Photo Gallery: A Realignment of the German Business World

Foto: Bernd Weißbrod/ dpa

Fuming over the Phase-Out Energy Shift Deeply Divides German Companies

Chancellor Angela Merkel's nuclear phase-out is causing deep divisions in the German business community. The only issue where there seems to be any agreement across industry lines is that more government subsidies are going to be needed as the price of electricity rises.

Renate Künast is in great demand these days, especially among industry representatives. Invitations from business associations and chambers of commerce are starting to pile up on her desk. Jürgen Hambrecht, the outgoing CEO of the chemical giant BASF, even wrote her a warm-hearted letter of appreciation. "I have noticed a growing interest in the Green Party among business leaders," says Künast, the parliamentary floor leader of Germany's Greens who is also running to become Berlin's next mayor.

The business community is adapting to the new political realities, and it's doing so with typically German attention to detail.

Only a year ago, corporate CEOs and the heads of industrial trade groups were imploring the German government to keep the country's nuclear power plants up and running for as long as possible. Today, in the wake of the nuclear disaster at Japan's Fukushima plant and the government's decision to speed up Germany's nuclear phase-out, the same corporate bosses are applauding the chancellor for her shift in policy, courting the Green Party and clearing away established political tenets at a rate that's dizzying even for their allies in parliament.

"I can only marvel at the change of position of some industry groups," says Michael Fuchs, the deputy floor leader for the center-right Christian Democratic Union (CDU).

Corporate executives have chosen Winfried Kretschmann, the recently elected Green Party governor of the southwestern state of Baden-Württemberg, as their new favorite politician. When Kretschmann meets with the state's business leaders today, he is given the kind of fawning treatment once reserved for conservatives. Meanwhile, the once powerful electric utility executives, with their nuclear power plants, are being treated like lepers in their own camp.

A New Divide within the Business Community

Indeed, Germany's nuclear phase-out  is creating a new divide within the economy. On the one side are the energy-intensive businesses in the aluminum, cement and paper industries, which will see their electricity bills go up  as a result of the nuclear phase-out. And on the other side is the growing renewable energy sector, which is starting to fill its order books as Chancellor Angela Merkel's nuclear turnaround becomes a reality. The great divide between the two camps is an indicator of the business community's inability to find a coherent position on the nuclear phase-out planned by Merkel's CDU and its junior coalition partner, the Free Democratic Party (FDP).

Nowhere is this divide as evident as in the Federation of German Industries (BDI), once the country's most powerful lobbying organization. The BDI represents more than 100,000 companies, including nuclear reactor operators and solar providers, chemical industry executives and food producers, as well as power plant managers and wind turbine manufacturers.

In the past, strong BDI leaders like Fritz Berg and Hanns Martin Schleyer could rely on the strength of their personalities to unite companies with competing interests. Current BDI President Hans-Peter Keitel, however, hasn't even tried to find a common thread.

Instead Keitel, the former CEO of the construction giant Hochtief, maneuvered his way through the nuclear debate by somehow representing practically every one of the different industry positions.

First he said he supported the "social consensus to get out of nuclear energy as quickly as possible." But then he began using words like "risky" and "rash" to describe the shift in the CDU/FDP energy policy away from nuclear energy.

On one occasion, Keitel announced that Germany's efforts to supply power would still be manageable, even if the government moved to shut down the country's seven oldest nuclear plants, as Merkel did earlier this year. But then he noted that the action had already caused "substantial damage in (electricity) production."

At the same time, the vacillating BDI president was taken by surprise when a Merkel confidante provoked a veritable revolution in one of the most important industrial associations. For years, the Federal Association of the German Energy and Water Industries (BDEW) was a reliable mouthpiece for its most deep-pocketed members, the energy companies E.on and RWE, which both operate nuclear power plants. But after the shock of Fukushima, BDEW Chairwoman Hildegard Müller, a former high-level official at the Federal Chancellery, managed to convince a large number of smaller municipal utilities and power plant operators to support a rapid nuclear phase-out by no later than 2022.

In doing so, the BDEW drove a stake into the ground, taking the BDI leadership by surprise. Had the most powerful men's club in German industry been trumped, once again, by Merkel's sly women's network?

A Poisonous Atmosphere

Not surprisingly, the mood is now tense at the BDI's Berlin headquarters. With the conflict between the winners and losers of the nuclear phase-out still unresolved, the hapless BDI president is losing his hold on power. When Keitel tried to appoint his old associate, former RWE communications chief Dieter Schweer, to the post of BDI chief administrator, the organization's powerful vice presidents stabbed him in the back by securing the appointment of a different candidate, a senior official from the German Finance Ministry. He is now expected to develop a new consensus strategy that extends beyond the scheduled end of Keitel's tenure in late 2012.

