Under the Cover of Energy Crisis, Europe Shifts Industry, Emissions and Pollution to Balkans

Much has been made about Germany’s energy policy in recent years. Cutting itself off from cheap, reliable Russian natural gas was a major blow to German industry. The German Greens then shuttering the country’s six nuclear power plants couldn’t have come at a worse time.

From the outside it looks like a slow motion train wreck. Why would this industrial power voluntarily destroy its industry?

The Ukraine war, energy crisis and anti-Russia fervor is being used to dismantle public infrastructure and put financialization into hyperdrive. The result is that the EU and largely Germany as the bloc’s industrial powerhouse is pursuing a shift – one that is increasingly set on moving polluting industry and energy generation outside the EU borders and to the bloc’s periphery in the Balkans. In the mind of the European elite, such an initiative will “help the EU meet its geopolitical, economic, and climate goals.”

Let’s take the German auto industry. It accounts for roughly five percent of Germany’s GDP and is no doubt facing difficulties due to higher energy costs, as well as the fact it is increasingly losing out to domestic competitors in its largest market of China. The rise of electric vehicles is also posing its own challenges. All of these problems are leading to plant closures and layoffs in Germany and speculation about the “death of das auto.”

Yet at the same time that many of these German automotive companies are closing up shop in Germany, they are shifting or expanding operations to countries in the Balkans. Not only are wages much lower there, but environmental protections are nowhere near what they are inside the EU “garden.”

Here’s a brief list of companies I was able to find that are shifting operations to the Balkans:

Continental will close its plant in Lower Saxony by the end of 2027, affecting 900 workers. Meanwhile, Continental is expanding in Novi Sad, Serbia, where it already has 1,350 employees. Continental will also boost its production efforts at its new EUR-140-mln plant in Kac, Serbia, as it plans to invest an additional EUR 150 mln and create another 1,500 jobs.

ZF Friedrichshafen is closing its shock absorber factory in North Rhine Westphalia with 700 employees. Its transmission plant in Brandenburg with 1,500 jobs is also believed to be on the chopping block, and jobs are also reportedly at risk at ZF locations in Saarland, Lower Saxony, and Bavaria. And yet, ZF keeps expanding in Serbia. From Serbia’s b92:

In mid-2019, the German company ZF (Cet-Ef) opened a factory in Pancevo for the production of auto parts and components for the automotive industry, ships and railways. It was announced earlier that ZF will employ a total of about 1.300 people and that, in the second phase of the project, it will open a research and development center, where the best engineers will work and develop new technologies. The location of the ZF division of the E-mobility division and the most modern development and research (R&D) center covers nine hectares in the northern industrial zone of Pancevo. It consists of 58.000 square meters of production facility and a development center of 6.500 square meters.

The wave of layoffs in Germany and shifting of operations to “low cost” countries predates the whole Ukraine/Russian energy/Nord Stream destruction fiasco; it has just sped up the process.

Back in 2019, German cable and wiring systems manufacturer Leoni announced layoffs in Germany while it expanded its local production capacity with a 50-million-euro  factory in Kraljevo, Serbia – its fourth in the country. According to a report from the Bulgaria-based business consulting firm SeeNext:

The plant launched operations in September 2021 and was planned to host a workforce of up to 5,000 employees, Leoni said in a statement at the time. According to data from the company’s corporate website, Leoni has invested around EUR 170 mln in buildings and equipment and currently tallies 14,000 employees in Serbia, making it the largest private industrial employer in the country.

And more examples from the SeeNext report:

German exhaust systems manufacturer Boysen also entered the Serbian market with a plant opened in Subotica, northern Serbia, in November 2021, according to a statement made by the government of the autonomous province of Vojvodina at the time. In 2019, the Subotica city government had announced Boysen’s plans to invest EUR 65 mln in the construction of a factory in Subotica’s Mali Bajmok Industrial Zone. The factory was designed to produce complete exhaust systems for commercial vehicles and cars for Audi, BMW and Mercedes-Benz according to data from Boysen’s corporate website.

…

German car parts manufacturer Brose also affirmed itself as one of Serbia’s main automotive investors over the last three years, setting foot in the country with a EUR-180-mln investment in a factory in the northern city of Pancevo. The Serbian government first announced Brose’s investment plans in October 2019, while the country’s development agency, RAS, subsequently said production and R&D activities began two years later. The plant houses two production lines – drives for cooling fan modules and motors for steering systems and oil pumps. The unit also hosts an R&D centre as well as the development and production of electronics. The R&D centre is focused on developing, designing and testing all mechanical, electrical and electronic parts for cooling vehicle solutions. Brose aims to employ 1,100 people by 2025.

