Germany on the Verge of Breaking Agreements: Doesn’t Guarantee Subsidies for Intel and TSMC Chip Fabs

Germany is facing a significant issue, as the Federal Constitutional Court has jeopardized the Climate and Transformation Fund which is referred to as KTF in German. The fund has been deemed illegal as it diverted funds scheduled for COVID relief. Germany’s KTF was partially supported by these funds, some of which were allocated as subsidies for Intel and TSMC projects. Despite promising to adhere to the Court’s decision and provide the necessary funds, Germany’s narrative seems to have changed.

The problem has grown considerably as voices within Germany call for the subsidies to be eliminated altogether. Agreements and signed deals now appear shaky, and funds struggle to materialize. In addition, Germany cannot break its debt pact.

For the first time, Germany debates canceling subsidies for Intel and TSMC. This has implications for all of Europe, even though the primary benefits derived from the fabrication plants (FABs) are enjoyed on German territory. The strategy of centralizing cutting-edge industries on German soil only makes sense if the numbers add up, and Chancellor Olaf Scholz and Economy Minister Robert Habeck have not performed well according to the court.

Intel and TSMC’s FAB projects must compete with investments promised for the railway system, which is essential for efficient and affordable transportation of people and goods. The two chip manufacturers’ subsidies now appear uncertain. Michael Kellner, Germany’s State Secretary for Economic Affairs, highlighted the ongoing business dilemma with the Climate and Transformation Fund. He warned that if Germany does not support the chip projects, prosperity will go elsewhere, a decision which could prove disastrous.

The opposition in the German government has been swift in criticizing the Intel and TSMC projects, accusing them of being a colossal error. Critics, however, fail to comprehend the strategic importance of the projects in cementing Germany and Europe’s technological independence in the global industry.

There appears to be no easy solution on the horizon, as Ricarda Lang, the Green Party leader, suggested suspending the debt brake to prevent delaying investments—a notion the Spanish government under Sanchez would not have considered. The proposal, however, must meet German legal requirements as well.

As there is no straightforward solution for Intel and TSMC’s FABs, Germany’s Ministry of Finance has practically blocked the entire federal budget. Ministries must now submit written requests for necessary funds, which may or may not be granted. This rush against time is due to the adoption of the federal budget for 2024, to be finalized in just seven days. The €15 billion budgeted for Intel and TSMC’s FABs must be secured before potential legal action and European withdrawal can be enforced by both companies. In only one week, answers are expected to emerge as the situation reaches a critical point.