So it’s nice to hear that the heavy hitters in European politics and economics — German Chancellor Angela Merkel, French President Francois Hollande and European Central Bank President Mario Draghi — have pledged in recent days to use all of their power to save the European currency, the euro. With Spain’s sovereign bond yields spiking over the 7 percent rate considered sustainable, and new doubts surfacing about Greece’s ability to continue cutting its budget in return for bailout funds, the markets desperately needed some reassurance.
Especially important was Mr. Draghi’s statement that he is “ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” This suggested that he might cut interest rates and resume bond-buying to keep Spain afloat.
At best, though, this amounts to more muddling-through, not a cure for Europe’s deep structural ills. Which brings us back to automobiles. Even if demand for new cars in Europe were healthy, the continent would still be burdened with more manufacturing capacity than its market can support. A recent Credit Suisse analysis says that the industry needs to lose 10 percent of capacity to break even and about 25 percent to achieve U.S. capacity-utilization levels.
But European governments exert pressure on their respective carmakers to keep plants open and workers employed — and governments spend large quantities of borrowed money for the same purpose. France’s Peugeot lost a billion dollars in the first half of this year, but when it announced layoffs and a plant closure, Mr. Hollande, a Socialist, joined the union in opposing that plan and floated a plan for more subsidies. Meanwhile, even in relatively flexible Germany, GM can’t restructure Opel without the union’s say-so; as a result, the soonest that GM could shut its aging plant in that country is 2016.
This is ironic, given that Germany, France and other creditor countries are asking Italy, Greece and Spain to liberalize their labor markets in return for fresh loans. It’s also counterproductive, since refusing to trim capacity in northern Europe hurts troubled Fiat, upon whose prosperity Italy’s solvency partly depends.
Credit Suisse sensibly suggested that Europe take a page from the Obama administration’s book and appoint a “car czar” to restructure the industry on a regional basis, without playing national favorites. In industry, as in finance, Europe must choose: Cooperate or stagnate.