back to article German budget woes threaten chip fab funding for Intel and TSMC

A recent ruling by Germany's Federal Constitutional Court has cast doubt over funds earmarked to subsidize the building of local chip factories by companies such as TSMC and Intel, it has emerged. The Bundesverfassungsgericht ruled last week that the German government's decision to reallocate €60 billion (€65.4 billion) of …

  1. Bonzo_red

    Debt brake released

    The German government has decided that at least for 2023, the "Schuldenbremse" can be overridden. Prsemably they can do the same for the following years if they do not come up with a solution to their budget problems.

    1. Michael Hoffmann Silver badge

      Re: Debt brake released

      Have they? As in, will it go through - and will it withstand another tiff with the Constitutional Court? I've read that it may or may not, depending on the ... political leanings of the reporting media.

      The article could have benefited from an explanation about Germany legislating and anchoring restrictions on debt and emphasis on a balanced budget.

      Imagine if there were an actual constitutional amendment in the US for a balanced budget and it was mercilessly enforced by the SCOTUS. What issues the US would face.

      That's the situation in Germany, for better or for worse.

      1. Lurko

        Re: Debt brake released

        "That's the situation in Germany, for better or for worse."

        And an example more countries should follow. Politicians in the US, UK, and major EU economies other than Germany have built huge piles of public sector debt which will reduce future public spending, and have to be serviced by future generations, all because they were too cowardly to have the debate about what levels of tax and public services the nation wants.

        1. Yet Another Anonymous coward Silver badge

          Re: Debt brake released

          Imagine if companies were forced to have a balanced budget. Sales at Intel down 36% this quarter? Then close 36% of the factories and lose 36% of the workers.

          Thinking of building a new fab? That won't be profitable while we're building it so that would be illegal

          1. cornetman Silver badge

            Re: Debt brake released

            > Imagine if companies were forced to have a balanced budget. Sales at Intel down 36% this quarter? Then close 36% of the factories and lose 36% of the workers.

            What's right for a company isn't necessarily right for the government. They are not putting themselves into debt, they are putting the public at large in debt on their behalf.

            There should be some sane restrictions on what the government can do on behalf of the public that they tax without choice.

            1. Richard 12 Silver badge

              Re: Debt brake released

              Governments can "simply" print money. Should they do that instead of taxing?

              Aside from that, balancing the books always raises the question: Over what time period?

              A quarter? A year? A decade?

              What happens near the end of the reporting period, do we suddenly fire all public sector workers to avoid going over, then hire them back when the next period starts?

              Economics is fuzzy. Large groups of people make a lot of small rational decisions that can build up or utterly destroy an economy.

              Utimately, money is a political construct based on confidence. Doing "too much" or "too little" of anything damages confidence and ruins everything.

              When government forgets that, we get someone like Truss.

          2. Lurko

            Re: Debt brake released

            "Imagine if companies were forced to have a balanced budget."

            You leap in, distract the topic to the private sector (which the comments and article were not about) and then apply an absolutism that was never made as an argument by myself or others. Would you like to try again?

            1. Yet Another Anonymous coward Silver badge

              Re: Debt brake released

              We demand a fiscally responsible balanced budget.

              So until we have paid off the mortgage we aren't feeding the children

              1. cornetman Silver badge

                Re: Debt brake released

                > We demand a fiscally responsible balanced budget.

                > So until we have paid off the mortgage we aren't feeding the children

                You pose a false dichotomy. It is prudent for individuals, companies *and* governments to prioritise the paying down of debt before taking out more.

                Debt is a necessary evil and for manufacturing is actually one of the best ways of working, but it must be controlled.

                That's not to say that it has to be the top priority, but some effort is required to manage it. No-one should take on debt unless there is a plan for paying it off. This is the main criticism of the US government that their debt is so large (and increasing all the time), that there is no way that it could ever be paid off.

