Chip location Germany in jeopardy
The reflexes from the German economy and state politics emerge are always the same when it comes to public funding. When the government tightens the purse strings, there is an outcry from those affected. It is then argued that the German location is at risk because public funding for necessary industry investments is lacking.
In the case of the budget freeze imposed by Federal Finance Minister Christian Lindner (FDP) on the Climate and Technology Fund (KTF) in response to a ruling by the Bundesverfassungsgericht, there is no question that the situation is delicate. As an interim solution to the dilemma, the federal government is considering a supplementary budget for 2023 after the highest court in Germany declared the reassignment of the 60 billion euros from the KTF as unconstitutional.
However, the financial and budgetary mess facing the "Ampel" coalition of SPD, Greens, and FDP after the verdict from Karlsruhe does not mean the imminent downfall of the German location for the high-tech industry. Even though some state politicians and representatives of certain economic sectors suggest otherwise in public. An example of this is the chip industry. Reiner Haseloff (CDU), the Prime Minister of Saxony-Anhalt, and Silicon Saxony, an interest network of high-tech companies acting as an association, are particularly prominent in public discourse on this topic. Companies such as ASML, Bosch, Infineon, and NXP are members of Silicon Saxony. Both Haseloff from Magdeburg and lobbyists from Dresden are creating a threatening backdrop for East Germany, claiming that the new settlement of major corporations is at risk if promised federal funding in the billions from the KTF cannot be released.
Specifically, this concerns the planned factories of the American chip manufacturer Intel near Magdeburg and of the contract manufacturer TSMC from Taiwan in Dresden. The federal government intends to contribute almost 10 billion euros out of the announced investment sum of 30 billion euros by the Americans. The Taiwanese plan with a total investment of 10 billion euros, funded with 5 billion euros of taxpayers' money. There is no doubt that the decisions of the corporate leadership to build two new plants in the two East German state capitals are of outstanding economic importance to the region. Still, the criticism from some economists that Berlin made itself susceptible to blackmail and made excessive commitments to Intel and TSMC is understandable.
The Chips Act, previously proclaimed by the EU in Brussels with the aim of strengthening the European semiconductor industry in competition with the USA and China, lured Intel and TSMC into the largest economy of Europe. The higher the subsidies in a country, the greater the incentives for companies to settle there. In return, the EU Commission waives the usual strict aid procedures against member states. It is worth noting that only a portion of the subsidies for both plants comes from the KTF. Assuming one-third as a basis, that would be 3.3 billion euros for Intel and 1.7 billion euros for TSMC. It is hardly believable that the federal government could not fill this gap.
Against this background, it is not mere rhetoric when Chancellor Olaf Scholz (SPD) and Minister of Economic Affairs Robert Habeck (Greens) promise to uphold the agreements with Intel and TSMC. Both top politicians are jeopardizing their credibility if they abandon both projects. In June 2024, the European Parliament will be newly elected, and in September, the Saxon State Parliament. These are indicators of the overall political situation in the federal capital. In this heated atmosphere, both companies would do well to stay out of this public debate. After all, decisions about locations are based on long-term strategic concepts. In the global competition for future technologies, this should also be the guiding principle for the "Ampel" coalition.