German finance minister rules out extra funds 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 eastern Germany, damping hopes of a deal.

The US chipmaker was due to receive €6.8bn in government support for its fabrication plant, or fab, in Magdeburg, but is now demanding about €10bn, citing higher energy and construction costs.

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

Intel’s project is the largest foreign investment in postwar German history and is seen as pivotal to EU plans to double its share of the global semiconductor market from less than 10 per cent today to 20 per cent by 2030.

Some people in the German government, including economy minister Robert Habeck, think Berlin must seek to match the huge levels of support provided by the Biden administration under the Chips and Science Act, which includes $52bn in funding to boost US domestic semiconductor manufacturing.

But some economists in the eurozone’s biggest economy have argued that subsidies are a waste of taxpayers’ money. There are also fears that Germany’s ambition to reduce its dependence on Asian suppliers is a pipe dream, 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 Habeck, a Green, are believed to be open to providing more financial backing. They have been encouraged by indications that Intel might increase the total volume of its investment from €17bn.

But Lindner, leader of the pro-business, fiscally hawkish Free Democrats (FDP), one of the smaller parties in Scholz’s coalition, said he was “no great fan of subsidies” and would resist an increase in the level of support to Intel, even if it were to expand the scope of the project. 

“The chancellery and the economy ministry will have to show where the additional financing is to come from,” he said.

A spokesman for Habeck declined to comment on Lindner’s remarks. The economy minister this month told reporters 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] up carefully”. He added that any aid to Intel required EU approval under the bloc’s state aid rules.

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

There had been suggestions that the government could help out Intel by providing the Magdeburg plant with cheap electricity. Asked about this, Lindner said there were “several options under consideration” and that the cabinet had not yet formed an opinion. “But in terms of the budget, we have reached our limits,” he added.

The dispute over subsidies for Intel comes as Scholz’s coalition is embroiled in an acrimonious 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 ceilings for their spending next year and urging big savings.

Lindner has much less room for manoeuvre than previous German finance ministers. He has committed to upholding the debt brake — Germany’s constitutional cap on new borrowing — and ruled out raising taxes. Yet the recession has curbed tax revenues, higher interest rates have pushed up debt-servicing costs and generous public sector wage deals mean higher public spending.

Scholz, a former finance minister, has intervened to try to overcome the impasse over 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 the “industrial electricity price”, a plan unveiled by Habeck in May to subsidise the cost of electricity for energy-intensive industries. Habeck has proposed capping prices until 2030 at €0.06 per kilowatt hour — about half their current level — at an estimated cost to the public purse of €25bn to €30bn.

Lindner is unenthusiastic about the idea. “I don’t see the point of state aid, subsidised with taxpayers’ money,” he said. “I [also] don’t see how it’s legal in terms of EU state aid rules.”

Habeck had suggested that the money for the industrial electricity price could come from the Economic Stabilisation Fund, a pandemic-era vehicle that was reactivated last year to help businesses and consumers struggling with soaring energy costs.

Lindner said using the fund would be a “violation of agreements we reached in the coalition”. He said the fund was designed to finance a gas and electricity price brake, adding that “my coalition partner gave its word that it would be a crisis-fighting tool”.