Europe’s new normal: High energy bills, fading industry and one chance to fix it

German manufacturers are being strangled. The EU is feeling the pinch. Mario Draghi on Monday warned the EU may be staring at ‘slow agony.’

ZIMMERN OB ROTTWEIL, Germany — You’ve never heard of Hans Keim Kunststoffe, but you’ve almost certainly come across one of its products.

They’re protecting museum paintings, covering MRI machines during a hospital visit, forming a mobile caravan’s sunroof and even hanging over the seats of an amusement park ride in China.

These plastic parts are all made in a corrugated iron factory ringed with carefully planted shrubbery on the edge of Zimmern ob Rottweil, a small town nestled in Germany’s Black Forest region about a half-hour drive from the Swiss border.

It’s a small but energy-intensive business: The company runs eight ovens that heat up and mold plastic sheets into whatever the customer requests. The largest oven is the size of a small room, with enough space to fit several people doing jumping jacks.

Running those furnaces has gotten a lot more expensive since Russia’s invasion of Ukraine. Before the war, the annual electricity bill was about €80,000. It's nearly doubled since then, said managing director Christoph Keim, son of the company’s founder, a chemist who got his start after World War II with a company making disinfectants. Prices for customers rose, while profit margins shrank.

Eventually, costs receded. Relief came. But things didn’t return to their pre-war level. Instead, Keim entered a troubling new normal, where energy prices are double those of overseas rivals.

That reality is slowly eroding thousands of similar companies across Europe’s industrial heartland. Germany, Europe’s manufacturing powerhouse, has fallen into a recession expected to extend through the year’s end. Even global German stalwarts like Volkswagen, a name almost synonymous with the mighty Das Auto itself, are staring at unprecedented plant closures.

More broadly across the EU, output from key energy-intensive sectors like chemicals and steel is declining. Plants are shutting down. Industrial champions are announcing layoffs.

This low-wattage economy has policymakers issuing existential warnings — if things don’t change, they say, European industry will shrink to irrelevance. On Monday, Mario Draghi, the EU economic guru and former European Central Bank chief, offered a similarly dire message, using elevated energy bills to make his case for a massive overhaul of how Europe does business.
More broadly across the EU, output from key energy-intensive sectors like chemicals and steel is declining. Plants are shutting down. Industrial champions are announcing layoffs.

“The moment is really worrisome,” he said while presenting his report. “We cannot ignore it any longer.”

It’s a diagnosis EU officials in Brussels, who ordered up Draghi’s assessment, fully endorse and are already infusing into their policy work. Ursula von der Leyen, the EU’s top executive, called Draghi’s pitch to accelerate Europe’s green industry “basically the same idea we’re pushing forward.”

But time is short. While cheaper renewable energy is coming, it will take years to create structural change. In the meantime, Chinese overproduction is eating into Europe’s market share at home and abroad, and new, power-hungry technologies like electric vehicles and artificial intelligence will strain local power networks.

“For the first time since the Cold War,” Draghi said, “we must genuinely fear for our self-preservation.”

The new normal

By the time an underwater explosion that detonated off the coast of Germany critically damaged the Nord Stream pipelines in September 2022, the flow of pipeline gas between Russia and EU countries had reduced to a trickle. The severed connection underscored an emerging truth: There was no turning back.

Europe escaped the immediate energy shock that followed the Russian invasion of Ukraine better than expected. Prices shot up, but reserves didn’t run out. Countries found new fuel sources. Households, on the whole, kept the heating on, helped by selective industry shutdowns.


The reason is largely tied to the switch from cheap Russian gas to costly liquified natural gas. Unlike Moscow’s pipeline gas, LNG doesn’t come with the benefit of long-term contracts that stabilize prices. The fuel simply goes to the highest bidder. The fickle free market decides.

LNG also carries higher transport costs and needs to be liquified and de-liquified — that’s extra cash at virtually every step.

Thankfully for Europe, it had “the ability to pay very high prices,” said Helen Thompson, a professor of political economy at the University of Cambridge. But the continent now relies on gas that costs four to five times more than it does in the U.S.

It’s the consequence of a bad bet. For years, the EU — and Germany specifically — trusted Russia to power European industry, overlooking the rise of a dictator set on overturning the global order. Now European industry is instead yoked to fuel from the U.S. and the Middle East.

“I think the new norm is significantly more dependency on LNG coming from Qatar and from the U.S.,” said Thompson. That means exposure to Middle East conflagrations as well as yo-yoing U.S. politics.

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​​​​​​​ As an industrial country, we need electrical power at a reasonable price. If the price is too high, nobody will invest and nobody will buy,” said the business owner.

