US chipmaker Intel is delaying the construction of a factory in the eastern German city of Magdeburg, the company announced Monday. 

The postponement comes amid a struggle within German Chancellor Olaf Scholz's ruling coalition on how to close a federal budget gap of €12 billion ($13.7 billion).

What did Intel say about the delay?

Intel boss Pat Gelsinger said the project in the capital city of the German state Saxony-Anhalt is expected to be delayed by around two years.

The firm had planned to build two chip factories in the state, creating some 3,000 jobs.

Gelsinger said Intel needed to implement cost-saving measures.

"We must continue acting with urgency to create a more competitive cost structure and deliver the $10B in savings target we announced last month," Gelsinger said.

"We will pause our projects in Poland and Germany by approximately two years based on anticipated market demand," he said.

The investment was estimated at €30 billion. In 2023, the German government promised federal aid worth €9.9 for the project.

Last quarter alone, Intel made a loss of around $1 billion.

In August, Intel announced that it planned to reduce its workforce by 15%.

Lindner calls for funds to go to plugging federal budget gap

In response to the announcement, Finance Minister Christian Lindner called for subsidies earmarked for the Intel project in Magdeburg to be repurposed towards closing the federal budget gap.

"All funds not required for Intel must be reserved in the federal budget to reduce unresolved financial issues," Lindner said on the platform X, formerly Twitter. "Anything else would not be a responsible policy."

Lindner leads the neoliberal Free Democrats (FDP).

Reuters news agency cited Economy Minister Robert Habeck of the environmentalist Greens as saying the government would discuss how to use the funds "sensibly and carefully and use them for the good of the country."

Reuters cited a source close to Habeck as saying that the subsidies were due to come from the off-budget climate and transformation fund and could not be redirected into the federal budget.

The fund is used to finance climate projects championed by the Greens, but €60 billion was removed from it  after the country's Constitutional Court ruled that funds could not be repurposed from unused COVID-19 credits.

sdi/sms (Reuters, dpa)

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