Due to the ongoing crisis in Ukraine, the real economic activity of many European countries has been seriously impacted, and the governments of Switzerland, Sweden, Finland, Germany and other countries have recently launched bailout measures for enterprises, and are worried about the risks facing the European energy market. The energy ministers of the EU countries will hold an emergency meeting in Brussels on the 9th local time to discuss energy issues, and the main goal is to prevent the real economy and major industries from continuing to shrink.
Industry continues to decline
According to the latest report released by the German Federal Statistical Office on the 7th, the total output of The German industrial, building and energy sectors fell by 0.3% month-on-month in July. Germany's Federal Ministry of Economy and Climate Protection issued a statement on the same day, saying that the beginning of the third quarter of German industry showed a weak trend, high energy prices continued to affect industrial activity, reduced natural gas supply and the Ukrainian crisis continued to cast a shadow on the outlook.
Commerzbank economist Solven pointed out that the decline in production in the automotive industry is particularly pronounced, with a production cut of 4.6%. Energy-intensive industries such as chemicals also cut production sharply, down 1.9 percent from the same period last year, significantly higher than the manufacturing and overall industry averages. Overall production in Germany's energy-intensive sectors has fallen by 6.9 percent since February, according to the Federal Statistical Office.
For some time now, economists have warned that the German economy could fall into recession in the fall and winter, exacerbated by the decline in industrial production. Guitzel, chief economist at ResunBank, said the decline in industrial production data signaled that the economy might fall into recession by the winter, and there was no guarantee of a rapid recovery. Deutsche Bank President Sein also said at the opening ceremony of the banking summit on the 7th that it may not be inevitable for the German economy to fall into recession.
According to data released by the China Federation of Logistics and Purchasing, the European Manufacturing Purchasing Managers' Index (PMI) was 49.5% in August, down 0.6 percentage points from the previous month and down for seven consecutive months. The combined geopolitical impact of the epidemic has led to an accelerated downturn in the European economy. Judging from the overall trend of the European manufacturing PMI, the European manufacturing industry is facing continuous downward pressure.
A recent Article by The Economist suggests that the regions hit hardest by the energy crisis may be east of the Rhine, such as Germany and Austria. Italian industry has also declined rapidly. Outside the eurozone, Poland and the Czech Republic are also hardest hit. The Hungarian Association of Entrepreneurs and Employers said the country's rising energy prices could trigger an even bigger wave of closures.
Emergency relief for many countries
The Swiss government recently said it had agreed to provide an emergency credit line of 4 billion Swiss francs (about 4.1 billion euros) to the power company Axpo to avoid liquidity problems in Axpo and endanger Swiss energy supply. Axpo last week asked the Swiss government for temporary assistance to meet the guarantee requirements in its long-term contract.
Since the ukraine crisis escalated, gas and electricity prices in the European market have soared. Gazprom recently said that due to the discovery of multiple equipment failures, the Nord Stream-1 gas pipeline will completely stop gas transmission until troubleshooting. Reuters reported that this has exacerbated the European power crisis, and European countries have begun to strengthen support for power companies.
The Swiss Federal Council said the authorities wanted to help Axpo from liquidity woes through financial assistance, a worst-case scenario that could jeopardize Switzerland's energy supply. Agence France-Presse quoted a statement from the Swiss Federal Energy Agency as reporting that the market situation has recently become more severe, and the Swiss government's response will avoid an escalation of the energy crisis. For Switzerland, Axpo is a "systemically important" power company.
Previously, Swiss authorities have repeatedly said that although they are facing market pressures, the energy supply is sufficient to meet current and future demand. Axpo said that given the "continued unpredictability" of the market situation, france, Germany and Finland have provided support to energy companies.
German gas importer Unipo said last week that it had drawn on a 9 billion euro line of credit, in addition to 4 billion euros in credit. Unipo is controlled by Finnish Forton. Forton said it had reached a €2.35 billion bridge financing arrangement with the Finnish government's investment company to guarantee the Nordic power derivatives market if necessary.
The Swedish parliament approved the government's proposal to provide 250 billion Swedish kronor (about 23.4 billion euros) of liquidity guarantees for power companies in the Nordic and Baltic regions on the 5th. The Finnish government also recently said it would provide 10 billion euros of liquidity guarantees to its power companies. Germany has unveiled its third energy rescue plan of the year with a scale of 65 billion euros.
Financial risks have increased dramatically
Natural gas and electricity prices in Europe have fluctuated dramatically. Gas and electricity prices hit record highs in late August, raising the risk of a financial crisis to political and business concerns.
"This threatens our financial stability. If we do not act as soon as possible, it could lead to serious chaos in the Nordic and Baltic regions," Swedish Prime Minister Anderson said in introducing the country's bailout plan. Anderson said: "In the worst case scenario, we could be in a financial crisis. ”
The Wall Street Journal article said that when a utility agrees to supply natural gas or electricity, it locks in the price by selling futures contracts. The exchange charges a sum of money as collateral when trading, called the initial margin. They then request a margin call or refund every day depending on the appreciation or depreciation of the position. As prices rise, short positions of utilities depreciate, and these companies pay to exchanges. They can recover their money when they supply gas or electricity, but this time lag has led to a lot of cash outflows, and some companies have struggled to raise funds. Sometimes there is a vicious circle where extreme price fluctuations lead to margin calls, which in turn prompts the company to exit the trade and triggers more large fluctuations.
The article quoted the European Energy Exchange, the main venue responsible for European electricity trading outside Northern Europe, as saying that Germany and other EU member states should come up with funds to help power companies pay margins.
Gas analysts at ICIS expect that the difficulty of meeting Europe's energy needs will be greatly increased as Gazprom extends the closure of the Nord Stream pipeline.
Uniper, Germany's major natural gas importer, said it had withdrawn all 9 billion euros of credit granted by GfW, a State-owned bank. The company said it had asked for an additional €4 billion to pay a margin and buy gas to make up for the supply gap caused by Gazprom's gas outage. Until recently, Uniper was one of the two largest European companies in Russian gas purchases.
Author: □ reporter Yan Lei Comprehensive report
Source: Economic Reference