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CEO of German Multinational: "The Costs Of The Monetary Are Union Too High"

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Bernd Scheifele, CEO of HeidelbergCement—one of the world’s largest producers of construction materials with nearly 55,000 employees at 2,500 locations in over 40 countries—lashed out against European politicians and their inability to bring budgets under control. But he reserved the most devastating judgment for the euro itself.

HeidelbergCement’s long history—it was founded in 1873—almost ended during the financial crisis. For more than 100 years, the company had expanded in Germany. But in 1977, it began to branch out internationally by acquiring Vicat in France and Lehigh Cement in the US. At the end of the 1980s, it invested heavily in Central and Eastern Europe, then moved via acquisitions into Northern Europe, Africa, and Asia—piling on debt as it went. The acquisition spree culminated in 2007, when it paid GBP 9.5 billion for Hansen plc., a British company with 26,000 employees. HeidelbergCement had become one of the world’s largest producers of cements and aggregates, the two key raw materials for concrete.

Then the financial crisis unfolded. Worldwide revenues dropped from €14.2 billion in 2008 to €11.1 billion in 2009, and net profits from €1.92 billion to €168 million. Staggering under nearly €12 billion in net debt, the company laid off 15,000 people. Shares plunged from €120 in May 2007 to €20 in early 2009. Credit became scarce. On the verge of bankruptcy, the company underwent some financial re-engineering that included a capital increase and the issuance of 62.5 million new shares.

It survived. By December 2011, revenues had recovered to €12.9 billion. Net profit approached €1 billion. Net debt had been reduced to €7.8 billion. And shares have more than doubled since their 2009 lows.

“The result of hard work, hard efforts to save money,” Scheifele told the FAZ. The crisis, “an absolutely exceptional situation,” had surprised him. Until then, he said, it was “hard to imagine” that sales would plunge “in almost all countries simultaneously.” But they did.

The entire industry had believed in the guiding principle that declines in one region of the world would be balanced out by growth in other regions. “That was suddenly obsolete,” he said. They’d done stress tests to determine how to react to revenue declines of 20%, but in the US, for example, “sales of cement collapsed within a few months by 50%.” Something that hadn’t happened since the 1930s. And when they needed an extension of their credit lines, they suddenly found themselves “in the middle of a tsunami.”

So never again load up on debt? No, he said, debt helps companies make the necessary investments, but the level of debt, for companies as well as governments, would always have to “remain within a manageable magnitude.” And that’s why he was worried about Europe.

Despite all the to-do about austerity, no country has managed to reduce its debt burden, he said. Instead, debts continue to rise, just more slowly. “I think this is devastating,” he said. “While companies are throttling back their expenditures, politicians keep spending cheerfully.”

But weren’t eurocrats proclaiming victory in fighting the debt crisis? Wasn’t he able to see the signs of progress?

“Hardly,” he said. The world economy wasn’t doing all that badly, Africa and Asia were growing nicely, the US was recovering. “The problem is Europe,” he lamented. “The costs of the monetary union are simply too high; politicians must finally recognize that.”

Harsh words for a German industrialist—words that flew in the face of persistent rumors that German industrialists, eager to expand outside Germany, were supporting the common currency with all their might.

“That’s why we invest in Europe only very frugally,” he added, dousing the future of Europe with gloom. Instead, the company was plowing its money into Asia, source of 40% of its revenues. “In particular, countries like Indonesia, China, and India are important for us,” he said.

Reason: cement, sand, and gravel could only be produced and sold locally, but in contrast to Europe, it was still possible “to open quarries and build new plants” in Asia—where a lot of cement was needed to build infrastructure. Cement consumption serves as a measure of industrial development, he said. “In Indonesia, for example, cement consumption is 230 kg (50 pounds) per capita. That’s currently more than in Great Britain. In some Chinese provinces that grow strongly” —perhaps he was referring to those that were building entire ghost cities—”values of 2,200 kg (4,800 pounds) per capita are not uncommon.”

