Deindustrialization Of Europe

The energy crisis has proved to be a serious challenge for the strength of the European economy. Record high gas prices in 2022 hurt the competitiveness of European industries and forced them to look for more suitable conditions to work in. Simultaneously with the crisis in the Old World, an anti-inflation law was passed across the Atlantic, containing generous subsidies for companies willing to develop a green economy. This law has complicated relations between Washington and Brussels, which not unreasonably saw it as luring European businesses to America.

The energy crisis was especially acute in the energy-intensive sectors: glass, metals, chemicals, fertilizers, paper, ceramics and cement production, which employ 8 million people. At the height of the crisis, some companies in these industries loudly announced that they were moving to the U.S. and even began relocating production across the Atlantic. In October, for example, BASF, the world’s largest chemical concern, announced that it was cutting production in Europe – not temporarily, but permanently. In November, Volkswagen announced that Europe was no longer cost-competitive in many industries, especially in electricity and gas prices.

As a result, many people, including European leaders, have started talking about the deindustrialization of Europe, i.e., the collapse of European industry. According to Politico, countering this threat will be one of Brussels’ priorities in 2023. For example, European Commissioner for the Internal Market Thierry Breton, in an email greeting to his subordinates on New Year’s Day, called efforts to strengthen the international competitiveness of European industry not just a priority, but a top priority.

Without a strong manufacturing base, Breton wrote, Europe’s security of supply, export ability and job creation is at risk”.

The peak of the energy crisis for European industry, according to Politico, came last December. Nevertheless, by the end of the year, the continent’s first economy, Germany, had managed to reduce its gas consumption by 15% without a similar drop in production. However, it is too early to relax. Despite the long-term decline in gas prices, they are still almost 6 times the average price of the last 10 years and more than 4 times higher than competitors, for example in the U.S. Therefore, Brussels is still afraid that large companies will start to transfer production to other continents, while small companies will simply go bankrupt and close down.

Charles Michel
German Chancellor Olaf Scholz, right, and European Council President Charles Michel, address the media during a joint press conference after a meeting in Berlin, Germany, September 9, 2022

The loss of production means the loss of many thousands of jobs, which, according to Luc Triangle, general secretary of the IndustriALL European Trade Union, a federation of millions of industrial workers, will have political consequences. He believes that the accelerating decline in production in Central and Eastern Europe could reduce, for example, the electorate’s support for the European Union.

Triangle also believes that European industry is now in an existential crisis.

According to the European Commission’s annual labor market analysis, the EU unemployment rate fell to 6 percent in July 2022. But the authors of the analysis warn that high energy prices will be the main threat to workers in the EU, especially in energy-intensive industries, this year.

The effects of high energy prices are still minor, but they are already visible in the labor market. They can already be found, for example, in an analysis by the European Foundation for the Improvement of Living and Working Conditions (Eurofound). The authors pessimistically note that, apparently, the losses on the European labor market have only just begun.

Everyone in Brussels is now calling for a bailout of Europe’s manufacturing base. Paris, for example, is calling for a comprehensive “made in Europe” strategy to protect European industry.

At the EU summit in December, European leaders stated that they understood the complexity of the situation and demanded that the EC develop as soon as possible measures to combat the energy and competitiveness crises that are undermining the European economy. This will be the main topic at the EU summit, which is scheduled for February 9-10. But the process will be difficult and complicated because of the many disagreements among EU members over specific measures. Brussels itself believes that, first and foremost, efforts should be focused on loosening the strict rules on aid and assistance that exist in the EU, and on financial support for the manufacturing sector.

In the short term, the European authorities will have to dip into the already existing funds, for example, Next Generation EU COVID, which funds are used to restore the European economy after the coronavirus pandemic, and RePower EU, which should help European countries give up on Russian energy sources.

At the moment, the strongest reaction to the threat of deindustrialization is observed primarily at the national level. Germany, for example, has allocated 200 billion euros to support German industry and the population, and is going to limit the prices that enterprises and companies pay for gas and energy. Paris has announced a new law that will support the development of a green economy.

German Finance Minister Christian Lindner recently expressed confidence that Europe and Germany will overcome this crisis without a collapse in industrial production. However, there are also economists and politicians who believe that without the intervention of Brussels at the pan-European level, countries that, unlike Germany, do not have hundreds of billions of euros to spare, will have a very difficult time.

Reposts are welcomed with the reference to ORIENTAL REVIEW.
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