Europe’s energy crisis increases risk of deindustrialisation
BusinessEurope president sounds alarm about permanent shutdowns
Industrial malaise
As the EU squabbles over whether and how to cap gas prices to support the economy, it likes to point to one success — demand reduction. But on the flipside, reduced energy consumption also means less industrial output and, in some cases, permanent shutdowns, writes Andy Bounds in Brussels.
Consumption fell by a quarter in October compared with the 2019-21 average for the month, according to Bruegel think-tank. This “lowers energy bills, ends Vladimir Putin’s ability to weaponise his energy resources, reduces emissions and helps rebalance the energy market,” said executive vice-president Frans Timmermans in September.
Some business leaders see it differently. Fredrik Persson, president of BusinessEurope, says much of the drop comes from companies cutting production or even closing. He points to Italy, where gas consumption fell 24 per cent in October.
“People say, ‘OK, you’ve been really good at saving’, but when we really talk to our Italian friends they say, ‘no, that was because people are cutting back on production’.”
However, most do not broadcast their woes. “It’s a bit like drowning — you think people would shout when it is happening. But this is done quietly.”
Other countries have had even bigger drops. In Portugal it was 48 per cent and Romania 78 per cent. Portugal’s ceramics industry, which needs gas to fire its kilns, has suffered, Persson said.
He said EU companies faced a “serious loss of competitiveness” as wholesale gas prices are five to seven times higher in Europe than Asia and the US.
BASF, the German chemical company, said recently it would expand production in China and “downsize permanently” in Europe because of high energy prices and faltering demand.
In Germany, industry accounts for a quarter of demand. Figures show that production in the energy-intensive industries started falling in February and has been below the level of the overall industry since May 2022.
In a September survey from the Association of German Chambers of Industry and Commerce, 8 per cent of respondents were considering shifting production somewhere else owing to high energy prices in Europe.
Persson urged energy ministers meeting on November 24 to back plans to tackle high prices including a mechanism to stop the gas price driving up electricity prices.
“There is still time,” he said. “If we could get a grip on the energy price . . . we could restore the comfort of investments and doing business in Europe. Our members want to be in Europe.”