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Germany is exploring ways to fund multibillion-euro subsidies for energy-intensive companies as part of Chancellor Friedrich Merz’s pledge to boost the competitiveness of the country’s heavy industries.
The measure is part of efforts to reduce electricity costs for industrial groups to revitalise the Eurozone’s largest economy after its longest postwar period of stagnation.
But the plan is at risk after promised electricity tax cuts for households were shelved because of budget constraints.
The financial concerns have created the first significant tensions within the ruling coalition between Merz’s CDU, its sister Bavarian party the CSU and the Social Democrats.
Last week, CSU party leader Markus Söder criticised finance minister and vice-chancellor Lars Klingbeil, who is also the co-leader of the SPD, for not delivering electricity tax cuts for consumers in his first budget. The measure would have cost about €5.4bn annually.
Notwithstanding those budgetary concerns, Katherina Reiche, the German economy minister, wants to expand the number of German companies eligible for electricity price subsidies from 350 to 2,200, according to people with knowledge of the plan.
The measure would fund up to half of companies’ electricity bills over three years and would cost the state about €4bn, according to preliminary estimates, they said.
The economics ministry expects the plan will comply with the EU’s new state aid framework, outlined last month, they said.
Reiche, a former energy executive from the CDU, pressed Brussels to allow greater state support for Germany’s heavy industries, arguing that the Eurozone would benefit if its largest economy started growing again.
Germany has endured higher energy costs in part because of its closure of nuclear energy and its decision to wean itself off cheap Russian gas after Moscow’s full-scale invasion of Ukraine in 2022.
The economy ministry said the scheme would aim to deliver “swift and reliable” support for the chemical, glass and plastics industries, which have “a far-reaching impact on other sectors through the value chains”.
“We are developing a viable concept that we will co-ordinate within the government and closely monitor in co-operation with the European Commission,” it said.
Last month, the Commission said it would permit member states to subsidise as much as half of industrial companies’ power costs to help them decarbonise. The decision was viewed by many in Brussels as a way to help Merz fulfil his campaign promise.
But a post-election spending spree has saddled Merz’s coalition with another problem: a potential breach of the EU’s fiscal rules. Berlin, which has loosened its constitutional borrowing limit to boost defence and infrastructure spending, will submit its expenditure plan this month for the next four years.
Long the guardian of EU’s fiscal discipline, Germany now predicts that its federal deficit will rise to €82bn this year, from €33bn last year. That is expected to widen to €126bn by 2029, according to the German finance ministry.
The planned reduced electricity price for industries has yet to be examined by the finance ministry, the people familiar with the matter said. If adopted, the EU Commission would have to formally approve the state aid.
Additional reporting by Barbara Moens in Brussels