                Much of the overspend of governments are on capital projects, and I include emergency aid in that pot. Paying staff is an ongoing, fairly predictable expense however.

                Germany should budget for their regular, predictable expenses, then make an allowance for capital projects. Unfortunately, every man and his dog seems to think that governments have bottomless pockets. They don't and to be honest, the public should be far more reasonable about their expectations as to what government can achieve in any one budgetary year.

                1. Anonymous Coward
                  Anonymous Coward

                  Simple statements, false statements.

                  >> You pose a false dichotomy. It is prudent for individuals, companies *and* governments to prioritise the paying down of debt before taking out more.

                  BS: it all depends on the cost of money (interest rates), your repayment and refinancing terms, how much your own productivity overshoots the repayment interest rates, and a lot of other things. We've already seen negative interest rates, remember? No? Never mind.

                  It's more complicated than what you think. There is a reason why CFOs run departments with a lot of experts (of which you are not).

                  Your comments can be filled in the "clueless frustrated taxpayer rant" category.

                2. emswift

                  Re: Debt brake released

                  Repeat after me: You don’t run a country like a business or household.

                  Debt as an absolute value is meaningless. Debt as a proportion - of current income, future income, and as affected by inflation, is meaningful.

                  Honestly the number of middle class professionals who are knowledgeable in some technical area who furrow their brows and nod along when someone starts talking nonsense about economics is concerning considering we nominally live in a democracy. Dunning-kruger’d into bad policy.

                  1. cornetman Silver badge

                    Re: Debt brake released

                    > Honestly the number of middle class professionals who are knowledgeable in some technical area who furrow their brows and nod along when someone starts talking nonsense about economics is concerning considering we nominally live in a democracy.

                    I disagree with nothing that you have said and I don't think that you really disagree with me either.

                    Yes the volume of debt that a country can take out has to be seen in the context of GDP. In the case of a manufacturing company, debt makes sense because you need to buy materials and pay workers up-front and in many ways, it is the *only* way that manufacturing can be done.

                    Governments also can use debt to oil the cogs of government finance, but the more debt that is piled up, the more interest that is used to service that debt, so efficiency goes down. Even governments have to find a level which balances efficiency and expediency. The US unfortunately has forgotten *that* aspect of debt, that there *must* be some meaningful control and an assessment as to how much ongoing debt is tenable. The US is also increasingly vulnerable to their foreign debt purchasers. While the US economy is strong (which it currently is) then there is no problem. However, it *is* a ticking timebomb. If anything were to happen to change that, then it could go pear-shaped extremely quickly. Witness the number of people with sky-high mortgages which was fine while interest rates were extremely low, and now finding that their finances have collapsed with what in actuality is a very modest increase in the base rate to where it used to be generally, an increase that has been on the cards for quite some time. Countries can default on their debt of course, but good luck with exports and imports after doing that after the value of your currency has collapsed. Many prominent economists has been predicting this collapse and it's only really a question of time.

                    Yes, debt is necessary but there *must* be limits, even if those limits are pretty high.

                    1. cornetman Silver badge

                      Re: Debt brake released

                      I would add from Wikipedia (among other references):

                      "The annualized cost of servicing this debt was $726 billion in July 2023, which accounted for 14% of the total federal spending. In December 2021, debt held by the public was estimated at 96.19% of GDP, and approximately 33% of this public debt was owned by foreigners (government and private)."

                      How many tax payers in the US are paying their income tax *purely* to service the US federal debt? If I was a US citizen, that would p*ss me off.

                      I don't care how big your GDP is. That's is an incredibly inefficient way to manage public finances.

                      1. HISTSIZE=10000
                        Facepalm

                        Thanks for confirming Dunning Krugger

                        > How many tax payers in the US are paying their income tax *purely* to service the US federal debt? If I was a US citizen, that would p*ss me off.

                        > I don't care how big your GDP is. That's is an incredibly inefficient way to manage public finances.