The conflict over the nuclear phase-out  has already spread to the BDI member organizations. At the German Chemical Industry Association, for example, there is a divide between a few large member companies and association President Klaus Engel, who is trying to use the issue for his personal purposes. To secure political approval for a planned initial public offering, Engel, the CEO of Evonik Industries, a maker of specialty chemicals in Germany's industrial Ruhr region, is praising the rapid nuclear phase-out. In doing so, however, he has incurred the wrath of large member companies like chemical giant BASF, one of Germany's biggest electricity consumers.

The energy dispute has already poisoned the atmosphere in large segments of the business community, and many industry associations are facing a crucial test. The quarreling officials and executives can often agree on only one thing: the call for public support. To ensure that the nuclear phase-out isn't a losing proposition, both winners and losers of the energy turnaround are calling for subsidies. In doing so, they are entering into a new and potentially risky dependence on the state.

Tough Negotiations over Subsidies

The renewable energy industry, for example, is encompassing bigger and bigger parts of the traditional economy. In the past, the revenues from the so-called feed-in compensation system went to a manageable group of small companies in the environment sector. Nowadays, steelmaker Thyssen-Krupp produces slewing bearings for wind turbines, glassmaker Schott manufactures components for rooftop solar panels, and electronics giant Siemens develops control technology for natural gas power plants. If the current feed-in government subsidies of about €13 billion ($18.6 billion) were cut back today, it would inevitably strike a blow to German industry.

The energy-hungry industrial sectors are also more dependent on state aid than ever before. To offset the consequences of rising electricity prices, the CDU/FDP government wants to create subsidies of up to €500 million a year for the major electricity customers in the steel and aluminum industry. But the plan is being met with resistance from the European Commission in Brussels.

In the coming weeks the competition watchdogs, which take a critical view of German subsidies to offset high electricity costs, will examine whether the compensation is allowable. Even Chancellor Merkel has publicly expressed her concern that "tough negotiations" lie ahead in the fight over the subsidies.

Not surprisingly, the affected companies are alarmed. "We insist that the politicians' promises be kept," says Ulrich Grillo, president of the Metal Trade Association (WVM) and CEO of the Duisburg-based Grillo-Werke AG, a maker of zinc products. "If the European Commission raises objections, the German government will have to make alternative arrangements," says Grillo.

A New Wave of Government Subsidies

Other industries are also excited about the prospect of fresh government funds. The government plans to spend about €1.5 billion a year on heat insulation for buildings built before 1995 in order to improve energy efficiency. But this isn't enough for Otto Kentzler, president of the German Confederation of Skilled Trades and Crafts (ZDH), who insists that it is critical that subsidization levels be "raised," or else "not enough will happen."

The computer industry association Bitkom wants to see government subsidies for new types of power grids. The Association of Local Utilities is calling for public financial assistance for local small power plants. Daimler CEO Dieter Zetsche wants the government to pay consumers a €5,000 incentive to buy electric cars. And the Association for Electrical, Electronic and Information Technologies (VDE) would like to see government purchasing incentives for consumers who buy energy-efficient refrigerators, dishwashers and washing machines.

The only problem is that the widespread call for new government subsidies contradicts the speeches corporate officials like to give at association conferences and annual receptions, where they are more likely to call for lower taxes and affordable electricity prices. But when it comes to the nuclear phase-out, they support a policy that achieves precisely the opposite result. "We have to be careful that we don't succumb to a gentle form of government investment control," says Hannes Hesse, chief executive of the German Engineering Federation (VDMA).

'Of Course There Will Be Opportunism'

As such, the nuclear phase-out is threatening to become a political trap for industrial associations. Although they may feel that they are in tune with the environmental zeitgeist by quickly voicing their support for the nuclear phase-out, their political influence continues to wane. In many cases, the quarreling corporate executives are no longer being taken seriously by their traditional allies in the CDU and FDP. Meanwhile, their attempts to curry favor with Green Party politicians are met with healthy skepticism.

Eveline Lemke, the economics minister of the western state of Rhineland-Palatinate, the first Green Party politician to head a state economics ministry, can hardly keep up with the inquiries she is getting. She describes enthusiastic business owners who already see the nuclear phase-out as an opportunity to win orders for the local wind energy sector. According to Lemke, local companies, including Ludwigshafen-based BASF, are practically euphoric when she discusses recycling management and securing natural resources with them.

Lemke knows all too well that the interest of many companies is not driven by environmental insights alone. But this doesn't bother her, as long as it remains clear that politicians will be setting the tone. "Of course there will be opportunism, but I don't have a problem with that," says Lemke. "If freeloaders want to invest in the nuclear phase-out -- why not?"

Translated from the German by Christopher Sultan
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