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Intel’s huge bet on Germany is at stake

RARELY made in Germany Top economists are in agreement on a major economic policy debate. But Reint Gropp of the Halle Institute for Economic Research, Marcel Fratzscher of the German Institute for Economic Research and Clemens Fuest of the Ifo Institute all agreed when it came to the government’s decision to spend billions subsidizing Intel’s massive semiconductor factory in Magdeburg. They see pouring billions of dollars into this American company as a colossal waste of taxpayer money.

The nerd consensus fell on deaf ears. The center-left coalition government led by Olaf Schulz has agreed to back Intel’s mega-base in Magdeburg for a total of 6.8 billion euros ($7.4 billion), part of Intel’s 17 billion euro investment in the East German town. big part. Germany’s pro-market Finance Minister Christian Lindner recently said there was no money in the budget to meet Intel’s request for an additional state aid of around 3 billion euros to cover “cost gaps” caused by rising energy and construction prices. . However, the Social Democratic chancellor appears willing to ease the finances as long as Intel expands its projects.

Intel boss Pat Gelsinger is touring Europe in mid-June. He is expected to meet Mr Scholz in Berlin on June 19 to make his case, according to sources close to the government. The talks could decide the fate of the massive effort, which would be the largest foreign direct investment in German history. He will also visit Magdeburg, where 30 Intel employees, including German personnel chief Bernd Holthaus, are already busy leaving.

Backers of Mr Kissinger in the Chancellery and the Economy Ministry argue that Intel’s site will create an innovation hub and create as many as five for each of the 3,000 permanent high-tech jobs Intel plans to create in Magdeburg. jobs (in addition to the 7,000 temporary construction workers it needs to build things).Moreover, its proponents argue that chip factories will help achieve European UnionThe goal is to increase the EU’s share of global chip production to 20 percent by 2030, from around 10 percent currently. That would reduce Europe’s reliance on suppliers from Taiwan, South Korea and other countries in China’s increasingly aggressive backyard.

Critics of the program say subsidizing up to 1 million euros per job at Intel (if construction workers are included) is madness, especially in an area where unemployment is low and local industrial companies struggle to recruit. They suspect an overestimation of job creation. Many economists believe that, in a best-case scenario, one job at Intel might create 1.5 other jobs. Mr Gropp argues that it makes more sense for Germany to buy chips from the US (which already heavily subsidizes chipmakers).

Do subsidies make sense for Intel? Companies need stimulus.In recent years, it has fallen behind rivals such as TSMC Cutting-edge technology from Taiwan and Korea Samsung. In April, the company posted a record quarterly net loss of $2.8 billion as global demand for a variety of chips cooled. Its $148 billion market cap is just over half what it was in early 2021. Kissinger believes that the way to reverse the decline is to invest heavily in new capacity (see chart). In an era when potato chips are no longer a hit, it’s a risky gamble, whether or not the Germans are generous.

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