                        What if that's the same people - receiving in bond coupons what they paid as taxes?

                        What if a significant part of their revenue (only a fraction of which is paid back as taxes) is generated by economic activity originally set in motion by that very debt?

                        There are times to borrow and times to reimburse. Remember that the 1929 stock crash resulted in a worldwide economic crisis because the then Republican administration didn't intervene at the very moment a huge amount of money had disappeared.

                        From a central bank perspective, this borrow/repay timing matter is termed monetary management. Look it up. There's a reason why there are economy books, degrees, universities and even Nobel Prize. Economy is, just like math or medicine, something one learns before one makes (and trumpets) one's own opinions.

          3. Justthefacts Silver badge

            Re: Debt brake released

            The money was originally democratically approved for one purpose (helping the salaries of minimum wage workers to even survive the winter). And then diverted to vanity projects subsidising only the upper middle classes. Grotesque and sickening. But it’s how the euro-elite works now.

            1. Anonymous Coward
              Anonymous Coward

              Re: Debt brake released

              Are you saying that the Tories are part of the "euro-elite"?

              1. Version 1.0 Silver badge
                Unhappy

                Re: Debt brake released

                Rich people are billions poor these days, unable to 100% fund their politicians, while poor people are only having to look for food.

              2. Justthefacts Silver badge

                Re: Debt brake released

                Yeah, what sort of swivel-eyed lunatic Brexiteer radical I am….to agree with Germany’s constitutional court.

                Have you ever thought to yourself, gee if the German constitutional court think this is unconstitutional, in Germany, errrmmm maybe they might be right? And the people across the world who’ve been telling you that for years, they might also be right? And maybe, the people who you’ve been doffing your cap to, maybe they might not be right?

        2. EricB123 Bronze badge

          Re: Debt brake released

          I cannot believe your post got 8 down votes. Reckless spending is ok? Give corporations a free ride for political gain?

          $33,000,000,000,000 of debt and growing is nothing to worry about I guess.

      2. Charlie Clark Silver badge

        Re: Debt brake released

        We've had lots of such declarations since the debt brake was introduced, this one will pass and be legal. The amount of borrowing for 2024 and beyond could be more difficult to obtain.

    2. Charlie Clark Silver badge

      Re: Debt brake released

      Yes, but that won't give them all the funds they want for these jollies.

  2. Pascal Monett Silver badge
    FAIL

    Neither settlements are secured

    And whose fault is that ? You're the idiot who decided that, hey, there's this money earmarked for something we don't care about any more, let's spend it elsewhere.

    Well it's GOVERNMENT, doofus. That's not how you're supposed to govern. Government is all about, and I know this is going to be a shock for you, but bear with me, government is all about PLANNING.

    Remember that word ? To PLAN. To prepare a budget and see it through.

    Not like me, at the end of the month, deciding that yes, I can go to the restaurant this week-end because I have enough left on my account.

    That's not how you manage a country.

    1. Lurko

      Re: Neither settlements are secured

      "That's not how you manage a country."

      In an ideal world, perhaps. But the reality is that most countries finances are poorly managed, with government spending beyond their means, excepting those that are natural resource rich, or those so poor nobody will lend them any money. By all international measures, Germany is a paragon of virtue amongst large, developed economies.

      1. Yet Another Anonymous coward Silver badge

        Re: Neither settlements are secured

        Except it means the government can never actually do anything and yet it costs more.

        Every government spending decision is argued by every other level of government, every government contract leads to legal challenges by every company that didn't win the bid.

        1. Lurko

          Re: Neither settlements are secured

          "Except it means the government can never actually do anything and yet it costs more."

          Don't talk twaddle. It is eminently possible to run a country with a balanced budget and decent public services as Denmark shows. There's no magic here, it is simply down to deciding what level of public spending you want, and then setting taxes at a level to recover that. Because taxes depend on the whole economy the surplus or deficit will move around a touch, but so long as these are managed prudently that doesn't create the sort of long term problem of out of control public borrowing that the UK and US have.

