Semiconductors: Germany to receive €4bn from EU programme

In a bid to attract more microchip manufacturers to the country, Germany plans to invest some €4 billion in 31 microchip projects with the help of EU funding.

On Monday (18 September), the Federal Ministry of Economic Affairs and Climate Action (BMWK) published 31 projects to be financed by the EU funding programme for microelectronics.

The microelectronics projects will be supported under the EU funding program “Important Projects of Common European Interest” (IPCEI), with electronic companies Bosch and Infineon being among the beneficiaries.

The IPCEI was approved by the EU Commission three months ago and distributes grants of up to €8.1 billion to projects focusing on microelectronics and communications technology from 14 EU member states, including Germany, which will receive about half of the funds – roughly €4 billion.

By investing in these projects, the EU and Germany are trying to become less dependent on foreign chip suppliers and no longer be exposed to global supply bottlenecks.

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“Germany is making a decisive contribution to Europe’s security of supply with semiconductors and chips,” Economy Minister Robert Habeck stressed in a press release.

As laid out in the coalition agreement two years ago, the federal government is seeking to turn Germany into a global hub for the semiconductor industry – however, the initiative has faced criticism.

“I think the massive subsidies to attract semiconductor factories to Germany are wrong,” Berthold U. Wigger, economist at the Karlsruhe Institute of Technology, told Euractiv.

While strengthening supply chains to prevent dependency is important, the international division of labour and diversification must also be taken into account, according to Wigger.

“This is already true because even with a larger number of semiconductor factories in Germany, necessary basic materials will have to be imported from abroad,” Wigger added.

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Semiconductor funding

According to the BMWK, 70% of the funding is provided by the federal government, while 30% is financed by the 11 participating federal states where the companies are located. The companies themselves contribute over €10 billion for production facilities, manufacturing plants and the development of new types of semiconductor chips.

“Microelectronics have enormous economic significance in all industrial nations,” says the Federal Ministry.

“Apparently, Germany is so unattractive as a location for semiconductor factories that a company like Intel can only be persuaded to produce in Germany with a large sum in the billions of dollars,” Wigger told Euractiv.

It was only in June, after months of negotiation, that the federal government and Intel agreed on an investment in Saxony-Anhalt of €30 billion and state subsidies of €10 billion in return.

“It is true that politicians celebrate Intel’s settlement as proof of Germany’s attractiveness as a location for high-tech investments. But the opposite is probably closer to reality,” Wigger added.

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The aim of strategic sovereignty

The global shortage of semiconductors is to be counteracted at the EU level with the EU Chips Act, which aims to bring 20% of global semiconductor production back to Europe by strengthening research, production and innovation capacities.

“The Federal Government, the federal states and the EU must therefore pull together on microelectronics. This is the only way we can position ourselves confidently and as independently as possible from imports and lead the way in this technology of the future,” said Winfried Kretschmann, Minister-President of Baden-Württemberg.

With the IPCEI funding programme, the EU wants to achieve independence from third countries such as China and the USA.

In addition to the €8.1 billion of public funding, up to €13.7 billion will be contributed privately by companies, bringing the total investment volume to €21.8 billion. Across the EU, 56 companies are receiving subsidies for 68 projects.

“If the state creates suitable framework conditions for innovation, IPCEIs are unnecessary. IPCEIs are expensive instruments with which the state tries to solve problems that it initially creates itself through regulations that hamper innovation,” Wigger told Euractiv.