He’d summarized with a few words how companies were reacting to the miasma in Europe: they were taking their money and investing it elsewhere—contributing to the economic hardship in Europe and to growth overseas. He blamed it on the costs of maintaining the euro, and on politicians who refused to “recognize that.” And just when the hype about Europe’s victory over its crisis reached a feverish pitch.

But not all overseas investments work out: Bolivian President Morales ordered the nationalization of four business units owned by Spain’s largest utility, Iberdrola. Hours later, the army and police seized the company’s offices. So far, 15 companies have been nationalized. Read.... Bolivia Seizes Spanish Utility In Forced Nationalization.

 

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Mon, 01/14/2013 - 17:03 | 3152040 monad
monad's picture

Everything that is not forbidden is mandatory. Everything that is not mandatory is forbidden.

Mon, 01/14/2013 - 08:51 | 3150236 Azannoth
Azannoth's picture

Anybody who thinks that the €uro is an economic experiment is badly mistaken, it's a political/social experiment, nobody(no politician) cares what the economical consequences are

Sun, 01/20/2013 - 09:26 | 3170420 e-recep
e-recep's picture

euro is capitalists' project as well as the eu. its economic consequences were pretty rewarding for the 1% and trust me they really do care about it.

as for their middle class turning into proletarians and lumpens, yeah, they don't give a fuck about it.

Mon, 01/14/2013 - 07:04 | 3150131 Reptil
Reptil's picture

Oh c'mon - minor translation and spelling errors...

The message is clear and the strategy of the central planners as well: they postponed the monetisation of debt, that came into existence because of "saving the banking system" through bailouts, through siphoning it off from the real economy untill the second half of 2012 in some parts and now in early 2013, so then they could sell the myth that the credit crisis of 2010 has no relation to the austerity from 2012 on.

The necessity of "austerity" is brought to us, citizens, as a thing that simply needs to be done. like water needs to be pumped from a flooded basement. that this pump is badly needed elsewhere in the house, that's also not being formulated in political viewpoints.

What's missing is a bird's eye view of the process, to be able to determine it's faults. Politicians are like gerbils in a cage, the faster the wheel spins, the faster they'll tread. Why is the wheel spinning, in what direction, why is the cage there, what's outside, those are issues not mentioned anywhere.

In many articles I read "They succeeded in saving the banks, but can they rescue the economy"? Like enforcing through taxation this first event can be paid off (slowly taking us down) without us noticing the causality of the two events? Which are one and the same process of trying to solve the differences in the balance sheets in europe. Ballooning the EU debt 1998-2007 was the cause of the debt, not a failing social and healthcare system. Those were lean and in the north did not wheigh on the budget deficits much. Instead it seemed the reaction on the credit crisis was to raise the souverign countries' debt as much as possible. And worse, this continues to today.
Also, still, even in 2013 I notice that the idea of incompetent central planners is enjoyed. This is not true IMO. They're VERY capable central planners, they're transporting wealth from the whole system into a few hands, on a continental scale, without anyone putting down the pen, the machine and grabbing a pitchfork. As soon as this is about to happen, like just happened in Spain again, they back off, for a while. (evictions have mostly stopped, but the debt is still on the books of the banks)

These central planners also convinced the people in control of power that they're the winning team, and that dismantlement of souverign states and law is a good thing, without really replacing it with something equal. I've discussed federalism vs. con-federalism here, the aim of Brussels is clearly federalist, IMO even going on a slippery slope towards a roman style system with provinces that owe payements to the central capital in a new-formed europe. That Rome wasn't built in a day seems to escape them, they seem to be in a hurry. The shadows of the democratic walls they tore down are still there. Like phantom pain, citizens hold on to the idea that wall that carried the social contract, is still there. It's not. Brilliant strategy, but what is the desired result of destroying the old government and economic structures? Collapse?
Here's where politics meet economic reality: Any economy that is supposed to be strong needs voluntary, naturally occurring economic exchanges, not central planning USSR style. Also, vast empires under control of an elite, without checks and balances seem to have limited shelf life. Roman Empire 2.0? It has been likened to ancient european empires, supposedly periods of peace. Well.... in death and slavery there's peace as well.

