The Autumn General Assembly of CECIMO, the European Association of Machine Tool Manufacturers was held in Vienna on 8-9 November 2013. The event recorded the highest attendance ever, and covered two key areas affecting our industry now and in the future: the skills shortage, and the European implementation measures on Energy Efficiency (Eco-Design) legislation.
Friday Evening Keynote Speech:
Professor Dr. Friedrich Schneider of the Johannes Kepler University in Linz Austria
Friday evening opened with a keynote speech by Professor Dr. Friedrich Schneider of the Johannes Kepler University in Linz Austria.
Dr Schneider asked the question: As we are now five years into the Euro crisis of huge government debt and potential bankruptcies of National Governments in the Euro Zone, what have we learnt?
He asserted that it is apparent that Germany and Austria are clear winners from the introduction of the Euro, with improved market penetration and export increases being seen, whilst at the same time their relative currency value in relation to other major currencies is being held down; the best of both worlds.
The other countries have not been able to take the same advantage, and much of their growth has been fuelled by the cheap money ploughed into infrastructure and building projects.
There were very clear rules set by the Maastricht Treaty; Government debt would not exceed 60% of GDP, and annual deficit on budget would not exceed 3%.
These rules have not been adhered to, and this has presented many long term problems, particularly as Germany and France in the early days exceeded the 3% limit on more than one occasion without sanction. This opened the door for the less well managed countries to adopt the same tactics with disastrous results. Greece for example exceeded the 3% rule every year.
We need to bear in mind the extent of the problem that emanated from the USA. 36% of mortgages in the USA had issues, and the amount of interlaced securitization (compared to a 300% increase in actual goods traded, over the counter derivatives increased by 29,950%!!!) meant that total trust was lost in the financial markets.
Even the Swiss were badly impacted. UBS in Switzerland lost 25Bn swiss francs, but was deemed too big to fail. As a result all countries increased Government debt in an attempt to head off the problem. Governments effectively re-floated the global financial market, thus rewarding misbehaviour. This remains an issue, as there is no significant change to legislation, and it could happen again.
Looking at the impact on the smaller economies in the Euro Zone, the financial crisis had seismic impacts.
Greek action on its banking sector eventually resulted in debt at 189% of GDP, 50% of Greek youth unemployed, and an effective brain drain happening right now. Even after the haircut, the economy is not out of the woods.
Ireland experienced interest rates on Government Bonds at 6.21% at one point compared to Germany at 1.55%, and Ireland couldn’t finance the debt. Up until 2007, Ireland had pursued high growth, low unemployment, low debt, and low deficit. With the collapse of the housing bubble came massive unemployment and debt ballooned to over 100% of GDP in three years from a base of 25%. Ireland is now on the mend.
Spain has 700,000 unsold houses. Banks lost €250Bn, with €182Bn in bad loans. With a shrinking economy, Spain can’t restore its finances, and consequently has unemployment of 25%, and 6.95% Bond Yield.
Cyprus at one point had bank deposits from private companies and individuals equating to 263% of its GDP; customers now face losing 90% of their deposits in Laski Bank, and 40% in Bank of Cyprus in the form of a haircut in exchange for a bailout – effectively banks not deemed too big to fail.
Should Greece and Ireland have been allowed to default? It is a big question, because the World has no experience of anything on this scale. Argentina was allowed to default, but we understood the position, and it was able to devalue and work its way out of problems. The impact in the Euro Zone was on a totally different plane.
One issue remains: that France, Germany, and GB have big loan stakes in Portugal, Ireland, Greece, and Spain; GB mostly in Ireland and less than France and Germany, but still significant. It was inconceivable that France and Germany would take the pressure of a default, so the course taken was the obvious one.
Additionally, it is estimated that there would be a recessionary impact of between 7% and 10% across Europe in the event of a Euro breakdown. This is untenable to anyone.
It is clear that reform is needed, both to the Maastricht rules, and to the deficit positions of all countries in the Euro Zone.
Dr Schneider suggested options to allow countries to be excluded or to leave.
The criteria for performance need amending to manage the debt ceiling to reflect the average of the 4 with the lowest debt value +/- 1.5%, and similarly the annual deficit figure controlled to the average of the 4 lowest deficits +/- 5%. These reforms would need a transition period of around ten years.
Europe could introduce a financial transactions tax to restructure the derivative markets; and also the separation of banks into their functional areas of expertise (breakup of the banks). This would remove the “too big to fail” issue.
More than anything, the issue is so big in the failed countries, Dr Schneider feels that only something on the scale of a Marshall Plan is likely to bring them back to health over the next ten years.
Questions and Answers
Are we alone in this?
If we think we have issues in the Euro Zone….. China needs to maintain 7% growth each year just to sustain itself. It has major issues with its labour laws, and people are starting to rebel against this. China also has a major housing bubble, but this is being hidden.
In Japan, the yen is being propped up by domestic debt, and this debt needs to be reduced by 50%, so they are in a more difficult position than we are.
USA has major budget issues, as shown in the recent brinkmanship between the parties.
How do you see the European Commission Budget developing? Will it just grow and grow and eventually bring us all down?
There are two main areas where there are issues. The biggest part of the budget goes to agriculture, and this comes from the big six and was implemented because there was not enough food post war. Major reform is needed in this area, as it is cumbersome, and doesn’t work anymore.
The second part lies in infrastructure projects, and again this area needs reform.
Unfortunately the reforms should have been undertaken before the EC became 28 countries.
Saturday Work Programme
2013 shows the machine tool industry in a disappointing position, with the European market having its own issues, and exacerbated by the China slowdown.
All indicators compared to last year are negative, with production at €22.4bn, down 1%, Exports at €18.4bn down 2%, Imports €7.8bn down 8%, and Consumption €11.8bn down 4%. The balance of exports to imports however remains very strong.
