Angle: Energy crisis hits Germany, wave of corporate bankruptcies spreading | Reuters

FRANKFURT/MUNICH (Reuters) – Düsseldorf-based toilet paper maker Hakure was founded in 1928. However, due to the sudden rise in gas prices this summer, the company went bankrupt.

Hakure is a long-established company founded in 1928, which manufactures toilet paper based in Düsseldorf, Germany, on September 20. However, due to the sudden rise in gas prices this summer, the company went bankrupt. Pictured is an empty store in Berlin, Germany. Photo taken in March 2021 (2022 REUTERS/Hannibal Hanschke)

Energy-intensive industries like Hakure have been particularly hard hit by Russia’s discontinuation of natural gas supplies to Europe.

“It happened so quickly. Electricity and gas prices exploded, and we weren’t able to pass them on to our customers, if not by much,” Karen Jung, marketing director at Hakure, told Reuters. rice field.

Since August, the number of insolvent companies like the company has surged, raising fears that a wave of bankruptcies could hit Germany, Europe’s biggest economy.

Business bankruptcies have come under pressure as the Scholz government tries to protect its people from the risks of rising gas prices, the highest inflation in decades, recession fears and winter fuel shortages.

German energy prices rose 139% in August compared to the same month last year.

Deputy Prime Minister and Minister of Economy and Climate Protection Harbeck sparked fire in a TV interview earlier this month when he said that businesses do not necessarily go bankrupt when struggling customers stop buying their products.

The government is spending tens of billions of euros to help businesses, including bailouts for Uniper, the country’s largest importer of Russian gas.

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However, Hakure appeals for expanded protection to “Mittelstands” like their company. Mittelstand is a small, mostly family-run business that has been the engine of Germany’s economy.

“Of course it’s important to watch the giants that affect the whole system and look for solutions,” Hakure’s Jung said. “But it is also true that Mittelstand is responsible for the majority of employment in Germany and we really need a solution so that Mittelstand can survive here in Germany in the future.” .

In response to these concerns, Economy Minister Harbeck promised to increase support for small and medium-sized enterprises. Law Minister Bushman is planning to ease over-indebtedness standards to support companies struggling with high energy prices.

According to the IWH Economic Research Institute, 718 German companies were insolvent in August, up 26% from the same month last year. IWH expects the rate of growth to hover at around 25% in September and rise to 33% in October.

“The number of insolvent companies remained at a low level for many years, but the trend has reversed,” said IWH’s Steffen Müller.

More than a third of 593 companies surveyed by the Federation of German Industries (BDI) say their survival is threatened by high energy prices, up from 23% in February.

Wolfgang Grosse Entrup, president of the German Chemical Industry Association (VCI), told Reuters on Tuesday that “(Germany) has never been closer to going from being the world’s leading industrial nation to being an industrial museum.” rang the alarm.

Germany’s bad loans are expected to rise to 37.6 billion euros ($37.7 billion) next year from 31.9 billion euros this year, according to an August survey by major credit institutions.

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“Our clients did not experience a wave of bankruptcies during the pandemic,” Helmut Schleweis, president of the German Association of Savings Banks, told a banking industry meeting on Wednesday. The only thing missing is its scale.”

Professor Christoph Scharrast of the Frankfurt School of Finance and Management said bad debts did not rise significantly during the pandemic because of government support measures. “But now things look very different because there are other factors such as inflation, supply chain disruptions, a war of aggression against Ukraine and rate hikes,” he said.

However, some experts warn that the rising number of insolvency cases should not lead to false conclusions.

The number of insolvency cases was artificially low in 2020-21 during the pandemic, so the numbers may look worse now than they did then, he said. At the time, the government was supporting companies in financial difficulties, and the law requiring companies with excessive debts to apply for civil rehabilitation was temporarily suspended.

Moreover, according to government data, there will be just under 14,000 insolvency cases in 2021, less than half of the 32,687 cases in 2009 and 39,320 cases in 2003 during the global financial crisis.

Bad debts are expected to rise, but the mood in the financial industry is relatively calm, experts say. They expect the government to intervene to prevent a surge in business failures.

Turnaround expert Lucas Fruter told Reuters that governments shouldn’t spend tax dollars protecting companies with fundamentally unsound business models. “The energy crisis has questioned the business models of many companies,” he said.

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While he welcomed Justice Minister Bushman’s proposal to ease the debt threshold, he said it would be a “serious mistake” to do so. He said that such measures “will only serve as sedatives,” and that at some point the principle of competition should be put into action.

(Reporters by Marta Orosz and Alexander Hübner)