As obvious as it may seem to anyone who's kept an eye on the whole development, for the unwashed masses, the government employees, it seems to work sofar. People want to believe "hard work" and cutting back expenses (hard fought social aid and healthcare system parallel to the economy) will have the desired effect of saving the liquidity of the euro in a deflationairy financial nosedive. This while the economy from small business in vulnerable countries (like the Netherlands who bailed out the banks) first, and big multinational export corporations; like the cement guys in the strong country, Germany, last, are being dismantled. The PIIGS even before that. Even they've now discovered the numbers add up "slightly" short, and they'll be on the bankers' chopping block next. And that's a big hurdle because the german small to middle sized corporations represent a significant percentage of the economy. Germans and Fins seem to be more awake than their dutch brethren though the dutch population that don't want the euro anymore, are in the majority. It's just that the Netherlands, my domicile seems to be ruled by mercantilists like in the old days and a centuries old democracy has been neutured with some well aimed bribes (called "salary" nowadays) and control over TV and newspapers.

I wonder what the bankers and their cronies in Brussels will do about that unrest? Drones? A middle east war? Or something novel and surprising to scare the bejezus out of Hans und Peter? It might backfire since the memory of the last war and co-optive strategies that led to it, still resonates in the german collective memory.
"Nie wieder" will soon be put to the test.

All hail the new world order. </sarc>

Mon, 01/14/2013 - 08:58 | 3150240 Azannoth
Azannoth's picture

I think "Nie wieder" will shortly have a very different meaning

Not even the NWO can function without a strong industrial base and you can't have that without a stable financial system, NWO = a castle built on sand, NWO = JASU(Just.Another.Socialist.Utopia)

Mon, 01/14/2013 - 05:47 | 3150123 falak pema
falak pema's picture

the costs of "outsourced", "Irak perpetual war meme" type Globalisation are too high is the true conclusion of the last thirty years of Pax Americana mayhem. 

The rest are just CONSEQUENCES. We are now deep into this new model with Oligarchs ruling the world from their off shore fortresses. The happy few, until it blows up in their faces. 

Tipping times and regression chimes. 

Mon, 01/14/2013 - 12:56 | 3150903 AnAnonymous
AnAnonymous's picture

'American' progression has been based on stealing from others.

When the people to steal from run scarce, progression is hard to maintain.

Way too many 'americans', way too few Indians...

Where are the people to steal from? Nobody volunteering to expand 'american' freedom, truth and justice on Earth?

Mon, 01/14/2013 - 05:46 | 3150122 Poor Grogman
Poor Grogman's picture

Just use a computer algo to send small amounts of euros to all euro- peons and have as the input an agreed measure of CPI.

Voters could tick a box for their preferred inflation rate when they voted and this could then be fed straight to the program.

Call it reverse taxation.

Bankers could find honest employment with the moscow circus.

Everybody could finally be a winner.

Mon, 01/14/2013 - 05:34 | 3150114 supermaxedout
supermaxedout's picture

Heidelberger Cement is owned by US hedge fonds. So he is just repeating his masters voice.

For Heidelberger Cement it doesnt mater at all if there is the Euro or not. Its an old monopolistic industry and an international player since more then a century. Appx 20 years ago they closed some factories in the Philippines. In the eighties they bought factories in East Europe to stop price competition in the German market. All the other big producers of the western hemnisphere act since ever like a price cartell. There were several times illegal price fixing activities prosecuted including Heidelberger Cement. So Euro and price does noit matter much.  They make the prices whether its in Euro or in Franc, Lir or in German Mark. Its all the same for them. They take their bite anyhow.

Mon, 01/14/2013 - 05:45 | 3150119 From Germany Wi...
From Germany With Love's picture

Good to know, I'll keep that in mind.

Mon, 01/14/2013 - 03:42 | 3150084 Joe A
Joe A's picture

He might be right regarding the Euro but when the times were good they were quiet and bringing in the profits. Profiting from previous growth in Europe allowed them to expand elsewhere. Maybe they should keep that in mind when they close the door on Europe (they will and laugh all the way to the bank).

