Fragile Europe Slowly Mends Amid Greek Economic Crisis

With World Cup Ad Spending Way Down, Region Regroups With Caution, Optimism

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LONDON ( -- As the world watches to see how far economic contagion from Greece might spread throughout Europe, some local markets are hunkering down. European governments are slashing their marketing budgets, advertisers are trimming spending around the World Cup -- the region's premier event -- and agencies are seeking ways to snip corners they haven't already cut.

But they're not panicking and, in fact, some ad spending forecasts show the markets having a mildly positive second half and growing in 2011.

For the first quarter of 2010, businesses were confident recovery was on track, if slowly. But the Greek crisis has left everyone feeling less bullish, and upcoming elections in Russia and Holland, plus the recent U.K. election, contribute to the sense of instability. Like Greece, Spain, Portugal and the U.K. have alarmingly high debt levels, putting the whole region in danger of derailing the delicate global recovery.

"Germany is very uncertain; France is not strong; Italy is wobbly; and Spain, Portugal and Greece are desperate," said Simon Francis, Saatchi & Saatchi's CEO Europe, Middle East and Africa. "In the U.K., there is fear of a double-dip as the new government's cuts kick in."

In a bid to rein in costs, Mr. Francis said governments are cutting marketing budgets across Europe. In the U.K., the government is the No. 1 advertiser, spending $350 million last year. It has announced an immediate freeze on spending, declaring that ad campaigns are not priorities, and that it will rely instead on peer pressure and a "bottom-up" approach to communications. Deep cuts are expected.

Cup does not runneth over
Mr. Francis also noted that marketing activity around the World Cup, traditionally a huge money-spinner across Europe, isn't at the same level as usual.

Last year, agencies slashed operations and work forces, but there is little left to cut. Mr. Francis said, "We've won a lot of new business, but looking at organic accounts the picture is more mixed. It's less hysterical than last year, but more difficult now. We have to try to find growth without investment."

Adding to Greece's woes is a 20% tax on TV advertising levied in that country two weeks ago. "Advertisers are very conservative with spending, especially on above-the-line and television," said Christos Latos, managing director of OgilvyOne Athens. "The situation got worse when the government imposed a 20% special tax on TV advertising a few weeks ago. On the other hand, below-the-line, in-store promotions and digital marketing seem to attract more investment than in previous years."

A big shift in Greek society and consumer behavior is inevitable following the country's financial meltdown, but it's still unclear how deeply other countries will be affected. Adam Smith, futures director at Group M, however, believes the damage might be confined. "My suspicion is that the fundamentally competitive economies ... have nothing to worry about," said Mr. Smith.

Toby Hoare, the chairman and chief executive of JWT Europe, said, "We are operating in uncertain times, economically and politically, which is the worst environment you can have for putting pressure on the business. We have a good list of international clients across different categories, and it's good to see more investment in Russia, but across Europe, it's a mixed story."

Like the U.S., Western Europe trails the rest of the world in recovering from the 2008 global financial crisis. Elsewhere in the world, ZenithOptimedia expects Asia to show at least 5.9% growth in ad spending this year and in Latin America by 9.3%. In March, ZenithOptimedia forecast 0.4% growth for Europe. Group M will issue a forecast in June and still expects to upgrade its European predictions from a 2% drop to mildly positive. The agency predicts Spain, unlike Greece, will work its way through the advertising recession, with media spending down 2% this year but growing in 2011.

Indeed, for media agencies, the situation seems to be better. For the U.K., Group M predicted a flat 2010 last fall, but now expects ad spend to grow 5% -- after plummeting 11% in 2009 -- due in part to a big increase in TV budgets caused by TV price inflation.

Neither Group M nor Zenith-Optimedia plan to downgrade forecasts in other European countries as a result of the Greek crisis. Alastair Aird, chairman and global chief operating officer of Mediaedge:cia Europe, Middle East and Africa, said, "Greece, Spain and Portugal are tough, but most markets are reasonably positive. It's certainly better than last year, but it's delicate, and what happens depends on the consumer. Will business confidence rise enough to offset all the talk of austerity measures, tax rises and spending cuts?"

Another shred of hope comes from Central and Eastern Europe, where some countries -- Russia in particular -- are bouncing back, attracting investment as the markets embrace consumerism. ZenithOptimedia forecasts 5.7% growth for the region this year. "There is a shift of focus to where the growth is coming from. Russia is volatile but there is still a lot of headroom there for new launches," Mr. Francis said. "The country has half the number of brands than Germany, so there are still whole new categories to introduce to the Russians."

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