Germany's coalition argues over Intel subsidies in new budget dispute

BERLIN (Reuters) - A new budget dispute emerged within Germany's ruling coalition on Monday, with the finance ministry saying funds no longer needed to subsidize Intel's new chip-making plants should be used to balance the books and the economy ministry pushing back.

Berlin had in June agreed subsidies worth nearly 10 billion euros ($11.13 billion) with the U.S. chipmaker to build two leading-edge facilities in the eastern city of Magdeburg as part of its expansion push in Europe.

Intel CEO Pat Gelsinger released a memo to employees on Monday outlining a number of steps the company would take to revive itself which included pausing construction at its project in Germany for two years.

The announcement came amid a struggle within German Chancellor Olaf Scholz's fractious three-way coalition to close a 12 billion euro gap between projected spending and revenue in the 2025 budget.

"All funds not required for Intel must be reserved in the federal budget to reduce unresolved financial issues," Finance Minister Christian Lindner of the fiscally hawkish Free Democrats (FDP) wrote on the social media platform X. "Anything else would not be a responsible policy."

Economy Minister Robert Habeck of the environmental Greens however said the government would discuss how to use the funds "sensibly and carefully and use them for the good of the country."

A source close to Habeck said that the subsidies were due to come from the off-budget climate and transformation fund meaning they were not available to plug the regular budget.

The fund is used to finance numerous climate projects that are particularly important to the Greens but 60 billion euros were cut from it last year due to a constitutional court ruling, exacerbating friction within the coalition over money.

($1 = 0.8984 euro)

(Reporting by Christian Kraemer; writing by Sarah Marsh; editing by Jonathan Oatis)