Ford’s recent decision to eliminate 2,300 jobs in German and 1,300 in the UK got a lot of media coverage, mostly highlighting plans to bring a few of those jobs to the US, but Ford is also expanding in Romania. From SeeNext:

Ford Otosan’s future investments reaffirm its key role in Romania’s automotive industry. The car manufacturer allocated EUR 490 million to support the launch of the next generation of the Ford Courier model, according to a July 2022 press release. The investment would unfold over a three-year time period and raise the Craiova plant’s capacity from 250,000 vehicles per year to 272,000. In April 2023, Ford Pro, the global commercial vehicle business unit of Ford Motor Company, said that Ford Otosan will start producing the new Transit Courier model at the Craiova plant. The E-Transit Courier is the fully electric version of the Transit Courier model and Craiova plant’s first EV project that will enter production in 2024. The petrol and diesel engine versions of the Transit Courier will be available for order in the summer of 2023, with deliveries being scheduled before the end of the year…

Romania’s Star Assembly, a fully-owned subsidiary of Mercedes-Benz. Through the investment, Star Assembly will extend its production portfolio and include the assembly of electric drive units for new generation Mercedes-EQ electric vehicles, it said in a press release in October 2022. Data from Romania’s finance ministry shows that Star Assembly plans a total investment of EUR 136.47 mln. The plant would start manufacturing electric drive units for Mercedes EQ models as of 2024, ramping up production in 2025, the parent company said in a press release in November 2022.

Unfortunately, this is a continuation of a long-standing trend for Romania detailed here by NC reader Dida:

Wolfgang Streeck described the European Union as ‘Germany’s European Empire’. Eastern European states are now the neoliberal colonies of the West, in particular of Germany and the ‘German bloc’, to use Joseph Halevi’s term. The export-oriented dynamism of the ‘German bloc’ has been based on the cheap skilled labour of the East where German companies bought and restructured plants, and created dependent production chains after 1989.

The top investor countries in Romania by FDI position are Netherlands, Germany and Austria (the German bloc). However, around 45-50% of the total profit made in the economy leaves the country repatriated as interest and dividends – in hard currency, of course, which pushes up the current account deficit and puts the country under a severe export compulsion.

In Eastern European states, foreign-owned banks control on average 70-80% of all bank assets. These banks lend preponderantly in hard currency, unloading the forex risk on the population. They mostly lend for consumption, starving local businesses of credit and inflating the real estate bubble. In Romania, which enjoys 85% foreign participation in its banking system, Austrian capital dominates. After the 2008 financial crisis, when Austrian banks found themselves on the verge of collapse, they threatened to cut exposure in Romania, thus shutting down the financial system. Then government officials went to the IMF cap in hand and assumed new debt in order to make Western banks whole again.

Romania spends less on healthcare as a percentage of the budget than any other country in the EU; around a third of doctors have already emigrated. In 2014, all five candidates for presidency declared their support for the privatization of healthcare – including Johannis who won the elections and is now in his second mandate. The large majority of the population oppose the privatization of healthcare, but national politicians take their marching orders from the EU bureaucrats who ultimately represent the interests of Western Europe’s financial capital.

And speaking of gardens and jungles, in 2000 an Australian gold mining company spilled 100 tons of cyanide into a Romanian river. The spill poisoned the waterways of multiple Eastern countries and was considered the worst environmental disaster in Europe since Chernobyl. Since then three attempts were made in the Parliament of Romania to ban gold cyanidation, none of which succeeded.

It looks like the master plan from Brussels and Berlin  will be to copy and paste from Romania  onto the Balkans. Berlin’s stated goal is to make the Balkans a more attractive destination for German industry by focusing on establishing a Common Regional Market to implement the “four freedoms”—the freedom of movement for goods, capital, services, and people—across the region’s economies. The thinking goes that this will “provide tangible benefits to the region’s citizens by creating a more attractive destination for Western capital, especially as global supply chains struggle to adapt to political imperatives for near- and friend-shoring.”

Using the Balkans is also integral to the unelected European Commission and its President Ursula Gertrud von der Leyen’s brainchild of “de-risking. The Atlantic Council sums up this line of thinking:

As European companies are looking to relocate their supply chains closer to home, investing in the Western Balkans for the production of critical goods would contribute to the EU’s strategic economic autonomy, following through on the “de-risking” goals that occupy a key place in the EU’s newly published European Economic Security Strategy.

