German Chancellor Olaf Scholz flanked by Economy and Climate Minister Robert Habeck and Finance Minister Christian Lindner to comment on the German Constitutional Court ruling that the government’s reallocation of €60 billion (US$65 billion) of unused pandemic-era debt to the Climate Fund was illegal in… Obtaining licensing rights
FRANKFURT/DUSSELDORF (Reuters) – Germany’s escalating budget crisis is hitting Europe’s largest economy, damaging its reputation as a reliable partner to industry, some of which now fear Berlin may not meet its pledges to finance green and industrial projects. Other projects.
In addition to leaving a €60 billion ($65 billion) gap in the government’s 2024 spending plans, the Constitutional Court ruling raises broader questions about aid provided to major industrial projects that were supposed to be supported by public money.
These include plans by ArcelorMittal, the world’s second-largest steelmaker, to spend 2.5 billion euros to decarbonize German steel mills, efforts that depend on government support that is now uncertain.
“We are disappointed and, above all, concerned, because we still lack financing decisions and thus a perspective for our industrial production in Germany,” said Rainer Blaschek, who heads ArcelorMittal’s German division.
He described the government’s inability to find a quick solution to the budget crisis as “gross negligence”, highlighting the potential consequences for Germany, which is already struggling to maintain its position as a major industrial location.
Chancellor Olaf Scholz said in a video message on Friday that the government would quickly reformulate the 2024 budget and that all necessary decisions would be made this year.
ArcelorMittal’s German rival SHS Stahl-Holding-Saar has also not received a formal commitment from Berlin to support a €3.5 billion investment push to significantly reduce carbon dioxide emissions at its furnaces.
CEO Stefan Rauber said a solution must be found within days, not weeks, and that he needed a decision by the end of the year to implement the program.
“What we are seeing here is devastating for Germany as a global trading location,” he said. “The longer this goes on, the worse it will get.”
Besides steel investments amounting to 6 billion euros, other sectors potentially affected by the court ruling include 4 billion euros in microelectronics and 20 billion euros for battery cell production, according to an Economy Ministry document seen by Reuters.
The newspaper said it also covers so-called climate protection agreements that are supposed to help the industry protect itself from fluctuations in energy prices. These amounts were previously estimated at about 68 billion euros.
“non-competitive”
Germany has long been criticized for insufficient investment in key economic infrastructure, and the International Monetary Fund this year repeated a call for Berlin to create more fiscal space to invest in the country’s future.
Critics say the constitutionally mandated debt brake, which places very strict limits on the amount of new debt it can take on, is a somewhat arbitrary political tool that restricts the space available for those investments.
The court’s decision to block the repurposing of unused funds from the pandemic for green investment has cast doubt on the fate of other off-budget financing instruments and a cloud over future spending plans in 2024 and beyond.
The industry comments reflect widespread concern that they will limit Germany’s ability to meet its financing commitments for major expansion projects including some of Intel INTC.O, Taiwan’s TSMC 2300.TW and Infineon IFXGn.DE.
To make matters worse, budget disruptions create a new layer of problems while Germany is already struggling to invest in sites in Asia and the United States, and faces the risk of major industrial players moving their sites abroad.
The US inflation law has provided companies with clear regulatory frameworks, including in the emerging field of hydrogen, which is key to Germany’s efforts to make its industry carbon neutral.
Bernhard Osburg, chief executive, said: “If there is an impression… that it is unsafe to go down this road with German companies… factory builders will look to the IRA and other projects in the US, simply because the investment security is there.” “. Thyssenkrupp (TKAG.DE) Steel Europe.
While there are concerns about what the budget gap means for projects in the short term, concerns are growing that it could weaken Germany’s ability to co-sponsor the longer-term transformation of its industries.
Some worry that plans to cut energy prices for the industry, a key effort to keep chemical heavyweights such as BASF (BASFn.DE) and Wacker Chemie (WCHG.DE) competitive, could be derailed as well.
“Important industries in Germany, such as the production of chemicals or steel, need economical energy prices,” Oliver Blume, CEO of Volkswagen, Europe’s largest carmaker, told the Frankfurter Allgemeine Zeitung newspaper.
“We are currently not able to compete on a global scale.”
($1 = 0.9168 euros)
(Reporting by Christoph Steitz and Tom Kekenhof – Prepared by Muhammad for the Arab Bulletin) Additional reporting by Andreas Reinke. Edited by Catherine Evans
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