The German economy is faltering more and more. Reports of bankruptcies are circulating, a wide variety of economic sectors have to pull the handbrake and order production stops. The energy crisis in Germany is getting worse and worse. On the state of an economic nation.
Because of the war in Ukraine, energy and electricity are becoming increasingly expensive. The German economy is beginning to groan under the pressure of prices and is faltering in some places. In industry and in medium-sized companies, the first productions are stopped. Companies are reaching their financial limits and companies are filing for bankruptcy. “Alarming”, as Federal Minister of Economics Robert Habeck (Die Grünen) recently described the developments.
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Siegfried Russwurm, President of the Federation of German Industries (BDI), is convinced that the “extremely rising energy prices are posing fundamental problems for the industry” and criticizes the government’s third relief package. It doesn’t help the company enough.
A survey by the BDI now shows how badly the high energy costs are affecting medium-sized industrial companies in Germany. According to this, more than 90 percent of the companies see a strong or existential challenge in the increased prices for energy and raw materials. In February 2022, “only” 23 percent rated the challenge as existential.
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The high costs for gas and electricity dealt the first serious blow to the German steel industry. ArcelorMittal, the world’s largest steel producer, is temporarily shutting down two of its plants. The German steel heavyweight is the first steel company in the country to react to the explosion in costs in this way.
Parts of the plants in Bremen and Hamburg are to be closed from the end of September. In Bremen, one of the two blast furnaces is to be shut down – until further notice, the company announced. And from October, the direct reduction plant in Hamburg will be taken out of operation due to the situation and the negative prospects, it is said.
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In addition, both plants already have short-time work. An expansion is imminent. In addition to Bremen and Hamburg, the plants in Duisburg and Eisenhüttenstadt are also said to be affected by short-time work. ArcelorMittal currently employs 8,500 people.
“The high costs of gas and electricity are a heavy burden on our competitiveness. In addition, there will be the federal government’s planned gas levy from October, which will continue to burden us,” concluded Reiner Blaschek, CEO of ArcelorMittal. With a tenfold increase in gas and electricity prices within a few months, one is no longer competitive in a market that is 25 percent supplied by imports. “We see an urgent need for political action to get energy prices under control immediately.”
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Whether chemical, paper, steel or cement industries, they are all extremely energy-intensive and also struggle with high costs for raw materials and pollution rights. The extent of the problem is also evident in the metal industry. Current energy prices have halved Europe’s aluminum and zinc production. According to “Bloomberg”, closures of aluminum production plants are already imminent.
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The largest aluminum smelter on the continent is owned by Aluminum Dunkerque Industries France. Next Monday they will start reducing production by 22 percent, they say. This is a response to rising electricity prices. All in all, this is just the latest measure in a wave of cuts. The shutdown process of some of its production pots should be complete by October 1, said CEO Guillaume de Goys.
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European aluminum production is already at its lowest level since the 1970s. In the energy-intensive industry, one struggles more than anywhere else with the immense energy costs. “The primary aluminum industry in Europe has already taken a heavy toll from the energy crisis. If we continue to reduce, we will be in a situation where the primary industry in Europe will have completely disappeared,” said de Goys. In terms of sovereignty, this is bad for Europe.
The bakery trade is less important, but no less important. Bakeries all over Germany are going bankrupt because they can no longer cope with the high energy costs. On Thursday, bakers in Lower Saxony, Schleswig-Holstein, Mecklenburg-Western Pomerania, Hamburg and Bremen started a campaign to draw attention to their precarious situation: bakeries turned off the lights in protest. Bread and rolls must be bought in the dark. The motto: “We’re going out of light – today the light and tomorrow the oven?”
Daniel Schneider, General Manager of the Central Association of the German Bakery Trade, describes the situation in the bakeries as “extremely tense”. Cost pressure and uncertainty are enormous. He says to FOCUS Online: “The businesses in the bakery trade are very heterogeneous – also in terms of energy procurement. Around 70 percent of the companies bake with gas. Conversion is not always technically possible, costs a lot of money and cannot be implemented quickly.”
There are also other cost factors affecting bakeries across the country. “Commodities such as sugar, butter, flour or milk have become much more expensive and will continue to rise in price. Added to this are rising personnel costs, since the minimum wage and inflation trigger a cascade of rising wages,” says Schneider. All of this means that bakers have to raise prices. However, this is only possible to a limited extent, since consumers are very price-sensitive.
Schneider speaks of a “cost tsunami” hitting the industry. This can hardly be managed without government help. Many companies are worried, they are up to their necks in water. “All the more frightening were the appearance and the statements made by Mr. Habeck with Ms. Maischberger,” says Schneider.
Even after the third relief package, the shock ran deep: “A relief for small and medium-sized companies was also promised. But unfortunately this is too vague so far, there are no concrete statements as to what this looks like in practice.” He calls for a rescue package “to survive the cost tsunami”. One thing is clear for Schneider: “The bakery trade is facing one of the greatest challenges in its history. Without help from politicians, numerous companies will face the end of their existence, which will not only cost jobs and apprenticeships, but also endanger the security of supply with basic foodstuffs.”
The Central Association of German Crafts (ZDH) also sees energy-intensive trades such as electroplaters, textile cleaners, car workshops, butchers and breweries affected by the high costs for gas and electricity in addition to bakeries. “Many traditional companies are now finally threatening to run out of air after two years of the corona pandemic,” said the association on FOCUS Online request.