Developing European industrial clusters in the Western Balkans would increase EU’s competitiveness, including in key areas such as green and solar industries, biotech, and electric vehicles. Ports in the Adriatic Sea are important for the resilience of trade routes and hold potential for investment in liquefied natural gas transportation as well.

Lower labor costs in the Western Balkans and strategic connectivity in terms of energy and transport make the region attractive, but what is needed is more EU investment to improve infrastructural networks.

Well, here comes the EU with boatloads of cash to do just that. There are major EU plans to build 3.5 billion euros worth of gas-fired power plants, pipelines, and liquefied natural gas terminals in the Western Balkans. According to a March report from Global Energy Monitor and Bankwatch:

Plans for €3.5 billion worth of new gas-fired power plants, gas pipelines, and liquefied natural gas (LNG) terminals in the Western Balkans, promoted by European Union (EU) and U.S. institutions, would force countries to import far more gas than they have in the past and delay the region’s shift toward clean, domestic energy production.

In 2021, the six countries of the Western Balkans – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia – consumed a mere 3.7 billion cubic metres (bcm) of gas or 4% of what Germany used that same year.

So since the Western Balkans do not currently need the gas (at least not unless a ton more industry is moved there from the EU), it would appear the natural gas plants will transfer electricity to the EU while allowing Brussels to gloat about meeting its emissions goals. The EU is working on performing similar accounting fraud using North Africa.

There are numerous plans or projects already completed linking the power grids of the Western Balkans with the EU. For example, there are power interconnectors under the Adriatic Sea that will send energy from the Balkans to Italy (which is being expanded), and there are other interconnector projects linking to the EU nations like Hungary and Croatia. Importantly, this will in effect help “green” Europe as the natural gas will be burned outside the EU’s borders.

In addition, the EU is planning to provide massive support to the Energy Community of Albania, Bosnia and Herzegovina, North Macedonia, Kosovo, Montenegro, and Serbia under Brussels’  TEN-E regulation, which funds large cross-border energy transmission projects. The logic is that this will remove one of the biggest impediments to moving more EU industry to the Balkans. The other issue is transportation infrastructure, but the EU has a plan for that too.

Oddly enough, on the day after Russia launched its SMO in Ukraine, the EU announced a 3.2 billion euro package to improve transport connectivity in and to the Balkans.

The EU is also looking to the Balkans for a solution to its critical minerals problem – one created by Brussels due to its suddenly aggressive stance towards China who it relies almost completely on for such minerals.

Unfortunately for the Balkans, it has a ton of mineral resources such as copper, chromite, lead and zinc, with some of the largest deposits in Europe. Serbia happens to have vast lithium deposits, and a closer look at the situation there is illuminating.

Last year, in the face of overwhelming public opposition Belgrade revoked the licenses for the $2.4 billion Rio Tinto project in the country, but the project is far from dead. Opponents of the mine believed the government’s cancellation was only temporary and was intended to avoid backlash ahead of elections, and there are plentiful reasons to believe that to be true. Rio Tinto has continued to buy up land in the area, and is also offering financial aid to local businesses in an apparent curry good will.

In November, Belgrade also signed declarations of intent with the Slovakian battery maker InoBat for a factory in Serbia. Rio Tinto happens to be an investor in the company.

Berlin is one the strongest proponents of the project, which also has strong backing from the UK, Australia, the US, and Brussels. The latter is currently reliant on China for roughly 97 percent of its lithium but aspires to quickly secure an entire supply chain of battery minerals and materials. According to Handelsblatt, the German government listed the Serbian lithium mine as one of the most important projects in order to secure the raw material and reduce dependence on China.

The EU is fully aware that its policies to push forward with intense mining in the Balkans will invite resistance, but pushes forward nonetheless. As an EU Parliament study notes: 

…policies to attract foreign investors, considered important for increasing government revenues and for economic development, could conflict with objectives in rural development or respect for environmental norms. As indicated earlier, demonstrations have taken place in Serbia by people who have been asked to sell their land at low prices and leave their agricultural activities on family farms, in order to implement agreements with foreign companies on the exploitation of minerals (e.g. Rio Tinto for the extraction of lithium) that could lead to environmental degradation.

It’s also worth noting that Sweden has the EU’s only heavy rare earth metal deposit of note. It’s not a new discovery; it was identified decades ago, but the public remains largely opposed to mining it because of negative effects on animal habitats and the country’s second largest lake, which is less than a mile from the site. Notably, there has not been similar pressure to get the mine (and processing facilities) up and running there despite the EU’s big push to “de-risk” from its near total reliance on China for rare earths.