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Italy's Euro Party Not Universal as Ferrari, Campari Rejoice

As some of Italy’s best-known brands from Ferrari to Campari toast the weaker euro, many in the currency region’s third-biggest economy have little to celebrate so far.

The euro’s drop below $ 1.10 is favoring companies focused on markets outside the 19-nation bloc. But with more than 40 percent of the nation’s exports going to other euro countries, the benefit is eluding many in the recession-hit economy.

“The weaker euro doesn’t mean much for us,” said Tiziano Paciti, a partner at marble-work manufacturer Marmi Regina Srl, based near Verona in the north of the country. “Our main clients are in France and Germany, and our suppliers outside the region have always paid in euros and I see no reason why they should change now.”

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With the European Central Bank pumping in stimulus to help the euro area, President Mario Draghi has touted the resulting weaker currency as a boost for the region’s economy. In Italy, the government has cited the currency’s plunge among the top favorable conditions that will help the country emerge from a record-long recession that began more than three years ago.

The euro has plunged about 11 percent against the dollar this year and is the worst performer among a basket of peers measured by Bloomberg Correlation-Weighted Indexes. It was trading at $ 1.08 Wednesday after falling below $ 1.05 last month.

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Jeep Renegade

While Paciti’s remarks reflect the view of thousands of small firms in Italy, the country’s most famous business leaders see things differently. Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said last month that the cheaper euro will help sales of Jeep Renegade, the first Jeep model exclusively built outside North America.

For Ferrari, controlled by Fiat, the weaker exchange rate also means a profit-margin boost on U.S. sales. Its high-end sports cars are all built at its plant in Maranello near Modena.

“This is a favorable time for Italy,” said Brunello Cucinelli, chief executive officer of his namesake company, known for its linen and silk sweaters. “The weaker euro will support our exports,” he said on March 10, commenting on both the company and the country’s economy.

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Among those celebrating the latest currency-market developments was Milan-based drinks maker Davide Campari-Milano S.p.A. Starting in the fourth quarter of 2014, what it said was a “very unfavorable” currency impact last year was partially unwound, according to its full-year results.

Most of the luxury-goods companies whose exports benefit from the lower euro “manufacture at home, costs are kept low,” Bloomberg Intelligence analyst Deborah Aitken said in a March 24 report. “With strong gross profits, export prices do not have to be raised, making them more competitive.”

No Control

Italian exports to countries outside euro region totaled 238 billion euros in 2014, up 1.5 percent from the previous year.

Data for 2015 have so far been mixed. Sales of goods and services outside the bloc declined 2.4 percent in January from a year earlier, Istat said last month. While comparable data for February won’t be available until April 16, preliminary figures show that exports outside the entire European Union rose an annual 7.1 percent that month. The statistics office will publish February industrial production data on April 13.

“I really don’t understand why the euro exchange rate should be a good news,” Giuseppe Zanotti, founder and owner of shoemaker Giuseppe Zanotti Design, said in a March 17 interview.

“It’s something that we can’t control anyway,” said Zanotti, whose customers include Madonna and Beyonce. “A weaker or stronger euro won’t change the things. A stronger or weaker idea will do that.”

Short Lived

Ultimately, even those benefiting from the weaker euro may find the boon is short-lived, with analysts and economists at Italy’s largest bank forecasting a reversal for the currency.

“The euro may have bottomed out,” Vasileios Gkionakis, UniCredit’s London-based head of global foreign-exchange strategy, said in a note on March 25. UniCredit estimates a long-term euro-dollar fair value at about $ 1.20 and says it’s hard to justify an even short-term fair value below $ 1.15.

For Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara, the currency fluctuations don’t change the ease or difficulties related to Italy’s main export destination.

In a study published in August, he estimated the impact of the currency’s depreciation “to be almost zero or negative in the first three to four years.”

“A depreciation of the euro leaves unaffected the price competitiveness of Italian goods in Italy’s largest market, the euro region,” said Bagnai, author of two books advocating the dismantling of the monetary union. “The increase in exports towards U.S., Japan, and the emerging countries will be offset by an increase in imports from the euro zone.”

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