One of the big surprises of the year is what did not happen. The euro zone continues to reform, innovative and, most of all survive. Many had expected Greece to have left, one way or another.
The existential crisis in Europe has mostly focused on sovereigns and financial institutions. Competitiveness has tended to focus on driving unit labor costs down in the periphery, which has taken place, primarily because of the public sector.
One issue we have referred to has been the divergence between the US and European auto sectors. The US auto sector remains on of the few bright spots with November sales running at a 5-year high. The rationalization of the domestic industry by the reorganization of GM and Chrysler appears to have paved the way.
The Great Graphic that was posted on Zero Hedge from the Financial Times shows the significant decline in auto sales in Europe in Jan-Oct period. We have learned subsequently that French auto sales in November fell further, primarily as a result of French brands as Germany brands and Hyundai reported an increase in sales.
Overall European car sales have fallen 7.3% in the first ten months of the year. US auto sales are up more than 15% for the second consecutive year. Ironically, slow growing, fragmented Europe has a similar industrial problems as China that can be summarized in two words: excess capacity.
A banking union and stronger financial institutions may be necessary, even if not sufficient, to help reorganize and rationalize European industry. As difficult as the negotiation over the rights and responsibilities of debtors and creditors has been in Europe, and it is still not complete, the debate over industrial rationalization may be worse.