New "rust belt" grows in eastern Europe as crisis bites

By Krisztina Than

MISKOLC, Hungary (Reuters) - Heavy industries across eastern Europe, once the beacons of communist "planned economies," survived the collapse of communism 20 years ago but may not live to see the end of the current economic crisis.

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 privatizations 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 24 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.