Germany’s budget crisis could affect plans to hand out billions of euros in government subsidies to chip companies, potentially stymying its hopes of playing a significant role in the global semiconductor industry.

The German government has promised vast amounts of state support to international chipmakers investing in Europe’s largest economy. Intel, which is spending €30bn ($32.5bn) on two new factories in the eastern town of Magdeburg, is to receive €9.9bn in grants for its project, the largest foreign investment in the country’s postwar history.

But doubts about state support have grown ever since a bombshell judgment by the German constitutional court last month which has plunged the government’s spending plans for 2024 into disarray.

Politicians, industry experts and business leaders fear the semiconductor projects might fall victim to the budget imbroglio, an outcome they warn could inflict huge damage on Germany’s reputation.

“It would be an utter disaster for the image of Germany as a place to invest, because it would show that you just can’t rely on this country any more,” said Sven Schulze, economy minister of the eastern state of Saxony-Anhalt, where Intel is to build its fabrication plant.

“It would be a devastating blow, one we haven’t really seen before in our postwar history,” he told the Financial Times.

The crisis was ignited when Germany’s top court ruled that the government had violated the constitution by moving €60bn in credit lines earmarked for dealing with the Covid-19 pandemic into the “climate and transformation fund” — an off-budget vehicle it has been using to finance Germany’s industrial modernisation.

The subsidies for Intel and other chipmakers such as Taiwan-based TSMC were all supposed to come from the climate fund. The ruling sowed alarm among companies — not just the chipmakers but also other big groups that were due to receive grants, such as steelmakers who are investing vast sums to switch to carbon-neutral production.

The crisis strikes at the heart of one of Germany’s most important policies — its plan to become a big chip producer. That in turn forms part of a broader EU strategy to strengthen supply chains, enhance economic resilience and reduce the bloc’s dependency on Taiwanese suppliers — a potential vulnerability in the event of a confrontation between China and Taiwan.

Intel is not the only big investor Germany has attracted. TSMC, the world’s biggest contract chipmaker, has said it would invest €10bn in a new factory in the eastern city of Dresden, together with Dutch semiconductor maker NXP and Germany’s Bosch and Infineon. This fab has been promised €5bn in subsidies.

Meanwhile, Infineon is building a €5bn plant, also in Dresden, Bosch is investing €250mn to expand its Dresden cleanroom and US chipmaker GlobalFoundries is in the fourth year of an expansion of its wafer manufacturing capacity in the city. All three are banking on generous state support.

German Chancellor Olaf Scholz told a conference last month that he “absolutely wants” the chip factories to go ahead as planned. “It’s an important signal for the future, for all of us, that semiconductors are produced in Europe, especially in Germany, and particularly in eastern Germany,” Scholz said.

Schulze, who is a member of the opposition Christian Democrats, said he hoped Scholz was serious. “I’m not worried about the Intel investment because the chancellor has given a personal assurance it will proceed,” he said. “And if you can’t trust his word then you might as well give up on this government.”

But Robert Habeck, deputy chancellor and economy minister, told an event last week that the government might be forced to curb its ambitions when it came to subsidies, “deprioritising . . . one or the other project that doesn’t meet the strictest definition of carbon neutrality and economic security”.

Scholz, Habeck and finance minister Christian Lindner are holding crisis talks on how to resolve the budget impasse and cobble together a revised spending plan for 2024, with Habeck calling off a planned trip to the UN climate summit in Dubai to focus on the issue.

Intel and TSMC declined to comment on whether they feared their promised subsidies were at risk.

But people briefed on TSMC’s communications with Berlin said that if the German government reduces its subsidy commitment, the company may have to renegotiate the terms of its Dresden fab, including with its German joint-venture partners.

“Worst case is that if it turns out nine months from now that there will be no subsidies, we will have to cancel the project,” said one person.

