Home Energy company Germany’s economy minister under fire as German companies sound alarm over energy prices

Germany’s economy minister under fire as German companies sound alarm over energy prices

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German Chancellor Olaf Scholz and German Economy and Climate Minister Robert Habeck attend the budget debate at the lower house of the Bundestag parliament in Berlin, Germany, September 7, 2022. REUTERS/Michele Tantussi

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  • Minister says companies will ‘just stop producing’ in winter
  • A third of companies view energy prices as an existential threat
  • Some 25% of companies plan to relocate production outside of Germany
  • Government relief package not enough, lobbyists say

BERLIN, Sept 7 (Reuters) – German Economy Minister Robert Habeck came under fire on Wednesday for saying he could imagine parts of the economy shutting down production due to rising oil prices. energy which, according to the German companies, threatened their existence.

When asked if he expected a wave of insolvencies at the end of this winter due to rising business energy bills, Habeck replied: “No, I don’t think so. I I can imagine that some industries will simply stop producing for the time being”.

The response, in an interview with the ARD television channel on Tuesday evening, drew criticism of the minister in charge of Europe’s biggest economy, with the widely circulated Bild newspaper claiming that Habeck “didn’t no idea of ​​economics.

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Friedrich Merz, the leader of the conservative opposition, also took the opportunity to criticize Habeck, Germany’s second most popular politician, saying he and his ruling coalition were not taking energy and economic issues seriously. .

“We could see how helpless you are, Mr Habeck, in the face of these questions last night on German television,” Merz told the lower house of parliament.

Habeck’s comments come as economists and industry groups warn that rising energy prices pose a growing risk to Germany’s small and medium-sized businesses, which form the backbone of the economy.

After profiting from cheap Russian gas for decades, German industry is facing a crisis as Russia cuts supplies, pushing energy suppliers to buy gas at rising market prices and pass those costs on consumers.

Rising energy costs and supply chain bottlenecks contributed to a 26% rise in insolvency proceedings in Germany in August, the IWH economics institute said on Tuesday, adding that d ‘further insolvencies were expected in the fall.

In a survey by German industry association BDI of 593 companies, which ran from mid-August to early September, more than a third said their existence was at risk due to rising prices, compared to 23% in February.

NOT IN THE RIGHT PLACE

For auto parts supplier Boegra near the western city of Düsseldorf, a fivefold increase in energy prices from October means changing the production schedule and halting production for the next three weeks.

The more than 100-year-old company is also considering moving out of Germany if the energy price situation does not improve, Boegra chief executive Tobias Linser told Reuters.

“We already partly cooperate with an extensive workbench in the Czech Republic and we also have a strategic cooperation with an Indian company,” Linser said.

It has not been possible to pass on increased costs to customers because the company has long-term contracts prohibiting price adjustments, he added.

In the BDI survey, some 58% of companies saw soaring costs as a major challenge and almost 25% were considering or in the process of offshoring part of their business. One in 10 companies had reduced or halted production due to soaring prices.

Bavarian industry group vbw said on Wednesday that its energy price index had more than doubled in a year by July 2022.

“For more and more industries, energy prices are becoming an existential issue,” said Bertram Brossardt, director of vbw.

The German Association of Small and Medium Enterprises (DMB) said many of its members report that their electricity or gas suppliers have either terminated old contracts or adjusted their terms.

“These companies are unsure and want to know how to handle this situation and what options they have,” DMB energy expert Steffen Kawohl told Reuters.

He said that in some cases companies take out loans to finance the additional costs, but without a state guarantee it becomes increasingly difficult to receive credit approvals when the company is already facing difficulties. problems to cover its operating costs.

“Companies are therefore also looking for alternative sources of financing (e.g. sale and leaseback) to improve their short-term liquidity,” Kawohl added.

Berlin announced a 65 billion euro ($64.33 billion) aid package on Sunday to help citizens and businesses cope with rising prices, but BDI chief Siegfried Russwurm said that the program was not enough, calling on the government to co-finance the electricity grid charges.

German energy-intensive companies would receive a total of 3 billion euros this year and next from this relief, according to a breakdown from the Ministry of Finance.

“In my opinion, the aid program will help, but not in the right place. For us, as a classic medium-sized company, hardly anything from this aid program reaches us,” Linser added.

($1 = 1.0104 euros)

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Reporting by Riham Alkousaa, editing by Rachel More, Kim Coghill and Chizu Nomiyama

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