What's going on?
Italian-American carmaker Fiat Chrysler and France’s Groupe PSA – owner of Peugeot and Opel – agreed a merger that would value the combined company at $50 billion. Europe might see if it can grab a lift…
What does this mean?
Fiat’s been looking for a partner to ride shotgun for a long time: it was left stranded after opening its doors to General Motors in 2015, and an effort to link up with rival Renault span off the road in June. But Fiat’s ride-along with Groupe PSA will make it the world’s fourth-largest carmaker – and if it can reduce costs and drive growth, that’d boost the eurozone economy at large.
Fresh data released on Thursday showed the eurozone economy grew 1.1% larger than the same time a year ago last quarter – more than economists predicted (tweet this). But with Germany’s carmaking-dependent economy expected to have shrunk, auto industry growth elsewhere in the bloc would probably come as a welcome relief.
Why should I care?
The bigger picture: Two hands on the wheel.
Given that Europe’s economic engine has been spluttering for several years, new mergers and acquisitions might help fix things up. Consumers are buying fewer cars these days, so Fiat and Peugeot might plan to decrease car production – reducing supply and hopefully increasing prices. Those are savings they can then spend on the company’s electric vehicle business. Still, not all mergers have worked out this year: many have been blocked by regulators, making it tougher for firms to increase their earnings – and for the region to boost its economic growth.
For markets: Banks’ health check.
Banks are a good indicator of an economy’s health since they’re at the center of spending. Several have been cutting jobs and shuttering businesses in Europe, and their third-quarter updates this week didn’t offer much respite. German giant Deutsche Bank’s revenue fell versus last year, and it made a loss overall – and even Credit Suisse’s strong update wasn’t enough to keep its shares from falling.