State of Trade reports very much reflected the overall results, with 2014 forecast to be similar. For the UK’s part, we indicated continuing strengthening in aerospace, automotive, and oil and gas. 2013 is one of consolidation and 2014 will be similar. Leading export markets were China and Germany at 14% each. It was noted that UK is again back in the top six producers in Europe, ahead of France.
There is a “wait and see” policy in the market at the moment, and this has constrained imports; Japan, Taiwan, and China account for 64% of all imports.
Consumption is only at 2004 levels still, and recovery remains very slow. In global terms consumption shows: Europe 20%, Asia 63%, Americas 17%. Europe is expected to improve slightly in the forecast, but at the expense of the Americas.
Consumption in China will contract by 15% in 2013; this is the published forecast, but it may be even more.
As a background to this, Frank Brinken outlined that Foxconn had purchased 70000 small ¾ axis machines in the past few years, and 83000 Robodrills. This consumption can’t be sustained. Automotive in China has seen a bubble, and there is now over capacity driven by overinvestment. Hard disk manufacture has imploded, replaced by solid state disks.
There is capability to manufacture 350,000 i-phones per day, and the overcapacity is high. The machines belong to Apple, and they may put them into the second user market.
We are potentially looking at a serious contraction in China for a couple of years minimum.
Japan can also see this, and they are moving back into USA as a key market. They have 9% of the European market, and are not as successful here as they say.
There is a worry that if recession in machine consumption does hit, then the State will implement tariffs to protect their domestic producers. This is clearly against the WTO rules, but machinery is so small it probably wouldn’t catch the World attention, and we would be priced out.
The meeting felt that possibly China has now lost its “emerging” status, and we are potentially now facing a mature market for machine tools and equipment
India is in a serious recession. This is the real truth behind the increasing GDP published; the Rupee has lost 25% of its value, there is 20% inflation on food, and there is Government paralysis.
Some local businesses continue to do well, but it is an increasingly difficult market. The average price of a machine tool entering the market is $50k.
Tata has some issues, as they withdrew from EMO.
Trade barriers are not apparent, though there are some non-financial barriers (visas etc.) that have an impact. There is a “Buy India” campaign.
Machine tool companies are finding that issues of unlimited liability in contracts, particularly with car manufacturers, are having major impacts on the viability of business with these primes. The attached presentations were discussed by the CECIMO Board, and potential action plans will be announced in due course. It is viewed as a key issue that may be taken up at European level, as it impacts all countries in the CECIMO group.
Technical Committee: Eco Design, SRI activity and status
Kamila Slupek was introduced to the meeting, as replacement for Magdalena Garzinska, who has left the Association recently.
The results of the Inspire survey of machine tool businesses in Europe were overviewed. 75% of the surveyed companies had a high awareness of the Eco design provisions. Two thirds of the businesses were running activities related to the provisions, and all had at least discussed the requirements and considered how to implement them inside their companies.
Interestingly, the survey revealed that few if any customers were asking for these measures. The only real areas of interest in Eco design from the end user was standby/remote shut down/sleep mode, and potential compressed air reduction.
The conclusion was that the Eco design project is not really customer/competitor driven; rather it is EC legislative driven.
In the survey only one third of businesses had set themselves targets for energy reduction. They expected that it would be 2 years to run savings into standard machines, and five years to impact the full product range. Again, the companies are relying on their own impetus to innovate, and work with suppliers; there is no active customer intervention.
The main drivers for change are machine functions, non-productive modes, and cycle time reductions. 50% of companies indicated a less than 5% potential for improvement on today’s state of art, and 20% measured the potential between 5% and 20%. All companies indicated that it will increase the cost of components, and the cost of system optimisation.
Overall, the surveyed businesses have made a commitment to finding a solution to the SRI. 70% of companies feel they can agree to the SRI, dependent on the condition that they will be able to put standards/examples in place.
The SRI is currently at Stage 5 of the preparatory stage, and this required a consultation forum in late 2013 – this is now likely to happen in early 2014, as the Commission has postponed it. Bio Intelligence Services (consultants) have been contracted to perform an impact assessment of the Eco design project. Already 70% of the contracted time has been spent on this, and there is still 70% of the work remaining to be done! Their report has a March 2014 deadline.
The May 2014 European Elections could generate a “knee jerk” reaction to implement something, and the European Commission is looking for an easy solution – however it is agreed that there is no easy solution. CECIMO agrees it needs to maintain its position of performing an “active contributing role”.
We need to sell them how we can implement the SRI; Energy Efficiency (EE) is a natural part of our business; we can design for EE, we can rely on self-declaration (CE Marking as an example).
The meeting agreed we should create an “empty box” framework that is SIMPLE, SPECIFIC, APPLICABLE FOR ALL.
If we create this in a structured, transparent and expandable way, companies can complete the technical data as they move forward, with a view in the end to incorporating the results into ISO4955.
Self-assessment would be formatted on the basis that inclusion in DESIGN would be mandatory, impact on PROCESS AND ENVIRONMENT (how machine used) would be optional, and elements of OPERATION, TRAINING AND CONTINUOUS IMPROVEMENT would be additional.
Thoughts on how we would fund the administration would be addressed at the next stage.
Additionally is the method to secure the importing companies in the process to address the revised 80% of the market needed to implement the SRI?
Full details of the report are on the website.
At the General Assembly the new President was elected to replace Mr Kapp, Managing Director of Kapp Werzeugmaschinen from Germany. France will now hold the Presidency for the next two years under M. Jean Camille Uring, Executive Board member of Fives. Following the meetings, CECIMO published two press releases which can be read on the MTA website.