German finance minister rules out additional funding for Intel chip plant

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 €17bn plant in East Germany, dashing hopes of a deal.

The US chipmaker was due to receive €6.8 billion in government support for its manufacturing plant, or FAB, in Magdeburg but is now seeking €10 billion, citing higher energy and construction costs.

In an interview with the Financial Times last week, Lindner said he opposed an increase in support. He said, ‘There is no more money in the budget. “We are trying to consolidate the budget right now, not expand it.”

Intel’s project is the largest foreign investment in post-war German history and is seen as part of the EU’s plan to double its share of the global semiconductor market from less than 10 percent to 20 percent by 2030.

Some in the German government, including Economy Minister Robert Habeck, think Berlin needs to match the massive level of support provided by the Biden administration under the Chips and Science Act, which includes funding to boost US domestic semiconductor manufacturing. This includes funding of $52 billion.

But some economists in the eurozone’s biggest economy have argued that the subsidies are a waste of taxpayer money. There are also apprehensions about Germany’s ambition to reduce its reliance on Asian suppliers, given the complexity of supply chains in the chip industry.

Intel’s demand for more money has caused a split in the government. Chancellor Olaf Scholz, a Social Democrat, and Hebeck, a Green, are believed to be open to providing more financial support. He is encouraged by indications that Intel could increase the total amount of its investment to €17bn.

But Lindner, leader of the pro-business, fiscally hawkish Free Democrats (FDP), one of the smaller parties in Scholz’s coalition, said he is “not a big fan of subsidies” and would oppose increased levels of support to Intel, even if be it to expand the scope of the project.

“The Chancellor and the Ministry of Economy will have to show where the additional funding is to come from,” he said.

A spokeswoman for Habeck declined to comment on Lindner’s remarks. The economy minister told reporters this month that while the Intel project was a “high priority” for the government, “subsidies are always paid for by the taxpayer, so we . . . (have to) weigh them carefully”. Any aid to Intel requires EU approval under the bloc’s state aid rules.

Intel declined to comment on Lindner’s comment, saying only that “there is a cost gap and we are working with the government on how to close it”.

There were suggestions that the government could help Intel by providing cheap electricity to the Magdeburg plant. When asked about this, Lindner said that “several options are under consideration” and that the cabinet has not yet formed an opinion. “But in terms of budget, we have reached our limit,” he said.

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 €20bn funding gap, has caused consternation among his coalition partners by writing to every ministry – apart from defence – setting limits on their spending next year and urging big savings.

Lindner has much less room for maneuver than previous German finance ministers. He has committed to maintaining the debt break – Germany’s constitutional limit on new borrowing – and has ruled out raising taxes. Yet the recession has reduced tax revenues, higher interest rates have pushed up debt-service costs and generous public sector pay deals have meant higher public spending.

Scholz, a former finance minister, has intervened to try to break the impasse on the budget – an unusual move for a chancellor. He will hold talks with Lindner and several cabinet ministers about their departments’ spending plans, according to the finance ministry.

In the interview, Lindner reiterated his opposition to an “industrial electricity price”, a plan unveiled by Habeck in May to subsidize the cost of electricity for energy-intensive industries. Habeck has proposed capping prices at €0.06 per kilowatt hour by 2030 – about half their current level – at an estimated cost to the public purse of €25bn to €30bn.

Lindner isn’t enthused about the idea. “I don’t see any point in state aid subsidized with taxpayers’ money,” he said. “I (also) don’t see how this is legal in terms of EU state aid rules.”

Habeck suggested that the money to price industrial electricity could come from the Economic Stabilization Fund, a pandemic-era vehicle that was reactivated last year to help businesses and consumers grapple with rising energy costs. I went.

Lindner said that using the funds would be “a breach of the agreements in the coalition”. He said the fund was designed to finance a break in gas and electricity prices, and added that “my coalition partner gave his word that it will be a crisis-fighting tool”.