Other companies have publicly expressed their concern about the effects of the court’s verdict. German automotive supplier ZF, which is building a chip factory in the western region of Saarland with US group Wolfspeed, said it was worried about the consequences for Germany as a place to do business.

“It’s a question of whether important industrial transformation projects can get off the ground in Germany or whether the future happens in other parts of the world,” ZF said.

Lindner has tried to dispel investors’ fears. “Agreements we’ve reached which are legally binding will be honoured,” he said in an interview with media outlet The Pioneer on Monday.

An example is the €564mn subsidy for Northvolt, the Swedish technology group building a battery factory in northern Germany. Habeck’s economy ministry announced on Sunday that it had won an exemption from the spending freeze imposed on the climate fund which would allow for the Northvolt subsidy to be paid.

But many of the agreed subsidies are not as far along as Northvolt’s. Of the 31 microelectronic projects given a green light by the European Commission last June under state aid rules, only 15 have received a formal promise of funding. Industry insiders say the rest risk being deprived of any government support.

“Anyone you speak to in the chip industry who has a project in Germany and has yet to receive a legally binding contract from the government is scratching their heads,” said one executive with knowledge of the subsidy issue.

Another executive at a chipmaker was more forthright. “Germany is not just the sick man of Europe — it turns out it’s also the dumb man of Europe,” he said. “This is a total fiasco.”

Additional reporting by Kathrin Hille and Richard Milne

Mount Rushmore National Memorial is seen in September 2023, in, Keystone, S.D. Mount Rushmore has enacted some of the strictest rules governing tourist flights over national parks.

David Zalubowski/AP file photo

hide caption

toggle caption

Advertisement

David Zalubowski/AP file photo

Mount Rushmore National Memorial is seen in September 2023, in, Keystone, S.D. Mount Rushmore has enacted some of the strictest rules governing tourist flights over national parks.

David Zalubowski/AP file photo

Fewer planes and helicopters will be flying tourists over Mount Rushmore and other national monuments and parks as new regulations take effect that are intended to protect the serenity of some of the most beloved natural areas in the United States.

The air tours have pitted tour operators against visitors frustrated with the noise for decades, but it has come to a head as new management plans are rolled out at nearly two dozen national parks and monuments.

One of the strictest yet was recently announced at Mount Rushmore and Badlands National Park, where tour flights will essentially be banned from getting within a half mile of the South Dakota sites starting in April.

“I don’t know what we’re going to be able to salvage,” complained Mark Schlaefli, a co-owner of Black Hills Aerial Adventures who is looking for alternative routes.

The regulations are the result of a federal appeals court finding three years ago that the National Park Service and the Federal Aviation Administration failed to enforce a 2000 law governing commercial air tours over the parks and some tribal lands. A schedule was crafted for setting rules, and many are wrapping up now.

But now an industry group is eying litigation, and an environmental coalition already has sued over one plan. The issue has grown so contentious that a congressional oversight hearing is planned for Tuesday.

Drowning out the sounds of nature

Critics argue that the whirr of chopper blades is drowning out the sound of birds, bubbling lava and babbling brooks. That in turn disrupts the experiences of visitors and the tribes who call the land around the parks home.

“Is that fair?” asked Kristen Brengel of the National Parks Conservation Association, noting that visitors on the ground far outnumber those overhead. “I don’t think so.”

The air operators argue they provide unrivaled access, particularly to the elderly and disabled.

“Absolutely exhilarating, a thrilling experience” is how Bailey Wood, a spokesman for the Helicopter Association International, described them.

Sightseeing flights got their start in the 1930s as crews building the massive Hoover Dam on the Arizona-Nevada border asked the helicopter pilots working on the project to give their families flyovers, Wood said.

“It took off from there,” he said, jokingly adding, “Sorry, aviation pun.”

The issue hit a tipping point at the Grand Canyon in 1986 when two tour aircraft collided over the national park in Arizona, killing 25 people. Congress acted the next year and a plan was enacted to designate routes and minimum altitude for canyon flights.

