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The deindustrialization of Europe

2022-10-28 | EU
The deindustrialization of Europe

The cold has not yet arrived. But the offshoring of factories and capital from the EU to China and to a lesser extent to the US has already begun. This is a qualitative leap of historical importance.

What's the latest news?

The acceleration imposed by the US on Europe of the process of formation of a Western bloc breaking the Eurasian continent in two is transforming the role that European capital occupies in the world market.

The first leak, obviously, is that of energy costs. From the beginning of the war in Ukraine until now, gas shortages and price spikes have been putting chemical industries in check and leading to temporary closures and layoffs in large steel mills. Now we are entering a new level of contradictions: the big German and French companies are permanently reducing their workforces and transferring investment and production to China and the USA.

Why now?

Ludwigshafen, the largest BASF plant in Germany

Ludwigshafen, the largest BASF plant in Germany

As we have seen coming since April, the substitution of Russian gas by LNG gas brought in on ships could not fail to have an impact on the cost structure of major European industries, especially German ones. The sabotage - probably American - of NordStream has marked a point of no return. Even an improbable early end to the war would no longer mean a return to normality. So the major companies are reworking their plans for the future.

Examples follow one after the other:

Is the problem limited to fuel-intensive industry?

Volkswagen workers in Germany

Volkswagen workers in Germany

No. Energy costs have been the catalyst and the first act, but they are not at the center of all this.

When we look at the figures so far in 2022 for an automotive giant like Mercedes it's clear: the drop in sales in the European automotive market makes China the source of 42% of its revenues. It is not surprising that it wants to increase investments there and is facing the anti-Chinese wave of the sectors of the German bourgeoisie that are betting on greater integration with US capital. Something similar is happening to Volkswagen, which has already announced new investments of 1.2 billion in Chinese robotics companies. And to BMW, which is taking production of the electric Mini from Great Britain to China.

The option of staying in Europe and doubling down to bet on smaller parts of the U.S. market is not comparable. Stellantis CEO Carlos Tavares warned just ten days ago that up to eleven of the group's factories in Europe are in danger. And some of them will undoubtedly close.

Can the Green Deal save European industry?

Macron and Tavares

Macron with Tavares

It is clear that the Green Deal will increase the profit rates of industries such as the automotive industry (12% more profits with 12% less production in 2021) or energy (see Iberdrola or Repsol), which in turn, or so they hope, will drive the heart of the main national capitals with banking at the head, leading to a gigantic transfer of income from labor to the profitability of capital. That, not the end of climate change, is its objective.

But given the enormous overcapitalization, what is locally a great output for capital, is not so in global terms if it cannot realize a part of the sales and profitably invest in turn the capital produced by the accumulation of dividends. That is to say, the internal market is of little use to European capital if its capacity for imperialist development is increasingly limited.

That is why Stellantis speaks of closing factories en masse: why would it want them, even if in theory they are more profitable now, if it cannot place an increasing part of its production abroad? To top it off, Stellantis is exiting China. Not that it has a surplus of places to put capital, but Stellantis, which was increasingly hostage to the friction between Elysium and Beijing, bet on a future of trade war between the EU and China full of "cross-sanctions". And now it has to look squarely at what it means to fracture the world market in two.

In contrast, Volskwagen, BMW and Mercedes, like a significant part of German capital, are resisting the change being pushed by the US. In fact, they want to increase their investments there, like BASF. And they know that if EU protectionism against Chinese electric cars or against strategic investments of funds controlled by the Chinese bourgeoisie increases, they are in the front line for retaliation.

That is why they are more than prudent in accompanying Tavares in demanding protectionist measures against the competition of the Chinese automakers in the European internal market and publicly confront the promotion of controls and restrictions for the investments of Chinese capital in the EU, a quasi-obsessive theme for the sectors most linked to the US of the German bourgeoisie, starting with the Greens.

What are the root causes and contradictions?

The American idea of "the three meridians".

The American idea of "the three meridians".

In the end, geography imposes its logic on accumulation through transport and infrastructure costs. The simultaneous development of German capital eastward on one side of the gigantic Eurasian continent, and of Chinese capital on the other, pointed towards a long-term merger with Russia as a supplier of cheap energy for both.

For the same reason, the strategic project of US capital is to break the Eurasian economic space in two. And German capital enters into a contradiction that continues to exist.

On the one hand, as Scholz reaffirmed in Prague, it continues to aspire to expansion towards the East, turning new European regions such as the Western Balkans into practical semi-colonies in which to relocate a significant part of its industrial capacity (as it did with the countries of the Russian bloc with the enlargement of '93) even at the cost of definitively breaking the alliance with France. In this framework, the end of the principle of unanimity in key matters in the EU would allow Germany to become a sort of delegated empire of the US in the region. German capital's moves on armaments, anti-missile shield and EU enlargement among others, point that way, to Paris' despair.

But on the other hand, German capital is aware that, in opposition to Russia, energy prices pose a serious danger, and that being in the US bloc means participating in the commercial and technological war with China... and as we have seen, important sectors of industrial capital are reluctant to close doors to Beijing because they see no other way of survival in the medium term.

The outcome: the end of Germany as a great power is on the immediate horizon and is already partly a reality.

What's next?

Scholz and Sánchez

Sánchez and Scholz

A new countdown joins the global imperialist conflict with Berlin seeking energy alternatives at all costs and debating whether to let in Chinese capital and even help them dodge the U.S. technology war.

All this in a global context in which there will be no lack of pressure from Washington and tensions with the countries of the East. A framework in which France and Germany will also compete for European hegemony among themselves in the Balkans and the Caucasus and together, against China and Great Britain, in South America and Africa.

Internally, we are already seeing the trends underway: acceleration of the Green Deal as an engine for the transfer of income towards capital, social and income policies that tend to put an end to universality and that concentrate wages around the minimum wage integrated into a new productive model in which Sánchez's Spain has been, once again, a pioneer.

What future is left for Europe?

  • The US strategy is to break the Eurasian economic space in two and establish a new "iron curtain". The war in Ukraine and the pressure on China through sanctions affecting its suppliers, customers and investors are achieving this.
  • The development model of European capital since the post-war period is no longer viable and the Green Deal is not enough to revitalize it. European capital lacks not only cheap Russian energy, but also foreign markets and profitable destinations for its capital surpluses, which until now have been increasingly being placed in China.
  • As an inevitable result, the European powers will play more and more aggressively abroad and will multiply their conflicts and frictions within the EU framework. Time will play against German capital, but also against its main European rivals and allies, starting with France.
  • For European workers, the contradictions of the ruling class will not be a distant spectacle: Europe as a whole will increasingly veer towards a precarious model marked by the abrupt reduction of their real wages, an ever increasing loss of access to welfare services and new difficulties in housing and basic working conditions.