Mon, 01/14/2013 - 02:49 | 3150057 lasvegaspersona
lasvegaspersona's picture

Even with spell and grammar check, a guy still needs an editor.....except on the internet where even major writers let any kind of junk get put out over their name.

Mon, 01/14/2013 - 01:43 | 3150016 Curiously_Crazy
Curiously_Crazy's picture

230 kg (50 pounds) per capita

Missed it by "that much"

 

230Kg is around 506 pounds. (multiply by 2,2)

Mon, 01/14/2013 - 04:27 | 3150097 AnAnonymous
AnAnonymous's picture

It missed a zero.

Propagandists are submitted to the same quirks as any mass consumer. Faster and faster.

A typo in the title, here, a zero went missing etc

The idea of 'americans' is to drown people into propaganda and fantasy, they need to put it out faster and faster.

Quality follows.

Mon, 01/14/2013 - 06:52 | 3150141 Curiously_Crazy
Curiously_Crazy's picture

It missed a zero.

 

Didn't it miss a 6?

 

Propagandists are submitted to the same quirks as any mass consumer. Faster and faster.

 

hehe the irony in that statement given your previous one is beyond words.

Mon, 01/14/2013 - 13:03 | 3150937 AnAnonymous
AnAnonymous's picture

Depends. When refering to the ten base, telling that a number misses a zero only states that one figure has to be added on the right of the said number. It does not tell which figure.

And as 'americans' are in urge to find some symetry to explain their own actions, yes, it is possible for 'americans' to conclude that telling it misses a zero is akin to their propaganda/

But hey, 'americanism' is as 'american' does so who cares?

Mon, 01/14/2013 - 05:53 | 3150126 Poor Grogman
Poor Grogman's picture

Tibetans must also submit to the same lifestyle as any mass consumer. Faster and faster in the hamster wheel they must go, no Blobbing up allowed in new communist workers paradise.

Mon, 01/14/2013 - 13:03 | 3150944 AnAnonymous
AnAnonymous's picture

Let me guess: the malian crisis is also for Tibet...

Mon, 01/14/2013 - 04:47 | 3150103 TheFourthStooge-ing
TheFourthStooge-ing's picture

Made me laugh.

The idea of Chinese citizenism citizens is to drown people with propagandist roadside stoolagmites and blobbing up excretory pingoism, they need to poot it out faster and faster.

Quantity follows.

Mon, 01/14/2013 - 01:02 | 3149977 Bansters-in-my-...
Bansters-in-my- feces's picture

Who ever proof read the articles title is "too high" too.

Spelling,o.k but sentence structure...not much so.

Mon, 01/14/2013 - 00:58 | 3149976 jeff montanye
jeff montanye's picture

imo scheifele is right.  the costs of monetary union are far too high for europe.  without a fiscal union it will never work.  they should have stopped while they were ahead: customs union with free movement of labor and capital throughout europe, codification of universal commercial standards, etc.  hubris and dollar envy led to the euro tragedy.

Mon, 01/14/2013 - 05:46 | 3150121 BigDuke6
BigDuke6's picture

It's the free movement thing that's causing the issues
Germany has enjoyed the weak euro benefit for its exports and put up with the deluge of islamics making it kosher holocaust proof.
But the Bulgarian and Romanian gypsy horde arrive in 2014.
It's mad.

Mon, 01/14/2013 - 05:52 | 3150125 Nussi34
Nussi34's picture

Maybe German exporters have enjoyed the weak Euro. The population has NOT!

Mon, 01/14/2013 - 00:15 | 3149922 philipat
philipat's picture

No worries, The US will only Nationalize Gold.

Sun, 01/13/2013 - 21:46 | 3149728 Everybodys All ...
Everybodys All American's picture

they are in the US as well.

Mon, 01/14/2013 - 00:53 | 3149968 idea_hamster
idea_hamster's picture

"The Costs Of The Monetary Are Union Too High"

Yoda is the CEO of a Geman company?

Mon, 01/14/2013 - 06:23 | 3150135 Surprese
Surprese's picture

Better than a Sith Lord.

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