Europe's problems hit home for some in Maryland
Debt crisis and economic uncertainty bring supplier woes, layoffs, anxiety — and some opportunities
Steve Johnson, of Parkville, a lathe operator at Kirk-Habicht Company, is pictured making a spring. (Kenneth K. Lam, Baltimore Sun / December 8, 2011)
Its employees rely on a heavy wire to make springs tough enough for trucks, and the only plant they know of that makes what they need is in Germany — or was. The factory shut down. Company president Mark Habicht is struggling to find an alternative.
"What's going on there is definitely affecting us," he said of events in Europe. "It's causing us to scramble and search the far corners of the world to see if there's anyone who can make this material for us."
As world economies knit ever closer together, the debt woes and economic slowdown in Europe are sending ripples across the Atlantic — giving pause to Maryland companies anxious about recessionary contagion and offering business opportunities to others.
A Dutch biotech firm that employs hundreds in Maryland is about to lay off up to 10 percent of its employees. A Baltimore corporate-turnaround company is fielding lots of calls from European businesses in need of help. And the region's financial powerhouses are hoping their international investments don't take a hit.
"A lot of the challenges lie in the fact that it's an inherently political situation," said Jason White, a portfolio specialist for international equity strategies at Baltimore-based T. Rowe Price. "There is a wide range of outcomes that could occur, and it's largely left up to the political leadership in the euro zone nations to agree on how things are going to shake out."
For most Marylanders, the most tangible effect of the crisis unfolding in Europe is on retirement-savings accounts pummeled by wild stock market swings. Maryland isn't one of the largest exporters to the continent. The U.S. government's own debt problems loom much larger in a state long powered by defense contracting and other activities funded by Uncle Sam.
"I have been speaking to many audiences of business owners in recent weeks and have asked them, 'How many of you sell merchandise or services to Europe?' and hardly anyone raises their hand," said Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic consulting firm.
But economists are warning that a sharp recession across Europe could undo what little progress the United States has made to regain the jobs lost in 2008 and 2009. Fearing that problems could spread, the Federal Reserve worked with other central banks recently to make it cheaper for banks to continue lending — a move seen as a short-term measure.
A European Union summit meeting on Thursday and Friday ended with a fiscal austerity treaty intended to keep governments from overspending — and, leaders hope, the euro zone from collapsing.
Standard & Poor's had warned earlier in the week that it might downgrade the credit ratings of nearly all 17 countries that use the euro if a compromise wasn't reached — actions that could then affect the ratings of the European Union and big banks in the euro zone.
"The rest of the world is interested in Europe resolving [its] … sovereign debt issue," said Douglas G. Ober, chairman and chief executive of closed-end funds Adams Express Co. and Petroleum & Resources Corp. in Baltimore. "We have a lot of companies in the portfolio that are exposed to Europe. … We have an interest in those companies having decent returns in Europe."
Efforts to rein in government spending — there and here — have already affected some companies. Qiagen N.V., a Netherlands-based medical testing and research technology provider, plans to lay off 8 percent to 10 percent of its staff worldwide. About 800 of its employees are in Maryland, at locations in Germantown, Gaithersburg and Frederick.
Qiagen says it needs to slim down and put more of a focus on selling its products to clinical markets, including hospitals, rather than to government-funded researchers.
"The pressure to lower costs and public spending — this will continue for a long time," said Thomas Theuringer, a Qiagen spokesman. "We see the pressure now coming both in the United States and Europe."
Other head winds are buffeting companies: the potential for a recession and the possibility that European countries will dump the euro for their former national currencies.
Baltimore-based FTI Consulting, best known for its restructuring services, is getting a lot more requests for help coming into its London office.
"The number of phone calls has increased considerably," said Kevin Lavin, global co-leader of FTI's corporate finance and restructuring practice. "It's not [from companies] in any one, two or three countries — it's all over."
FTI is not the only company to find opportunities as a result of the European turmoil. T. Rowe Price thinks it has found some good deals on stocks of European companies that mostly do business elsewhere.