Thursday, February 14, 2013

ArcelorMittal vs. EU

Should ArcelorMittal be required to operate plants that lose money? That is the crux of the issue that pitted the steel firm against France first and now the EU. To be sure, Mittal made mistakes when it expanded into Europe. It overestimated the size and robustness of the European market for steel, borrowed too much to prop up aging physical plant, and made promises to workers and politicians that it probably knew it couldn't keep in a business downturn. But those mistakes were ratified by desperate counterparties who had to choose between certain and immediate collapse then and contingent and deferred collapse now. They chose the latter, and here we are.

But how can a private firm now be obliged to make still more foolhardy investments? Is this the best use of European capital and political will? Are the unions and political powers pursuing the same desperate and ultimately doomed course that got them to this pass in the first place?

And the bad news in steel was only compounded by the disastrous and unprecedented bad news in the auto sector, a major consumer of steel products. PSA (Peugeot and Citroën) announced a record loss of €5 billion. On France2 last night, Philippe Varin, the head of PSA, sketched a plan to rescue the company that was none too convincing. Their new automobiles would be more appealing than the old ones, he said in essence; people will like them more, and therefore loosen up their pocketbooks. But those pocketbooks are even emptier now than they were last year. The proposed solution therefore makes little sense. What we see here is the cutting edge of European austerity slicing into the very backbone of European industrial strength.

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