Germany declined higher subsidies demanded by American tech giant Intel (INTC.O) that were requested to establish a semiconductor production plant in the European country, the Financial Times reported on Sunday.

Germany's Finance Minister Christian Lindner said that the government does not have the funds to finance such an inquiry, stressing that Berlin aims to reduce its spending and not spread it.

In November, Germany's inflation stood at around 11.3% running high at its fastest pace since the early 1950s as Europe's largest economy has seen painful backfire from Western sanctions on Russia - EU's main energy supplier for decades.

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Cutting off Russian gas resulted in a record surge in energy prices in Europe, leading to major manufacturing plants to either halt production or close factories altogether and relocate to other countries, mainly the United States and China - raising major concerns over a de-industrialization trend in the continent.

The minister's comments came in response to a request made by Intel for the German government to approve a 17-billion-euro ($18-billion) subsidy to build its chip factory. "There is no more money available in the budget," Lindner said in an interview according to FT.

"We are trying to consolidate the budget right now, not expand it."

While the US chip producer was scheduled to receive 6.8 billion euros in backing from the government for its plant, higher energy and construction costs made Intel demand 10 billion euros to compensate for the rising expenses, the newspaper added.

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The company announced in 2022 that it decided to construct a chip-making complex in Germany's Magdeburg city as part of a plan to invest $88 billion into the industry across Europe.

Construction was planned to begin sometime during the first half of 2023 and was expected to be fully operational by 2027.

However, in December 2022, the US conglomerate said that it could no longer commit to the announced dates as the market was going through a "difficult [...] situation" amid increased costs and called for a hike in subsidies. Investment costs could increase by three-fold down the line, the company said then.

According to Intel, the project would boost the entire production process, intensifying research of new technologies and upping the manufacturing and packaging of semiconductors.