decline in sales as well. Other Multinational Corporations also saw results that mirror these percentages. Rockwell Automation saw a rise in the factory equipment and software of 11% in Europe as opposed to their general corporate growth of 8%. United Technologies saw specific sales increases of 8% as European executives strive for more energy efficient solutions, while refrigerated trailer sales fell over 10% reflecting a slowing of shipping among its European customers. Johnson & Johnson reported slowing or declining sales of medical devices. Dean Dray, a Citigroup analyst who specializes in Europe found these percentages consistent with the sales from the Multinational Corporations he follows, with more sales expensive items holding up better than smaller items that businesses find easier to defer buying. Companies in general reflect the attitude of Jeffrey Immelt, CEO of General Electric Co. who said, “Southern Europe is really on its knees, and Northern Europe was doing pretty well.” .
Year-end reports show that European based multinational corporations experienced greater losses than their American based counterparts did. This can be attributed to the fluctuations of the Euro as well as the slowing European market sales. The STOXX Europe 600 fell during 2011, hitting low a low point in September 2011 and experienced steady gains towards the year-end after another sharp drop at the end of November 2011. The failure at the end of 2011 to resolve the Greek National Debt problems carried over to 2012 and will have a long-term effect on European based multinational corporations and to a lesser effect on multinational corporations in general. European multinational corporations have a greater stake in the debt structure of those European Nations suffering from insolvency and illiquidity problems.
European multinational corporations like the Vodafone Group Plc, the British mobile phone giant, who depend upon consumer sales, suffered the greatest losses in the European Financial Crisis of 2011. Vodafone Group Plc is balancing an expansion into emerging markets like Eastern Europe, Asia, India and Africa and declining revenue in southern Europe. Consistent with Vodafone’s performance, multinational corporations that trade overseas fared better in the fourth quarter of 2011 continuing the perception that the destabilized Euro had a negative effect on European multinational corporations. ASML Holding NV Europe’s biggest manufacturer of chip equipment saw a 48% rise in its stocks based in part from its trade with the United States, and Daimler AG likewise saw an increase in value and traded at 1.17 in the final quarter of 2011 based, in part upon its American sales. This is in contrast to the Stoxx Automobiles & Parts Index, which traded at a ratio of 0.98. These divergent ratios are consistent with the United States corporate reports that saw a down turn in goods associate with automotive and consumer transportation exports.
Overall, multinational corporations involved in producing big-ticket goods that favored infrastructure and reduced costs fared best through the European Trade Crisis, while those that focused upon consumer goods saw the greatest difficulties. Multinational corporations based outside Europe relied upon the security of the “firewall” granted by their native countries monetary systems. European based multinational corporations had concerns that are more acute as the destabilization of the Euro and the resulting austerity programs could push even the more prosperous nations towards an economic depression.
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Krugman, Paul. “Can Europe Be Saved?” 12 1 2012. The New York Times. 10 2 2012
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Xydas, Alexis. “Europe Stocks Cheapest to U.S. Since ’04 as Growth Decouples.” 23 1 2012. Bloomberg. 10 2 2012