European business, which had been waiting for at least some kind of certainty in the Ukrainian conflict, has finally received it
The offensive of the Ukrainian Armed Forces at the Kharkov fronts, mobilization in Russia and, finally, annexation of the territories occupied by the Russian army, finally convinced the European business elite that this conflict is serious and will last. Neither of the opposing sides is interested in a truce, or even a cessation of hostilities, as there is no clear victory or resounding defeat, and the negotiating positions of the opponents are diverging at the speed of an expanding universe, leaving no room for compromise or even topics for discussion. Which means it’s time to make a run for it from Europe.
Still on September 22, Bloomberg published sensational insidue that the largest European carmaker – Volkswagen develops the large-scale plan of relocation of manufactures from Germany. The concern didn’t deny the information, having declared that the question is not about main production facilities, but about suppliers of components with power-consuming productions. However, the relocation simply means moving production facilities within the European Union, closer to the southern borders of the EU and the coast where the liquefied natural gas receiving facilities are or will be located.
The relocation-light version, however, was instantly buried by the explosions at both Nord Streams. The threat of gas and electricity shortages no longer loomed over Volkswagen’s suppliers, but over the main factories located in Germany, the Czech Republic and Slovakia. Thus, German business clearly understood that it cannot do without half measures and even indicated the exact direction of production relocation – to the USA where it was promised not only cheap gas but also weighty tax benefits.
Thus began the great European robbery.
The Dutch chemical company OCI NV, which intends to move its European equipment to its industrial sites in Texas, is already in the United States. Tesla’s European manufacturing facilities will be phased out and shipped to the US. Norwegian fertilizer producer Yara is giving the all-clear signals to leave. Although Norway has enough natural gas of its own, its price is determined on British and European stock exchanges, which hits the competitiveness of Norwegian industry as well. It is to be expected that large machine-building and metallurgical holdings will soon make massive declarations regarding the winding down of production facilities and their relocation to a safe haven.
This means that the outcome will soon be avalanche-like. Thus, the United States will be – has already been – the main beneficiary of the energy crisis in Europe. In this sense, “what is good for the American is death for the European”. Relocating businesses will create tens of thousands of new jobs, slowing down the decline in industrial production and inflation in the US itself. And those businesses that don’t relocate to the States could be bought out by the current owners. As the stock market squeezes, the dollar strengthens – the relevant index continues to crawl upwards. The supply of cheap yet quality assets in Europe will allow the US Fed to soon restart the printing press without fear of inflationary risks.
The relocation of European businesses will add fuel to the bonfire of social tensions. Volkswagen alone employs almost 300,000 people. The process of production cuts and plant closures will be accompanied by shocks both within the company (almost half of the seats on the board of directors are controlled by trade union representatives) and on a national scale. Following the machines and conveyor lines, only a few Europeans – engineers and top managers – will go to the US, whose responsibility will be to organize business and production processes at the new location.
Unfulfilled social and environmental obligations, obligations to local communities and reduced tax revenues at all levels are an inevitable consequence of the relocation process. In this context, de-industrialisation processes are even more threatening than this winter’s likely gas shortage. European gas storage facilities are filled to capacity and measures to reduce consumption are having an effect. However, European business, unlike European politicians, does not think in terms of “day and night” and is already making painful, but inevitable decisions.
National regulators will resist technological outflow for some time. They are well aware that this is not a short-term business trip: a business relocating to the US will receive, along with benefits, significant obligations from which it will be very difficult to jump, moreover, unnecessary. As in the case of the relocation of a large part of Soviet industrial capacity beyond the Urals during the war, a large part of European production will remain in North America forever.
The process described will take time. This means that the US is not so much interested in escalating the confrontation with Russia on Ukrainian territory, but rather in prolonging the conflict as much as possible and increasing uncertainty. Only in this case the industrial hoover will be able to effectively clean up the European arena to its advantage.
Gleb Prostakov, VZGLYAD
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