Congress passed another round of legislation in 2000 with a goal of setting rules in other national parks. But bureaucratic difficulties and delays stalled compliance.

The Public Employees for Environmental Responsibility and the Hawaii Island Coalition Malama Pono sued, demanding something be done. Historically, some of the nation’s busiest spots for tour operators are Hawaii Volcanoes National Park, which is home to one of the world’s most active volcanoes, and Haleakala National Park.

Court orders compliance with existing rules

In 2020, a federal court ordered compliance at 23 national parks, including popular sites such as Glacier in Montana, Arches in Utah and Great Smokey Mountains in Tennessee and North Carolina. That same year, the latest in which data is available, there were 15,624 air tours reported, which was down about 30% because of the pandemic, the park service said.

As of this month, plans or voluntary agreements have been adopted for most of the parks, although not all of them have taken effect. Work is still underway on five, the park service said.

Parks exempted from developing plans include those with few flights and those in Alaska, where small planes are often the only way to get around.

“Mostly, the plans have been pretty generous to the industry, allowing them to continue as they have done in the past with some limited air tours around these parks,” said Peter Jenkins, senior counsel for Public Employees for Environmental Responsibility.

His group went to court over a plan to allow a combined total of about 2,500 flights over the Golden Gate National Recreation Area and other nearby parks, alleging an inadequate environmental study.

Then came last month’s announcement about restrictions over Mount Rushmore and the Badlands.

“This isn’t a management plan,” complained Ray Jilek, owner of Eagle Aviation Inc. and its chief pilot. “This is a cease and desist plan, as far as I’m concerned.”

Andrew Busse of Black Hills Helicopter Inc. said his tours already don’t fly directly over Mount Rushmore. The park is relatively small, so the monument to the nation’s presidents is still visible from outside its boundaries, he said.

Taking tribal desires into account

The plans are aimed at taking tribal desires into account. But Shawn Bordeaux, a Democratic state lawmaker in South Dakota and a member of the Rosebud Sioux tribe, said he hasn’t heard complaints.

“We don’t want them flying around trying to watch our sun dances or ceremonies or something,” he said. “But as for tourism, I don’t see why it’s an issue.”

A similarly strict plan has been proposed for Bandelier National Monument in New Mexico. Bruce Adams, owner of Southwest Safaris, flies a fixed-wing plane with tourists a couple times a week over the area known for the dwellings carved into the soft rock cliffs.

“Changing the route is going to force me to fly over Pueblo tribal lands that I have assiduously avoided doing for 49 years because I know it’s going to cause noise problems,” he said.

Glacier National Park, meanwhile, is phasing out the flights by the end of 2029.

Wood said the process has been “broken and rushed” and threatens to put some operators out of business.

“Litigation is one tool that is definitely under consideration,” he said.

But Brengel of the National Parks Conservation Association said the resistance doesn’t have much traction. An amendment to the FAA reauthorization bill that would have required the agency to factor in the economics of commercial air tours over national parks failed in July, she said.

“People go to Arches, people go to Hawaii to hear the sights and sounds of these places,” Brengel said. “It’s so utterly clear that the vast majority of people who are going to these parks aren’t going to hear the sounds of helicopters over their heads.”

Israel has defended its conduct of war with Hamas in the Gaza Strip by touting a high-tech evacuation plan for civilians, amid pressure from allies to reduce the number of casualties in the besieged coastal enclave.

The Israeli military’s ground offensive against the Palestinian militant group is turning to the southern part of the strip that is now home to about 80 per cent of Gaza’s 2.3mn population.

Israeli officials say they are adopting a different approach during this phase of the war to the one used in the north, where air strikes and then a ground invasion by the Israel Defense Forces led to the deaths of thousands of civilians.

The way “we’re going to operate [in southern Gaza] is going to be probably a bit different”, IDF spokesperson Richard Hecht told journalists on Monday.