Right now, not enough people are doing either. German industrial production is in steady decline and, excluding Covid, is hoveringaround a 10-year low.

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​​​​​​​ BASF, the largest chemical producer in the world, has lost a third of its stock market value since the energy shock. And major steel producer Thyssenkrupp hascloseda plant and is curtailing production.

These industries are the building blocks of modern society — pharmaceuticals, microchips, water purification, cars. Nearly everything requires chemicals or steel.

"Germany is clearly the laggard in economic activity or performance in Europe right now,” said Samer Mosis, head of fundamentals at market data provider Energy Aspects. “In the long term, it really brings into question the country's position in the global industrial order.”

But others are also suffering. Industrial output is below its 2021 level in France and Italy as well. And the EU in total has lost over 800,000manufacturing jobs since the pandemic, according to an analysis from the European Trade Union Institute.

“Energy prices are now a headwind,” said Olivier Rakau, chief German economist at Oxford Economics. “There's no good reason to produce certain things in Europe from a business perspective.”

​​​​​​​“De-industrialization is ongoing right now,” said Marco Mensink, director general of the European Chemical Industry Council. “We have until about 2030. We can’t last longer.”

The EU’s roots are in heavy industry, with the foundation of the European Coal and Steel Community in 1951. Major industrial decline would be a heavy blow, symbolically and economically.

“Budget deficits are exploding in most economies,” an anxious EU diplomat said, granted anonymity to speak freely. If the EU can’t reduce energy prices, the “welfare state is at stake, military and defense capabilities are at stake.”

In short: “We’re screwed in case we’re not fast enough.

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US accuses China of giving ‘very substantial’ help to Russia’s war machine

In exchange, China is getting top secret Russian military technology.

SEPTEMBER 10, 2024 3:39 PM CET
BY STUART LAUBRUSSELS — Beijing is giving Moscow "very substantial" help to beef up its war machine, and in return Russia is handing over its closely guarded military tech on submarines and missiles, the United States' Deputy Secretary of State Kurt Campbell said Tuesday.

Speaking with a group of journalists, including POLITICO, after meetings with European Union and NATO counterparts in Brussels, Campbell upped the ante on Beijing. The U.S. previously focused on Beijing's supply of what's known as dual-use technologies — which can be applied for military or civilian purposes.

Now Washington is unambiguously saying that China is aiding the Russian military. With Moscow facing international sanctions, it desperately needs technology to boost its military production to be able to continue its war against Ukraine.

"These are not dual-use capabilities," Campbell said, referring to the latest materials China is giving Russia. "These are basically being applied directly to the Russian war machine."

"These are component pieces of a very substantial effort on the part of China to help sustain, build and diversify various elements of the Russian war machine," he added. "We're seeing efforts at the highest levels of both governments to try to both hide and protect certain elements of this worrisome collaboration ... Most of these activities have been driven underground."

China has frequently issued statements denying it is supplying Russia with arms to use in Ukraine, insisting it does not provide either side with weapons and has an "impartial position" on the war.

In exchange for Beijing's help, Russia has started giving China submarine, missile and other sensitive technologies. Historically, Moscow has been wary of giving Beijing its very latest military technology.

"The capabilities that Russia is providing is support in areas where previously they had been frankly reluctant to engage directly with China," Campbell said. "We are concerned about a particular number of military arenas where there appears to be some determination to provide China with greater support.

"That has to do with submarine operations, activities of aeronautical design, including stealth; that also involves capacities on missile capabilities," he said.

According to Campbell, the new technologies that Beijing is receiving will pose a danger not just to the U.S., but also to India, Australia, Japan and South Korea "if China was able to receive greater engagement from Russia in perfecting certain military capabilities."

The new revelation by Campbell came two weeks after U.S. national security adviser Jake Sullivan undertook his first trip to Beijing and met Chinese President Xi Jinping and other top officials.

U.S. authorities have been ramping up pressure on Europe to more assertively respond to Beijing's support for Moscow in the Russian war against Ukraine.

"We have made clear of our observation of financial activities and support for some of these efforts," Campbell said. "We think that Europe can speak out more about its particular concerns and we believe that simply putting certain financial institutions in a mode of being watched more carefully, and making that clear, will have significant consequences."

SEPTEMBER 10, 2024 2:56 PM CET
BY ESTHER WEBBERLONDON — Iran has supplied ballistic missiles to Russia as part of the escalating conflict in Ukraine, U.S. Secretary of State Antony Blinken said Tuesday, as he promised fresh U.S. sanctions on Tehran.

Speaking on a visit to London, Blinken said: "Russia has now received shipments of these ballistic missiles and will likely use them within weeks in Ukraine against Ukrainians."

