Germany’s finance minister Christian Lindner has said there is no money in the budget to meet Intel’s demands for higher subsidies for its new €17 billion factory in East Germany, dampening hopes of a deal .
The American chipmaker was supposed to receive 6.8 billion euros in government support for its Magdeburg factory, but is now demanding around 10 billion euros, citing higher energy and construction costs.
In an interview last week with the Financial Times, Lindner said he was opposed to an increase in aid. “There is no more money available in the budget,” he said. “We’re trying to consolidate the budget now, not expand it.”
Intel’s project is the largest foreign investment in post-war German history and is seen as crucial to the EU’s plans to double its share of the global semiconductor market from less than 10 percent now to 20 percent by 2030.
Some people in the German government, including Commerce Secretary Robert Habeck, think Berlin should try to match the Biden administration’s massive support under the Chips and Science Act, which includes $52 billion in funding to help the U.S. domestic semiconductor production.
But some economists in the eurozone’s largest economy have argued that subsidies are a waste of taxpayers’ money. It is also feared that Germany’s ambition to reduce dependence on Asian suppliers is utopian, given the complexity of supply chains in the chip industry.
Intel’s demand for more money has led to a split in the government. Chancellor Olaf Scholz, a Social Democrat, and Habeck, a Green, would be open to more financial support. They were encouraged by indications that Intel could increase total investment volume by €17 billion.
But Lindner, leader of the pro-business, fiscally aggressive Free Democrats (FDP), one of the smaller parties in Scholz’s coalition, said he was “not a big supporter of subsidies” and would oppose an increase in the level of support to Intel, even if it expanded the scope of the project.
“The Chancellery and the Ministry of Economic Affairs will have to show where the additional funding will come from,” he said.
A spokesperson for Habeck declined to comment on Lindner’s comments. The economy minister told reporters this month that while the Intel project was a “high priority” for the government, “subsidies are always paid by the taxpayer, so we . . . have to weigh (them) carefully.” He added admits that any aid to Intel requires EU approval under the bloc’s state aid rules.
Intel declined to comment on Lindner’s comments, saying only that “there is a cost gap and we are working with the government to close it.”
There were suggestions that the government could help Intel by supplying the Magdeburg plant with cheap electricity. Asked about this, Lindner said “several options are being considered” and that the cabinet has not yet formed an opinion. “But budget-wise, we’ve reached our limits,” he added.
The dispute over subsidies for Intel comes as Scholz’s coalition is embroiled in a bitter dispute over next year’s budget. Lindner, who has identified a funding gap of 20 billion euros, has caused consternation among his coalition partners by writing to every ministry – except defense – setting ceilings on their spending for next year and urging major cuts.
Lindner has much less room for maneuver than previous German finance ministers. He has committed to maintaining the debt brake – Germany’s constitutional limit on new borrowing – and ruling out tax increases. Still, the recession has reduced tax revenues, higher interest rates have pushed up the cost of debt, and generous public sector wage agreements are leading to higher government spending.
Scholz, a former finance minister, has stepped in to try to break the budget deadlock – an unusual move for a chancellor. According to the Treasury Department, he will hold talks with Lindner and several cabinet ministers about their departments’ spending plans.
In the interview, Lindner reiterated his opposition to the “industrial electricity price,” a plan Habeck unveiled in May to subsidize the cost of electricity for energy-intensive industries. Habeck has proposed limiting prices to €0.06 per kilowatt hour – about half their current level – until 2030 at an estimated cost to the treasury of €25 billion to €30 billion.
Lindner is not thrilled with the idea. “I don’t see the point of state aid subsidized with taxpayers’ money,” he said. “I (also) don’t see how it is legal in terms of EU state aid rules.”
Habeck had suggested that the money for the industrial electricity price could come from the Economic Stabilization Fund, a pandemic-era vehicle that was reactivated last year to help businesses and consumers struggling with rising energy costs.
Lindner said using the fund would be a “breach of agreements we reached in the coalition”. He said the fund was intended to fund a gas and electricity price brake, adding that “my coalition partner promised it would be a crisis response tool”.