          1. Yet Another Anonymous coward Silver badge

            Re: Neither settlements are secured

            I meant Germany specifically.

            In defence spending Germany plans to spend pretty much in line with their huge throbbing GDP, but every time they actually choose a system the contract is immediately protested by every other company in the business. That's why they are such good international partners - the only way to get a contract out is to make challenging it a diplomatic incident.

            The French are the opposite, they join every collaborative defence project to sabotage it and then release their national competitor - but I didn't say that !

          2. Justthefacts Silver badge

            Re: Neither settlements are secured

            “Denmark…..there’s no magic here”

            But there *is* magic there. Whenever somebody tells you “socialism can’t work”, point to Denmark where it does work. Socialism is: state provision of *human* services, defined by the people who need them. Schools, healthcare, social provisions, basic services. Socialism isn’t: vanity mega-projects, designed by people 2000 miles away. Socialism is: small companies with collaborative working cultures, with managers who stand back and enable rather than micromanage. Socialism isn’t: massive monolithic organisations with centrally defined agenda and micromanaging line management to Plan - that’s corporate capitalism, and EU crony zombie corps.

            Denmark’s magic appears to simply be. Being Small. The whole country is smaller than a normal Big City. Everywhere is close enough to government to demand what they need, rather than have it allocated by a vanity bureaucracy. And every company is small enough that management is both there in person, and built it up themselves. That’s Magic.

            Socialism works.

            1. Lars Silver badge
              Happy

              Re: Neither settlements are secured

              @Justthefacts

              I wish you understood to write about socialdemocracy and not socialism.

              Social security and social behaviour are not socialist security ...

              What we have in the Nordic countries (including Denmark) is sometimes referred to as the Nordic model, and a lot of it you find in many other countries too.

              It's more or less only the Americans and many Brits who are mentally stuck in that socialist/communist swamp.

              In a two party country everything becomes just left or right.

              Some quotes from the Wikipedia on the Nordic model.

              "The Nordic model comprises the economic and social policies as well as typical cultural practices common in the Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden).[1] This includes a comprehensive welfare state and multi-level collective bargaining[2] based on the economic foundations of social corporatism,[3][4] and a commitment to private ownership within a market-based mixed economy.

              "All the Nordic countries are however described as being highly democratic and all have a unicameral legislature and use proportional representation in their electoral systems. They all support a universalist welfare state aimed specifically at enhancing individual autonomy and promoting social mobility, with a sizable percentage of the population employed by the public sector (roughly 30% of the work force in areas such as healthcare, education, and government),[8] and a corporatist system with a high percentage of the workforce unionized and involving a tripartite arrangement, where representatives of labour and employers negotiate wages and labour market policy is mediated by the government.[9] As of 2020, all of the Nordic countries rank highly on the inequality-adjusted HDI and the Global Peace Index as well as being ranked in the top 10 on the World Happiness Report.

              I think this lady has a point.

              "American author Ann Jones, who lived in Norway for four years, posits that "the Nordic countries give their populations freedom from the market by using capitalism as a tool to benefit everyone" whereas in the United States "neoliberal politics puts the foxes in charge of the henhouse, and capitalists have used the wealth generated by their enterprises (as well as financial and political manipulations) to capture the state and pluck the chickens."

              https://en.wikipedia.org/wiki/Nordic_model

              1. rivimey
                Coat

                Re: Neither settlements are secured

                "the Americans and many Brits who are mentally stuck in that socialist/communist swamp."

                From where I sit, *some* Brits are stuck in that swamp, many others are 100% in favour of the social/human model. The Brits in the swamp are generally fully signed up to the capitalist model.