Production stops are now threatening in many areas. Things are already looking bleak for beer brewers, for example. “In the first breweries, production had to be stopped because carbonic acid was no longer available on the market. This not only plays an important role in beer production, but also in the production of non-alcoholic beverages,” explains the ZDH. The breweries are symbolic of the chain reactions that are currently going through the German economy. Production chains come to a standstill.
Carbon dioxide, for example, is a waste product in fertilizer production. “Fertilizer producers such as BASF have cut back their production due to the high energy costs, which is why CO2 is now becoming absolutely scarce. In order to eliminate the bottlenecks in the production of beverages, fertilizer production must be ramped up again,” says the association.
The high energy costs do not stop at tradition and have led to the fact that the porcelain manufacturer Eschenbach in Triptis (Thuringia) has already gone out. After 130 years, the traditional company collapses under the cost burden. From January you have to pay six times the price for the gas you need, said boss Rolf H. Frowein “MDR-Thuringia”. Economic operation beyond the end of the year is not possible without doubling the sales prices. The closure of the company will affect 99 employees.
The Nelskamp roof tile works temporarily stopped the production of clay roof tiles on September 1st – due to the high costs for gas and electricity. Two plants with a good 300 employees are affected, the company said. Short-time work is pending: “A tough but necessary cut,” says the management. In addition, roof tiles cannot be delivered at the moment due to low stock levels.
The situation on the energy market is so uncertain that future costs cannot be reliably calculated, the company said. The production of roof tiles can only be resumed when the situation on the energy markets has eased again.
The ZDH does not currently have any precise figures on how many craft businesses are using short-time work due to the current economic situation and the massive increase in energy costs. “However, we fear that the particularly affected energy-intensive companies will have to increasingly rely on short-time work this autumn.”
The risk of production downtime increases, particularly in the trades that are confronted with delivery or material bottlenecks in addition to the high energy prices. These would in turn inevitably lead to the use of short-time work by employees. According to the association, there is also a risk that there may be layoffs if the remaining costs are simply no longer affordable for the company, even if short-time work benefits are claimed.
There is also a risk of standstill on four wheels. By law, almost all modern transport and agricultural vehicles require the addition of AdBlue to clean diesel exhaust gases. One of the largest producers has now had to stop production because of the energy crisis.
Around 40 percent of the German AdBlue production comes from the SKW nitrogen works Piesteritz from Wittenberg in Saxony-Anhalt. Production there has been at a standstill for two weeks.
“The reason for stopping production was the gas prices, but also political decisions such as the gas levy, which is a German specialty – in other countries gas prices are capped instead. So far, gas prices have fluctuated between 5 and 10 euros per megawatt hour in summer and between 30 and 40 euros in winter. Now the price is between 200 and 300 euros and is subject to extreme fluctuations, ”said SKW spokesman Christopher Profitlich to FOCUS Online.
The transport industry is slowly running out of money. More and more companies in Germany are doing this. The energy price explosion eats up cash reserves and companies can no longer meet their payment obligations to creditors – a debtor situation that is referred to as insolvency. And such an acute or impending insolvency has caught up with the first major market players in Germany.
The toilet paper manufacturer Hakle is the first to make headlines because it has filed for bankruptcy. Material and energy costs skyrocketed, but retail chains no longer wanted to pay for Hakle products. In a press release, management described the current energy crisis as “historic”. The situation is challenging.
220 employees work at Hakle. Thanks to their tireless commitment “and our strong innovative strength”, we are confident that we can continue to develop in a future-oriented manner.
The news of the bankruptcy filing “should have made us all aware of how serious the situation is,” said Nicholas Neu, spokesman for the Federal Association of Small and Medium-Sized Businesses, on request. “Companies that have shaped their home regions for decades or even centuries and created secure jobs are on the verge of collapse here.”
The shoe retailer Görtz has also become a case for restructuring. The Hamburg company cites a slump in sales as the reason for the bankruptcy. Around 1800 people are employed at Görtz. According to the company, their wages and salaries are secured for September, October and November by the Federal Employment Agency. “From December 2022, Görtz will again pay wages and salaries from its own resources.”
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Görtz attributes the “enormous reluctance to buy in the branches and online business” to a mix of factors: the war in Ukraine, high inflation and rising energy prices. A triad that threatens to choke off individual areas of the German economy.
Business representatives, such as BDI President Siegfried Russwurm, are therefore insisting on more support from politicians. “The federal government must launch a relief program for the economy as soon as possible. Politicians must now take action to prevent insolvencies and further economic and social upheavals,” said Russwurm.
The Federal Association of SMEs is also of the opinion that the measures decided in the third relief package are not sufficient. “Instead of finally seizing the opportunity and reducing taxes and levies on a large scale for employees and companies and thus giving the only right answer to the massively deteriorating economic conditions with avalanche costs for energy, raw materials and wages, only selective relief was decided. We need broad relief in all areas,” says Neu.
The ZDH also demands from politicians “energy cost cushioning for small and medium-sized companies in the form of an energy price brake and direct hardship support for companies that are particularly affected”. In a proposal for action by the association, “gas costs and their increase will be slowed down already at the level of wholesale prices – before they are fed into the market and the grids – and the price mechanism, which is important to stimulate energy saving, will be maintained”. Hardship aid should therefore primarily be given to companies whose energy costs have more than doubled. “Time is pressing, otherwise thousands of companies are threatened with closure in a few months,” according to the ZDH.
