Germany’s economy minister urges Brussels to back support plan for heavy industry

Germany’s new economy minister has warned that the survival of the country’s heavy industry is vital to Europe’s sovereignty, as she pleaded for Brussels to approve a plan to support German energy-intensive companies.

Katherina Reiche said she was hopeful the European Commission understood the need for Berlin to subsidise electricity costs for sectors such as chemicals and steel to help end Germany’s longest postwar period of stagnation.

She emphasised that Berlin was determined to “do its homework” by implementing structural reforms and unleashing a €1tn investment plan into its infrastructure and its defence industry. But she also made the case for safeguarding other manufacturing industries, underscoring previous mistakes that led to an over-reliance on Russia and China.

“Not having steel production in Germany would mean entering into new dependencies,” Reiche told the Financial Times in her first interview to an international media organisation. “To no longer have basic chemical production would mean entering into new dependencies.”

She added: “Growth in Germany is important to generate growth in Europe again. The Commission had to revise down its growth targets for this year . . . We must therefore do everything we can to strengthen Germany as a business destination again.”

The Eurozone’s largest economy is reliant on heavy manufacturing industries, which have been facing higher energy costs in part because of its exit from nuclear energy and Russia’s full-scale invasion of Ukraine in 2022. This has added to the burden for its export-focused companies, which are also struggling with competition from China and domestic labour shortages. Now Donald Trump’s threat of 50 per cent tariffs on EU imports could tip Germany into contraction this year, after three years of stagnation.

The new coalition of conservative chancellor Friedrich Merz has promised to reduce electricity costs by at least five cents per kilowatt-hour by cutting taxes and grid charges as part of a broader drive to revive growth and support the country’s carmakers and other manufacturers.

It has also pledged to introduce a special reduced electricity rate for energy-intensive industries such as steel, glass, cement and chemicals.

The plan risks falling afoul of EU rules on state aid, that are designed to prevent member states from introducing unfair advantages for their economies. But the rules were made more flexible following Russia’s 2022 invasion of Ukraine so that countries could backstop industries suffering from record high gas prices.

“In order to keep energy-intensive industries — but not only these — in Germany, we need state aid approval”, Reiche said, adding that a current price compensation system linked to indirect carbon dioxide costs should also be “extended”.

She argued that growth was essential to the health of democracy on the continent: “We are also in competition between systems and Europe must show — and we will show — that we are able to react quickly. To get better and still safeguard our democratic processes and uphold our values.”

Reiche, 51, is one of two former chief executives brought into the cabinet by Merz, whose Christian Democrats (CDU) won parliamentary elections in February and took office earlier this month.

Though she previously spent 17 years as a CDU member of the Bundestag and served twice in junior ministerial roles during Angela Merkel’s time in office, she spent the past decade working in business. For the last five years she was the chief executive of Westenergie, a subsidiary of the German power giant Eon.

Reiche signalled a break with the previous government on European energy co-operation. In Brussels former chancellor Olaf Scholz’s coalition fought French efforts to push nuclear energy as part of the EU’s decarbonisation drive. Reiche said it was important to work constructively with Paris on such issues.

“My approach is to look less at what divides us and more to find the common ground,” she said, adding that one area would be nuclear fusion technology, which unlike fission, would not generate any long-lived radioactive waste.

Reiche stressed the need to strike a balance on China, which is one of the most important markets for German exporters including big carmakers but is also increasingly seen as an economic and geopolitical threat to Europe.

Germany, she said, needed to reduce its dependency on Chinese products and raw materials over time, while adding that it should maintain a “reasonable, good relationship” with Beijing. “It is a huge market, it is an economic power, it is a military power . . . Our companies are heavily invested there. A lot of added value comes from investments in China.”

Reiche was scathing about recent calls from a string of German politicians, including several in her own party, for the Nord Stream gas pipelines between Russia and her country to be resurrected.

“Back to Russian gas? With a regime that bombs Kyiv every day? It is absolutely inconceivable for me,” she said. 

She argued that Germany — which used to be Gazprom’s biggest customer in Europe — instead needed to intensify efforts to diversify its supply. “We must do everything we can to tap into other sources of energy.”

Reiche, who grew up under communist rule in east Germany, said that the deep-rooted sympathy for Russia among some parts of the region were “alien” to her. “My parents, grandparents and great-grandparents had a company that was expropriated several times, so my relationship with the former Soviet Union is not free of tension,” she said. “I was very happy when the wall fell.”

Germany, she said, had “succumbed to a fallacy” in believing that Russian gas supplies were secure no matter what happened in the world, adding: “We paid a bitter price for this naive attitude.”

The far-right Alternative for Germany, which came first in many eastern constituencies in February, was “exploiting the feeling of uncertainty” there, she said, noting that these states went through decades of political and economic upheaval under the Nazi regime, the German Democratic Republic and reunification.

She recalled some of the prejudice West Germans held towards their eastern cousins. “What I can say is that in the 90s, East Germans’ curiosity about west Germany was definitely higher than west Germany’s about the East,” she said.

“This region is undergoing permanent structural change, or there is a feeling that there is never a break because it is never finished,” she added. “Time and again, there is another change. And that is also reflected in the feeling of uncertainty, a fear of losing prosperity, of lower prospects.”

Additional reporting by Alice Hancock in Brussels