# In Germany, energy price shock triggers fears of insolvency wave Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-09-20 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Rising Energy Costs Driving German Companies into Insolvency Meta Description: Hakle, a German toilet paper manufacturer, fell into insolvency due to soaring energy prices caused by Russian gas supply cuts. Learn how the crisis is URL: https://financedigest.com/in-germany-energy-price-shock-triggers-fears-of-insolvency-wavehtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-09-20t133626z1lynxmpei8j0q7rtroptp4health-coronavirus-germany-1736815189383-compressed.jpg) By Marta Orosz and Alexander Hübner FRANKFURT/MUNICH (Reuters) – Hakle has been a German household name since 1928, but the Duesseldorf-based toilet paper manufacturer said all it took was this summer’s gas price shock to drive it into insolvency. Energy-intensive firms such as Hakle were particularly vulnerable after Russian gas supply cuts to Europe, which Moscow has blamed on Western sanctions following its invasion of Ukraine in February. In a very short time, electricity and gas [prices have exploded to such an extent that of course they cannot be passed on to our customers](https://www.financedigest.com/shell-energy-to-pay-for-overcharging-price-cap-customers-ofgem.html "Shell Energy to pay for overcharging price cap customers -Ofgem") so quickly,” Karen Jung, the company’s head of marketing, told Reuters. The number of insolvencies like Hakle’s has jumped since August, stirring [fears that a wave of bankruptcies could engulf Europe’s largest economy](https://www.financedigest.com/uk-economy-set-for-smaller-hit-in-2023-than-previously-feared-imf.html "UK economy set for smaller hit in 2023 than previously feared – IMF") as another consequence of Russia’s energy standoff with Europe. The companies’ plight is heaping more pressure on Chancellor Olaf Scholz’s three-way coalition, which is trying to protect Germans from soaring gas bills, decades-high inflation plus the [threats of recession and winter](https://www.financedigest.com/farming-and-tourism-under-threat-as-winter-drought-dries-up-frances-lake-montbel.html "Farming and tourism under threat as winter drought dries up France’s Lake Montbel") fuel shortages. The annual energy [price increase](https://www.financedigest.com/syngenta-4q-profit-falls-as-raw-material-prices-increase.html "Syngenta 4Q profit falls as raw material prices increase") in Germany in August on average was 139%, latest producer price data showed this week. [Economy Minister Robert Habeck already sparked a backlash this month](https://www.financedigest.com/uk-factories-suffer-worst-month-since-may-2020-as-economy-stumbles-pmi.html "UK factories suffer worst month since May 2020 as economy stumbles – PMI") when he played down the issue in a TV interview, saying that companies would not necessarily go insolvent even if hard-up customers no longer bought their products. Invoking the English football chant “you’ll never walk alone” as a slogan, Scholz’s government is [spending tens of billions of euros](https://www.financedigest.com/europes-spend-on-energy-crisis-nears-800-billion-euros.html "Europe’s spend on energy crisis nears 800 billion euros") on relief measures and has bailed out Germany’s biggest Russian gas importer Uniper. But Hakle wanted more protection for so-called Mittelstand [companies](https://www.financedigest.com/cybercrime-and-sabotage-cost-german-firms-300-billion-in-past-year.html) like itself, the medium-sized, often family-owned firms that are the engine of the German economy. It’s of course important to watch over the very big, [systemic companies](https://www.financedigest.com/healthcare-information-systems-market-2021-global-leading-companies-analysis-revenue-trends-and-forecasts-2027.html "Healthcare Information Systems Market 2021 Global Leading Companies Analysis, Revenue, Trends and Forecasts 2027") and find solutions for them,” Jung said. But it’s also the case that a very large part of jobs in [Germany are down to the Mittelstand](https://www.financedigest.com/jpmorgan-targets-more-of-germanys-mittelstand-economic-engine.html "JPMorgan targets more of Germany’s Mittelstand economic engine"). And here we really need solutions, so that the Mittelstand still has a future here in Germany.” Responding to such concerns, Habeck has promised more support for smaller companies, while Justice Minister Marco Buschmann [plans to loosen insolvency rules](https://www.financedigest.com/britain-plans-new-data-rules-to-ease-compliance-burden.html "Britain plans new data rules to ease compliance burden") to help firms buckling under energy costs. NO SEDATIVES Some 718 [German entities became insolvent in August](https://www.financedigest.com/german-new-passenger-car-registrations-up-3-in-august-industry-source.html "German new passenger car registrations up 3% in August – industry source"), a 26% jump over the previous year, according to the IWH economic institute. It [expects that figure to stay at around 25% in September and climb](https://www.financedigest.com/ftse-100-climbs-on-smaller-than-expected-gdp-contraction-gsk-rebound.html "FTSE 100 climbs on smaller-than-expected GDP contraction, GSK rebound") to 33% in October. After a long period of low insolvency numbers, a trend reversal has now [set in,” says](https://www.financedigest.com/britain-sets-5g-goal-says-no-magic-number-of-operators.html "Britain sets 5G goal, says no ‘magic number’ of operators") Steffen Mueller of the IWH. Germany’s BDI [business association has warned](https://www.financedigest.com/pitiless-machines-will-kill-your-business-if-you-dont-respond-now-warns-servion.html "‘Pitiless machines’ will kill your business if you don’t respond now, warns Servion") of a “massive recession. In a BDI survey of 593 businesses, more than a [third said their existence was threatened by higher energy prices](https://www.financedigest.com/greek-residential-property-price-recovery-picks-up-in-third-quarter.html "Greek residential property price recovery picks up in third quarter"), up from 23% in February. Industry group VKU has also joined the chorus of concern, warning that local utilities [faced insolvency due to high energy prices](https://www.financedigest.com/bristol-myers-pfizer-abbvie-drugs-likely-to-face-u-s-price-negotiation.html "Bristol Myers, Pfizer, AbbVie drugs likely to face U.S. price negotiation") and possible defaults from their customers. The head of the German Chemicals Industry Association VCI on Tuesday said rising energy [prices were a “huge alarm call” for Germany](https://www.financedigest.com/germany-home-prices-to-sink-nearly-6-this-year-reuters-poll.html "Germany home prices to sink nearly 6% this year – Reuters Poll") as a place to do business. The step from the world’s [leading industrial](https://www.financedigest.com/eu-announces-plans-to-lead-green-industrial-revolution.html "EU announces plans to lead green industrial revolution") nation to the industrial museum has never been so small,” Wolfgang Grosse Entrup told [Reuters.](https://www.financedigest.com/uk-retail-sales-rise-by-0-8-in-october-ons.html) A survey by leading [credit institutions in August suggested non-performing loans](https://www.financedigest.com/6-reasons-to-take-a-car-loan-from-a-credit-union.html "6 Reasons to Take a Car Loan From a Credit Union") in Germany would rise to 37.6 billion euros ($37.7 billion) next year from 31.9 billion in 2022. Our corporate customers did not experience a wave of bankruptcies during the pandemic,” Helmut Schleweis, President of the [German Savings Banks Association](https://www.financedigest.com/funds-from-electricity-levy-could-help-german-households-says-renewables-association.html "Funds from electricity levy could help German households, says renewables association"), told a banking conference on Sept 8. “Today, however, this can no longer be ruled out, only the scope cannot yet be quantified.” Christoph Schalast, a professor at the Frankfurt School of [Finance and Management](https://www.financedigest.com/finance-management-for-small-business.html "Finance management for small business"), said there was no significant increase in NPLs (non-performing loans) during the pandemic, when government support programmes helped companies. “But now it looks very different. There are other factors such as inflation, disrupted [supply chains](https://www.financedigest.com/ges-investors-seek-solutions-to-renewable-energy-supply-chain-challenges.html "GE’s investors seek solutions to renewable energy, supply chain challenges"), the war of aggression against Ukraine and interest rate hikes,” he said. Some industry experts are [warning against drawing the wrong conclusions from the rising](https://www.financedigest.com/risk-of-uk-balance-of-payments-crisis-under-truss-is-rising-deutsche-bank-warns.html "Risk of UK balance of payments crisis under Truss is rising, Deutsche Bank warns") insolvency figures. They may look bad now because insolvency numbers were artificially depressed during the pandemic in 2020-2021 when the government propped up ailing firms with [state aid](https://www.financedigest.com/wizz-air-loses-fight-against-67-million-in-state-aid-for-romanian-rival.html "Wizz Air loses fight against million in state aid for Romanian rival") and suspended legislation obliging them to file for insolvency. Also, insolvency [rates have been lower](https://www.financedigest.com/how-insurtech-is-helping-to-lower-car-insurance-rates.html "How InsurTech is Helping to Lower Car Insurance Rates") 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](https://www.financedigest.com/biggest-uk-house-price-fall-recorded-since-financial-crisis.html "Biggest UK house price fall recorded since financial crisis") in 2009 or 39,320 seen in 2003, based on government data. Though non-performing loans are expected to rise, industry experts say the [mood in the financial](https://www.financedigest.com/uk-consumer-mood-hits-one-year-high-but-financial-gloom-persists.html "UK consumer mood hits one-year high, but financial gloom persists") sector is still relatively sanguine. [“Banks have now clearly picked](https://www.financedigest.com/hsbc-ups-price-targets-on-greek-banks-with-eurobank-piraeus-top-picks.html "HSBC ups price targets on Greek banks, with Eurobank, Piraeus top picks") up the alarm signal, nevertheless they’re sitting in a very comfortable position,” Juergen Sonder, President of the Federal Association of Loan Purchase and Servicing, told Reuters. They’re counting on the [state to also intervene this time](https://www.financedigest.com/beijing-meets-state-air-quality-standards-for-first-time-in-2021.html "Beijing meets state air quality standards for first time in 2021") to prevent a wave of bankruptcies. Restructuring [expert Lucas Floether told Reuters that the government should not try to protect companies by throwing taxpayer money at them if their business](https://www.financedigest.com/6-expert-tips-to-turn-your-photography-passion-into-a-business-2.html "6 Expert Tips to Turn Your Photography Passion into a Business") models were fundamentally unsound. The [energy crisis is calling into question the business](https://www.financedigest.com/schneider-and-greenyellow-target-smaller-businesses-with-energy-saving-technology.html "Schneider and GreenYellow target smaller businesses with energy saving technology") model of many companies,” he said in an interview. He welcomed Buschmann’s initiative to [relax insolvency rules](https://www.financedigest.com/japan-weighs-relaxing-border-rules-on-covid-media.html "Japan weighs relaxing border rules on COVID -media") but added that suspending them outright again would be a “serious mistake. “It would just be a sedative, and it won’t help,” he said. “Competition must take hold at some point. ($1 = 0.9965 euros) (Reporting by Marta Orosz, Alexander Hübner, Patricia Weiss, Petra Wischgoll; writing by Matthias Williams. Editing by Jane Merriman) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---