              2. Justthefacts Silver badge

                Re: Neither settlements are secured

                The Nordic model is socialist. Unfortunately, a lot of lies have been told, to make people think that being called socialist is an insult. Rather than read Wikipedia all day, go and learn some economics and history from the original sources, and you will discover just how badly you have been lied to. Here are some of the main demands of the First Communist Manifesto. Let me know which of them you disagree with, or even find remotely controversial in modern society:

                A progressive or graduated income tax. A nationalised central bank. Free education for all children. An end to child labour in factories.

            2. SundogUK Silver badge

              Re: Neither settlements are secured

              Socialism = the state owns the means of production. The Danish state owns less of the means of production than the US.

              1. Justthefacts Silver badge

                Re: Neither settlements are secured

                Socialism does *not* mean that the state owns the means of production. It does mean that the *workers* own *their* means of production, which meant a rather different thing in 19C Britain than it does today. Statism is more communism than socialism, and *even then* that’s more extreme than what Marx actually wrote.

                Read Marx.

  3. b0llchit Silver badge
    Headmaster

    Optimistic currency conversion

    ...€60 billion (€65.4 billion)...

    I'd like 10% of the €5.4e9 injection :-)

    And, no, your correction submission form requires javascript and captchas. Therefore, not gonna work.

    1. Lars Silver badge
      Coat

      Re: Optimistic currency conversion

      @b0llchit

      60 billion euro is indeed 65.4 billion dollar these days.

      But I agree about the correction submission.

  4. Tron Silver badge

    In UK, chips are sold with fish.

    The US sanctions on exports to China and Chinese allies are going to hamper the US chipmakers, making them reliant on the sort of subsidies that only the Chinese and US governments can afford to hand out (because they were never going to win in a free market). Germany has just discovered that it might not be big enough to go head to head with the big boys on Chinese/US state funding terms. No EU nation may be, although the EU as a whole probably could.

    Pre-Brexit, the UK was on course to overhaul the German economy. Now relegated to the lower leagues, post-Brexit UK can't go head to head with them any more and are paying the Japanese and the Germans to build cars here and the Chinese and Indians to make steel. The latest idiot Tory scheme is to block all sub-£35k wage immigration, which will wipe out the care home sector and much of the agriculture and hospitality sectors. It's as if we have been invaded on the quiet by an enemy power, pretending to be Tories, intent on wiping out the UK economy.

    1. hoola Silver badge

      Re: In UK, chips are sold with fish.

      Whilst I agree with you in principal, most of the automotive manufacturing in the UK has had some sort of incentives even before Brexit.

      In terms of allowing people to work, the record migration figures must suggest that at least some of those people should be doing something in the less-skilled sectors. They cannot all be students or people earning more than £35k.

    2. Anonymous Coward
      Anonymous Coward

      Time flies...

      >>> Pre-Brexit, the UK was on course to overhaul the German economy.

      LOL. (Straight from the Daily Mirror economic page).

      >>> post-Brexit UK [...] are paying the Japanese and the Germans to build cars here

      - BMW acquired Rover Group (ex BLMC) in 1994 (mini, morris, austin, and other horrible cars).

      - Volkswagen acquired Rolls Royce & Bentley in 1998

      - Ford acquired Aston Martin in 1987

      - Tata bought Jaguar and Land Rover (from Ford) in 2008

      - Geely acquired Lotus in 2017

      .

      Brexit start date is 01-02-2020

      This would suggest that the decline of the British automotive industry predates and has nothing to do with Brexit.

  5. Charlie Clark Silver badge

    Good

    I don't mind subsidies for strategic challenges, but both these projects were going to just more expensive white elephants with subsidies per created job in the millions of Euros. That money could be much better spent on infrastructure, just not the roads.

  6. Lars Silver badge
    Happy

    Writing about debt (silent "b")

    We have to write about investments too.

    Investing in tax cuts for the rich I think the Letice proved not to be a good investment, but investing in the industry could well be a good investment.

    In this German case, who knows. Personally I would invest a lot more in Ukraine now.

    https://www.youtube.com/shorts/u4dza4cSrnA

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