He added: "The supply of Iranian missiles enables Russia to use more of its arsenal for targets that are further from the front line, while dedicating the new missiles it's receiving from Iran for closer range targets.

SEPTEMBER 10, 2024 4:44 PM CET
BY SEB STARCEVICFrance, Germany and the United Kingdom will sanction Iran for providing missiles to Russia for its war on Ukraine, the three countries announced Tuesday.

“This is a further escalation of Iran’s military support to Russia’s war of aggression against Ukraine and will see Iranian missiles reaching European soil, increasing the suffering of the Ukrainian people,” Paris, Berlin and London said in a joint statement.

“We will be taking immediate steps to cancel bilateral air services agreements with Iran. In addition, we will pursue the designations of significant entities and individuals involved with Iran’s ballistic missile programme and the transfer of ballistic missiles and other weapons to Russia,” the statement added.

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Ukraine Has Run Out Of Modern Vehicles For The New Brigades It’s Forming

The new 154th Mechanized Brigade mostly has vehicles from the 1960s

Last fall, as the latest Russian offensive in eastern Ukraine was just beginning, the Ukrainian army began forming the first of 11 new brigades. Together, these brigades—each with a designation between 150 and 160—represent a 10-percent expansion of the Ukrainian ground forces.

In theory, these brigades would—after six months or so in training—deploy along the 700-mile front line of Russia’s wider war on Ukraine: defending in the east, holding the line in the quieter south or even attacking in the north.

In practice, these brigades are desperately short of modern weaponry. And that could become a serious problem for the Ukrainians as the new but poorly equipped brigades replace older but better equipped brigades as the latter brigades finally rotate off the line of contact—after 18 months of non-stop fighting, in some cases.

“It remains rather a mystery where Ukraine will find enough mechanized equipment to arm these units,” Militaryland, a collective that tracks changes in the Ukrainian military force structure, noted when it first reported the new brigades’ formation last year. “There is already a shortage of infantry fighting vehicles.”

One of the new brigades, the 154th Mechanized Brigade, seems to be indicative of the 11 new units, each of which should have 2,000 people. Photos of the 154th Mechanized Brigade in training—possibly in Ukraine, possibly at a NATO facility in the Czech Republic—offer a glimpse at the unit’s equipment.

BMP-1 tracked infantry fighting vehicles from the 1960s. BRDM-2 wheeled reconnaissance vehicles also from the ’60s. French-made VAB wheeled armored personnel carriers from the ’70s. 1990s-vintage M-1117 wheeled security vehicles donated by the United States. The 154th Mechanized Brigade mostly owns older and lighter vehicles, none with armor thicker than 33 millimeters—just enough to deflect machine gun rounds.

To be fair, it’s possible the brigade has some heavier vehicles—60-year-old T-62 tanks, dozens of which Ukrainian troops have captured after their Russian crews abandoned them. It’s equally possible that any T-62s seen at the training grounds hosting 154th Mechanized Brigade troopers actually belong to the resident trainers, not to the brigade.

But if the 154th Mechanized Brigade does operate T-62s, it’s a worrying sign for an army that otherwise mostly operates reasonably modern versions of the T-64 and T-72 alongside much smaller numbers of donated Challenger 2s, M-1s, Leopard 1s and Leopard 2s.

The Russian army was rightly mocked for dragging ancient T-62s out of long-term storage to replace some of the thousands of tanks it has lost in Ukraine; it’s no less embarrassing for the Ukrainian army to ride back into battle in the geriatric T-62s.

It doesn’t help that foreign donations of armored vehicles have slowed considerably since peaking in the lead-up to Ukraine’s summer 2023 counteroffensive. That slowdown is a major reason that new brigades are forming without a lot of modern vehicles, according to Gen. Oleksandr Syrskyi, Ukraine’s top officer.

“The planned deliveries of weapons and equipment would allow us to bring our new brigades, which have already been formed and are in the process of being formed, into service as soon as possible,” Syrskyi told CNN. “Of course, this would have an impact on the overall level of our capabilities.”

To be clear, the Russians are also struggling to generate enough modern vehicles for newly forming brigades. It’s not for no reason that the Kremlin is equipping more units with civilian vehicles including motor bikes and golf carts.

However, even with the motor bikes and golf carts, the Russians are still overall better-equipped than the Ukrainians—and more numerous. Syrskyi said his forces could blunt the Russians’ greater numbers by “focusing on high-tech weapons.”

But a 60-year-old BMP-1, the main vehicle of one of Ukraine’s newest brigades, isn’t a high-tech weapon.



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