In Germany, the energy price shock raises fears of a wave of insolvency


Hakle has been a German household name since 1928, but the Düsseldorf-based toilet paper maker said it was enough this summer’s gas price shock to drive it into insolvency.

Energy-intensive companies such as Hakle were particularly vulnerable after cuts in Russian gas supplies to Europe, which Moscow blamed on Western sanctions following its invasion of Ukraine in February.

« In a very short period of time, electricity and gas prices have exploded to such an extent that obviously they cannot be passed on to our customers as quickly, » Karen Jung, the company’s marketing manager, told Reuters.

The number of insolvencies like Hakle’s has jumped since August, raising fears that a wave of bankruptcies could overwhelm Europe’s biggest economy as another consequence of Russia’s energy standoff with the EU. Europe.

The plight of these companies is increasing pressure on Chancellor Olaf Scholz’s three-party coalition, which is trying to shield Germans from skyrocketing gas bills, decades-high inflation, and threats of recession and shortage of fuel in winter.

The average annual increase in energy prices in Germany in August was 139%, according to the latest producer price data released this week.

Economy Minister Robert Habeck has already drawn a strong reaction this month when he downplayed the problem in a television interview, saying companies would not necessarily be insolvent even if troubled customers no longer buy their products.

Invoking the English football slogan ‘you’ll never walk alone’, Mr Scholz’s government is spending tens of billions of euros on aid packages and bailing out Uniper, Germany’s biggest importer of Russian gas.

But Hakle wanted more protection for so-called Mittelstand companies like her, the medium-sized, often family-run businesses that drive the German economy.

« It is of course important to monitor very large systemic companies and find solutions for them, » Jung said.

« But it is also true that a very large part of the jobs in Germany are due to the Mittelstand. And there we really need solutions, so that the Mittelstand still has a future here in Germany. »

In response to these concerns, Mr Habeck has promised more support for small businesses, while Justice Minister Marco Buschmann plans to ease insolvency rules to help companies that are crumbling under energy costs.

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Some 718 German entities became insolvent in August, a jump of 26% over the previous year, according to the economic institute IWH. He expects that number to stay around 25% in September and climb to 33% in October.

« After a long period of low insolvency numbers, a trend reversal has now set in, » said IWH’s Steffen Mueller.

German trade association BDI has warned of a « massive recession ». In a BDI survey of 593 companies, more than a third said their existence was threatened by rising energy prices, up from 23% in February.

Industry group VKU has also joined the chorus of concern, warning that local utilities risk insolvency due to high energy prices and possible defaults by their customers.

The head of the German Chemical Industry Association (VCI) said on Tuesday that rising energy prices were a « huge wake-up call » for Germany as a place of business.

« The step from the world’s leading industrial nation to the industrial museum has never been smaller, » Wolfgang Grosse told Reuters.

A survey by major credit institutions in August suggested that non-performing loans in Germany will rise to 37.6 billion euros ($37.7 billion) next year from 31.9 billion in 2022.

« Our client companies have not experienced a wave of bankruptcies during the pandemic, » said Helmut Schleweis, president of the German Association of Savings Banks, at a banking conference on September 8. « Today, however, it can no longer be ruled out, only the magnitude cannot yet be quantified. »

Christoph Schalast, a professor at the Frankfurt School of Finance and Management, said there was no significant increase in NPLs (non-performing loans) during the pandemic, when government support programs helped businesses .

« But now the situation looks very different. There are other factors such as inflation, disrupted supply chains, the war of aggression against Ukraine and interest rate hikes, » he said. he said.

Some industry experts warn against drawing the wrong conclusions from rising insolvency figures.

They may look bad now because insolvency figures were artificially depressed during the 2020-2021 pandemic, when the government supported struggling businesses with state aid and suspended legislation requiring them to file for bankruptcy. insolvency.

In addition, insolvency rates have been lower than in the recent past. There were just under 14,000 insolvencies in 2021, less than half the rate of 32,687 seen during the global financial crisis in 2009 or 39,320 seen in 2003, according to government data.

Although non-performing loans are expected to rise, industry experts say the mood in the financial sector is still relatively optimistic.

« Banks have now clearly heard the wake-up call, but they are sitting in a very comfortable position, » Juergen Sonder, chairman of the Federal Loan Repurchase and Management Association, told Reuters.

« They are counting on the state to also intervene this time to avoid a wave of bankruptcies. »

Restructuring expert Lucas Floether told Reuters that the government should not try to protect companies by throwing taxpayers’ money at them if their business models are fundamentally flawed.

“The energy crisis challenges the business model of many companies,” he said in an interview.

He welcomed Mr Buschmann’s initiative to relax the insolvency rules, but added that simply suspending them again would be a « serious mistake ».

« It would just be a sedative, and it won’t help, » he said. « Competition has to set in at some point. »

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