German region chief defends massive subsidies to lure chip producer

Billions of euros in state aid must be given to Taiwanese chipmaker TSMC because of Germany’s lack of competitiveness, said Saxony’s chief Michael Kretschmer after his government drew criticism for the huge amount of state aid it plans to pour into a new large-scale project.

In early August, TSMC announced it would invest over €10 billion in a new large-scale plant in Saxony in return for €5 billion in subsidies.

While the news was hailed by the European Commission and the German government as a step towards more EU sovereignty in semiconductor production, critics warned such a large amount of state aid for a single company would distort the market, including vis-à-vis other EU countries with less financial firepower.

In an interview with radio station Deutschlandfunk published on Sunday, Kretschmer (CDU/EVP) defended the decision. “In my opinion, it is necessary that Europe safeguards its digital sovereignty,” the conservative politician stressed.

Apart from an already “distorted” global semiconductor market due to “subsidies in Asian countries,” he argued, the €5 billion for TSMC was also needed to lure the company to Germany even though the country “is no longer competitive.”

For Kretschmer, this is due to high energy prices, too much red tape, and production standards “that do not exist in other countries.”

“We can only be more expensive to the extent that we are better. And my impression is that here, we are starting to reach the tipping point,” he stressed.

Kretschmer’s statements are in direct contrast to those of Germany’s Green Economy Minister Robert Habeck, who said in August that TSMC’s investment was “proof” of the country’s competitiveness.

They also come on the back of an ongoing debate in Germany about how – and on which level of government – red tape can be slashed.

(Julia Dahm | EURACTIV.de)