Putting all one’s eggs in one basket is unwise, because if one’s basket falls, one will be without food. In economics and commerce the provision for dividing eggs into at least two baskets is called “diversification”. An economy or a business that wants to be protected against the possibility of running out of raw materials, components or even customers takes care to “diversify” its suppliers and partners and “open” to more than one market.
Even if this “diversification” costs her money, it gives her some future security in case something goes wrong. It is an idea similar to that of insuring a house, a business, a commodity or even human life. Europe did not have this common sense. Not even the (supposedly) thoughtful and forward-thinking Germany, which has been so unruly and punitive in the recent past with those of its partners who “spent carelessly and lived on loans, beyond their means”.
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The cicada in the background
In this case, in the situation of the light-hearted and irresponsible “cicada” were mainly the Germany but also France and Italy, the three largest economies of the Eurozone. And also the infamous “frugal” of the North (Netherlands, Finland, Austria, etc.), as well as the Central Europeans neophytes in capitalism. Northern and Central Europe has from great to absolute (Germany) dependence on Russian energy and especially from Pamphthino natural gas introduced by the suddenly demonized Putin.
The (supposedly) thrifty and sensible ants got to the point of asking and securing (because they can) “solidarity” from their partners who, not that they showed any particular foresight, but happened not to be as dependent on Russia as they were. The southern cicadas are forced to reduce their natural gas consumption by 15% in order to send the “surplus” amounts to the northern cicadas, who call themselves ants. However, Cyprus and Malta were excluded from the “solidarity”, as they do not have the practical ability to send gas to the demek ants that were heating up during the years of the European debt crisis.
Switches are down
An extensive investigation signed by the “New York Times” Europe correspondent Liz Alderman reveals the extremely threatening degree of dependence that European heavy industry has on Russian energy. Starting from the largest glass factory of the Old Continent Arc International, which operates in Arc, Northern France, the reporter documents the impact of the sudden interruption of the flow of natural gas from Russia to Europe.
“It’s the most dramatic situation we’ve ever experienced,” says group CEO Nicolas Odler, explaining that “for energy-intensive businesses like Arc, the current situation is tantamount to amputation.” For years, Arc powered and ran on cheap energy, which helped make it the world’s leading producer of glass tableware – “and a vital employer in this working-class region of northern France,” as the reporter notes.
Why does the situation look like business crippling? Nicolas Odler, who was forced to erase and rewrite Arc’s financial forecasts six times in two months, reveals that he has so far put a third of the total 4,500 workers employed at the Arc unit on “partial leave”. About 1,600 workers were asked to stay home two days a week and collect 80% of their wages in order to save the company money.
Four of the nine furnaces in the huge industrial plant (it has an area the size of half of Central Park, writes the “NYT” reporter) have been idled. The rest will continue to run on the now cheaper, but much more polluting diesel, once the necessary technical conversions have been completed. It should be noted that Arc’s unit consumes daily energy that corresponds to the daily consumption of 200,000 households!
Arc, founded in 1825 as Verrerie Cristallerie d’Arques and started as a small local crystal glass factory, is not the only European industry to be “crippled” by soaring energy prices. Many factories operating in various sectors drastically reduce their production and put tens of thousands of employees on forced holiday or suspended work.
The cuts, though announced as temporary, raise the risks of a painful recession in Europe. In addition, industrial production in the euro area fell by 2.3% in July on an annual basis. This is the biggest drop since the outbreak of the pandemic in early 2020.
Manufacturers of metals, paper, fertilizers and other products that depend on gas and electricity to turn raw materials into products from car doors to cardboard boxes are scrambling to tighten their belts. Aluminum and zinc production in Europe has halved, according to European metals trade association Eurometaux.
Among those that have crippled production is Arcelor Mittal, Europe’s largest steelmaker, which also operates blast furnaces in Germany. The giant US aluminum group Alcoa is cutting production at its Norwegian smelter by a third. Belgian metallurgist Nyrstar, the world’s largest zinc producer, has announced that it is suspending production at its plant in the Netherlands until further notice.
“Even the producers of toilet paper feel the crisis knocking on their door”, it is noted in the “NYT” report. In Germany, Hakle, one of Europe’s largest toilet paper producers, has announced that it has fallen into insolvency, due to a “historic energy crisis” it is facing.
Although an exporter, Hakle is largely a national company and therefore flirts with bankruptcy. Arc, Arcelor Mittal, Alcoa, Nyrstar are groups with an international presence, with production units in many countries and therefore do not face an existential problem. Arc, for example, operates factories in China, Dubai and New Jersey, USA. But in the wider Pas-de-Calais region, where the Arc factory operates, around 15,000 jobs depend directly or indirectly on it.
“Closing the ovens is very bad news. It’s certainly understandable after the energy price spike, but it’s scary how quickly production is shrinking,” a veteran worker (28 years) at the Ark unit told the NYT.
“To some extent the crisis is due to the sanctions imposed by the EU on Moscow to punish it for its invasion of Ukraine. The impact of the retaliation has come to undermine the prestige and trust that European companies enjoy in international markets and undermine the ability of companies to reliably plan their future,” the NYT reporter notes.
Last week European Commission President Ursula von der Leyen proposed unprecedented measures to tackle the huge cost of energy prices. He even suggested that fossil fuel companies be required to share some of the windfall profits. But “these solutions may not bring immediate results,” the paper writes. Meanwhile, the energy crisis is rapidly developing into an economic and social one.
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