German Economy Minister Robert Habeck faced a backlash on Wednesday for saying he could imagine parts of the economy stopping production due to rising energy prices that German firms say are threatening their existence.
Asked whether he expected a wave of insolvencies at the end of this winter due to companies' rising energy bills, Habeck said "No, I don't. I can imagine that certain industries will simply stop producing for the time being."
The answer, in an interview with ARD broadcaster on Tuesday evening, sparked criticism of the minister in charge of Europe's biggest economy, with mass-selling Bild newspaper saying Habeck "has no idea about the economy."
Friedrich Merz, the conservative opposition leader, also took the opportunity to criticize Habeck, Germany's second most popular politician, saying he and his ruling coalition were not taking energy and economy questions seriously.
"One could see how helpless Mr. Habeck you are with 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 are a growing risk for Germany's medium and small-sized businesses, which form the backbone of the economy.
After benefiting from cheap Russian gas for decades, German industry is facing a crunch as Russia cuts supplies, pushing energy suppliers to purchase gas at spiking market prices and pass those costs on to consumers.
Rising energy costs and supply chain bottlenecks contributed to a 26% rise in insolvency proceedings in Germany in August, IWH economic institute said on Tuesday, adding that more insolvencies were expected in the autumn.
In a survey by Germany's BDI industry association of 593 companies, which took place from mid-August to early September, more than a third said their existence was under threat due to rising prices, up from 23% in February.
NOT IN THE RIGHT PLACE
For auto parts supplier Boegra near the western city of Duesseldorf, a five-fold jump in energy prices from October means changing the output schedule and stopping production for the next three weeks.
The company, more than 100 years old, is also considering relocating out of Germany if the energy prices situation doesn't improve, Boegra managing director Tobias Linser told Reuters.
"Already, we are partly cooperating with an extended workbench in the Czech Republic and we also have strategic cooperation with an Indian company," Linser said.
Passing on the increased costs to clients was not possible as the company has long-term contracts barring price adjustments, he added.
In the BDI survey, some 58% firms saw skyrocketing costs as a major challenge and almost 25% were considering or in the process of relocating part of their business. One in 10 companies had curtailed or interrupted production due to the price jumps.
The Bavarian vbw industry group on Wednesday said 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 problem," said vbw head Bertram Brossardt.
The German Association for Small and Medium-sized Enterprises (DMB) said many of its members are reporting that their electricity or gas providers have either terminated the old contracts or adjusted their terms.
"These companies are insecure and want to know how to deal with this situation and what options they have," DMB energy expert Steffen Kawohl told Reuters.
He said companies in some cases were taking loans to fund the additional costs but without a state guarantee it's becoming increasingly difficult to receive credit approvals when the firm is already facing problems covering their running costs.
"Companies are therefore also looking for alternative sources of financing (e.g. sale and leaseback) in order to improve their liquidity in the short term," Kawohl added.
Berlin on Sunday announced a 65 billion-euro ($64.33 billion) aid package to help citizens and companies cope with rising prices but BDI head Siegfried Russwurm said the package was not enough, calling on the government to co-finance electricity network charges.
Germany's energy-intensive firms would get a total of 3 billion euros over this year and next of that relief, according to a finance ministry breakdown of the package.
"In my opinion, the aid package will help, but not in the right place. For us, as a classic medium-sized company, basically nothing of this aid package reaches us," Linser added.
($1 = 1.0104 euros)
(Reporting by Riham Alkousaa, editing by Rachel More, Kim Coghill, and Chizu Nomiyama)
