Industrial policy: Crisis surrounding Northvolt: Scholz and Habeck defend themselves

The red-green federal government is defending itself against criticism of its funding policy in view of the crisis at the Swedish battery manufacturer Northvolt. Chancellor Olaf Scholz (SPD) said during a government survey in the Bundestag with a view to the development of electromobility that strategic components had to be manufactured in Europe. That’s why it’s right for the federal government to support the construction of battery factories. “We will continue to do that.” There is no reason to let this go.

Vice Chancellor and Economics Minister Robert Habeck also defended state subsidies for companies. “The reason for this is essentially the resilience of the European and German economy,” said the Green politician before a questioning in the Bundestag’s budget committee. Germany is 80 percent dependent on China for battery production. The funding programs also came largely from the previous government – i.e. under Chancellor Angela Merkel (CDU). They made the right decision.

The financially troubled Swedish battery manufacturer Northvolt has filed for bankruptcy protection in the USA. The company filed for restructuring under Chapter 11 of the US Bankruptcy Code. According to the company, its battery plant, which is being built in Heide, Schleswig-Holstein, is not affected. The crisis could be expensive for the federal government and the state of Schleswig-Holstein. The ailing company received around 600 million euros from the state development bank KfW, for which the federal and state governments each guaranteed half.

Scholz said it was very unfortunate that Northvolt’s corporate plans were not currently developing as hoped in either Europe or Germany. Habeck said that many other companies had already restructured and then successfully returned to the market. There is definitely a chance that Northvolt will reposition itself, restructure itself and keep the funds.

Budget Committee deals with the issue

The Ministry of Economic Affairs requested a so-called over-plan expenditure of around 620 million euros from the Budget Committee. This serves to fulfill the federal government’s legal obligations from an allocation transaction by the state development bank KfW in connection with the subscription to a convertible bond issued by Northvolt in December 2023. Even if the German project company in Heide was not directly affected, KfW’s claim to repayment from the convertible bond became due immediately with the opening of Chapter 11 proceedings, according to a letter to the budget committee.

Ministry circles said that the convertible bond was a standard, aid-free instrument. This is also shown by the fact that numerous well-known institutional and industrial investors as well as pension funds subscribed to Northvolt AB’s convertible bond and assessed the risk in the same way. A total of 3.3 billion US dollars (around 3.1 billion euros) were subscribed. According to sources, Northvolt had customer orders worth high double-digit billions from top names in the automotive industry.

Christian Dürr, parliamentary group leader of the former traffic light partner FDP, said that the Northvolt insolvency was an example of a “failed planned economy subsidy policy” that would ultimately have to be paid for by taxpayers. The FDP budgetary Karsten Klein said: “Whether it’s battery cells, computer chips or green steel, Habeck’s planned economy castles in the air all collapse in the reality of the social market economy. He is the most expensive economics minister of all time for the German taxpayer.”

CSU General Secretary Martin Huber spoke of a “disastrous waste of taxes”. The CDU economic politician Julia Klöckner accused Habeck of having “sloppily done” Northvolt. “For them, beautiful pictures were more important at the groundbreaking than checking tax money.” 620 million euros, a lot of money given the strained budget situation, now seemed lost.

The planned billion-dollar state funding for a chip factory owned by the US company Intel in Magdeburg is also controversial. Intel has since postponed construction of the plant due to cost-cutting measures.

Habeck speaks of economic security

Habeck defended the government’s course: “Our semiconductors, i.e. microchips, are largely produced in Taiwan and South Korea.” Taiwan has conflicts with China, South Korea is North Korea’s neighbor. “Our entire economy in the high-tech sector depends on this. It’s a bold bet to say that these are secure supplier conditions, they will definitely be like this for the next 20 years.” That is why it is important to invest in the resilience of the economy. “This is an economic security program, but of course security has a price. Otherwise companies won’t produce in Europe.”