The new rust belt

The downturn, which has hit the region’s export-led economies hard, is threatening to turn former powerhouses of the communist and post-Soviet eras into a new “rust belt” and causing a surge in unemployment and leaving deep social scars.

Geza Tokodi has worked in the Hungarian steel mill DAM in the northeastern city of Miskolc for 38 years.

The global crisis has brought him face-to-face with the unthinkable: a shutdown of the plant for more than six months, plunging the huge production halls which once employed 18,000 workers into eerie silence.

“My ears got used to the noise of the plant. Quiet is good when you want to have a rest, but here, it’s much worse than noise,” Tokodi says, walking through the vast derelict halls.

The only sound in the vast plant is the occasional crack of metal expanding and contracting as the temperature changes or the cheep of birds that venture in through broken or open windows.

The sprawling steel complex, once called the Lenin Steel Works, developed quickly in the 1950s when the communist government wanted to make Hungary “the country of iron and steel” despite its lack of raw materials and cheap energy.

In its heyday in the 1980s, the city of Miskolc had more than 200,000 residents, most working in industry.

The population has fallen to about 170,000 and unemployment stands at between 15 and 16 percent, well above the national average of 9.8 percent.

DAM, which survived privatisations in the 1990s and was rescued after previous liquidations, is being wound up again and is laying off its approximately 700 remaining employees.

The liquidation process started on June 24th and the liquidator Ratis Kft. has to put the assets up for sale. If it can find an investor, the plant may survive.

Jozsef Papp, 53, who has been at DAM for 36 years, said they had been idle since late last year.

“There have been a few liquidations, and the plant always survived, but I don’t think this will be the case now,” he told Reuters.

Steelmakers throughout Europe have operated at between 55 and 60 percent capacity usage rates this year, shelved investment plans and cut jobs to weather the biggest downturn to affect the industry since World War Two.

Social scars
Miskolc, Hungary’s second largest city, is finding it hard to cope with soaring unemployment and a lack of new jobs.

Agnes Dudas, who heads the employment office in the city, says the number of registered jobless had risen to 18,200 in May from between 12,000 and 13,000 at the end of last year.

More than half of those losing their jobs at the steel mill are aged over 50 and finding new work for them will be difficult, even though the city receives funds from an EU programme partly designed to help crisis-hit regions, she says.

“Those who worked at DAM for 30 to 40 years would have never left this plant. First they must overcome the trauma of all this, and it’s very hard,” Dudas says.

Miskolc has a Roma population of about 12,000 to 15,000, many of whom used to do unskilled jobs in the steel industry and have little choice but to rely on social assistance from the government.

Hungary’s Roma minority is one of the largest in central Europe, accounting for between six and seven percent of the population.

Growing social tension in Miskolc, once a Socialist stronghold, showed in June’s European election results when the far-right Jobbik party won 21 percent of the votes. The Socialists received 23 percent.

“Industries have collapsed and services are not developing at a pace which would allow them to absorb the extra workforce,” said Imre Lakatos, head of the Iron Workers’ Union VASAS who has worked at DAM for 40 years.

Next to the steel works, hundreds of Roma families live in houses with no running water or sewerage.

“Most families here live on social assistance now… and odd jobs,” said Ferenc Botos, who works for the local Roma minority council.

Early retirement offer
Dunaujvaros, formerly Sztalinvaros (“Stalin city”), 70km (43.50 miles) south of Budapest, is the home of Hungary’s biggest steel mill, Dunaferr.

The firm, a unit of Ukraine’s Donbass Group, saw its sales revenues drop by 40 percent in the first quarter and has said it will lay off 400 workers and offer early retirement to several hundred more to try to weather the crisis. It will have a workforce of 7,200 after the restructuring.

The town is faring better in the face of the crisis because of its proximity to Budapest and investment by South Korean tyre manufacturer Hankook in 2006 which created new jobs.

ArcelorMittal’s Czech unit, in the northeast of the country where unemployment is rife, is using only 35 to 45 percent of its capacity because of a lack of orders.

The glut in the steel sector has spread, hurting earnings for London-and Prague-listed New World Resources, which owns the country’s largest hard coal mines.

In the past 20 years, the labour force has shown few signs of changing in many former communist industrial centres.

“It will be difficult to expect any big structural changes in industrial regions because people skilled in heavy manufacturing or mining can’t transfer easily to other sectors of the economy,” said David Marek, an economist at Patria Finance.

“For the regions, it can be a big problem, especially when it comes to a high concentration of heavy industries like steel or coal. It’s a social problem, not only an economic problem.”