“We need the time to defeat Hamas, and if we don’t make sure we make these efforts in the humanitarian sphere, in minimising the deaths of civilians, we may lose our legitimacy.” 

But with hundreds of people reported killed in Gaza despite the new high-tech measures, Israel’s evacuation plans have been criticised.

Richard Ponzio, a former adviser at the US state department and a senior fellow at the Washington-based Stimson Centre think-tank, called the measures “woefully insufficient given the severe effects on civilians . . . since the resumption of air strikes and overall fighting”.

Civilians have borne the brunt of the war that was triggered by Hamas’s attack on Israel on October 7, when militants killed 1,200 people and took about 240 hostages, according to Israeli officials.

Israeli officials’ estimates of how many people have been killed in the enclave since the war began appear in line with figures issued by the Hamas-run Gaza health authority, which says more than 15,800 have died.

But the Israeli officials say that a third of those deaths — more than 5,000 — were militant combatants, resulting in a ratio of two civilians killed for every fighter.

Gaza health officials do not distinguish between combatants and civilians but say about 70 per cent of the dead and wounded are women and children.

Israel’s western allies have denounced the toll on ordinary Gazans as excessive, with US vice-president Kamala Harris insisting over the weekend that “Israel must do more to protect innocent civilians”.

The Israeli military says Hamas embeds itself in heavily populated areas, but insists it is trying to avoid civilian casualties.

It does this from a military base in Be’er-Sheva, 40km from Gaza, where Israeli soldiers and reservists process information on population movements inside the enclave using data from mobile phone, radio and television signals, as well as open-source information from local Telegram groups.

This helps generate a coloured map showing the projected population density of Gaza’s residential areas. 

The fast-changing map is used by the IDF to issue evacuation orders to civilians, according to Israeli officials.

Localised evacuations have been introduced in southern Gaza since the collapse of a week-long Israel-Hamas truce on Friday. It is a different method to that used by the Israeli military in northern Gaza, when civilians were given a sweeping order to leave.

“Currently our operations are much more precise,” said a senior IDF official. “The efforts of evacuation are much more precise [and] we’re taking much more time to make sure the efforts are effective.”

A block map sent to civilians by the Israeli military is supposed to help them move to areas deemed safer by the IDF, in addition to evacuation warnings delivered by leaflets, phone calls and messages.

But with many civilians unable to access the internet, aid workers have questioned whether people can view the IDF’s online map.

The approach to evacuations is unusual, some experts say. “This is the first time I’ve ever seen an attempt to issue an evacuation order of this granularity and complexity in a highly dynamic military and kinetic environment,” said Hardin Lang, vice-president at Refugees International, a non-governmental organisation, and a former UN official.

UN officials have disputed the notion that anywhere in the strip is protected, given that Israeli strikes have hit hospitals, schools and shelters. “There is no safe place in Gaza,” UN human rights chief Volker Türk said on Sunday.

A senior IDF official said: “I won’t tell you we’re not doing mistakes. This is part of the challenge of war.”

Gaza residents say Israeli evacuation warnings are often issued at very short notice.

Hossam Fatehi, a father of five displaced to near the city of Khan Younis in the south of the enclave, said he and his family scarcely had time to flee a tower block after a warning — which came from screaming residents contacted by the IDF — before bombing started.

“We heard the sound of breaking glass and shrapnel,” he said. “I was looking around and behind me to check if one of us was killed or injured. I didn’t think we would survive.” 

Gaza civil defence said about 20 Israeli strikes destroyed six towers in the development where Fatehi and his family, including his elderly mother, had been staying with relatives.

Ponzio said continuing civilian casualties in Gaza would heighten the pressure on Washington to rein in Israel. The death toll “steps up the pressure on the Biden administration to take more serious action to pressure Israel back to the negotiating table”, he said.

Additional reporting by Heba Saleh in Cairo and Neri Zilber in Tel Aviv