The high cost of rescuing carmakers

The state-backed rescue of Opel will come at the cost of more efficient car companies elsewhere in the European Union, writes the Financial Times.

The Financial Times

General Motors was the world’s ultimate multinational. In good times, it sluiced profits from around the world back to Detroit. Now ... its constituent parts are falling into the laps of local governments. The German authorities are trying to save Opel, a local GM brand, and now seem to have a buyer for the company. The cost of saving Opel, however, will be high for Germany and for the European Union. ...

If Opel had been allowed to fall into bankruptcy, valuable parts of the company could have been bought and saved. The bloated European car sector would be leaner, and produce fewer vehicles. Owing to Opel’s continued state-backed survival, however, profitable car manufacturers will now face stiffer competition. Saving inefficient jobs at sickly Opel will destroy them at more efficient employers.

The determination to preserve Opel is a consequence of the conceit that the world will return to the way it was before the crisis. German politicians hope to return to running vast surpluses, meeting the demand from other countries for manufactured goods while consuming little itself. To rebalance Germany’s economy away from exports, and to tackle its growing unemployment problem, it should spend money on a big fiscal stimulus. Germany should not prop up sickly companies. And the European Commission should be standing up for that simple message.