Germany’s Economy Ministry published a draft law late last week that overhauls the country’s renewable-energy funding system, confirming that fixed feed-in tariffs for new installations will be gradually phased out from 2027. In a parallel reversal, Economy Minister Katherina Reiche abandoned an earlier plan to end all subsidies for small rooftop solar systems, instead proposing a four-year self-marketing bonus and a lower, time-limited feed-in price. The twin moves reflect the mounting fiscal and physical strain on Europe’s largest economy: the state expects to spend about €16 billion on renewable support this year, with an additional €3 billion compensating operators forced to curtail generation because the power grid cannot absorb surging solar output.

The subsidy overhaul lands as Germany’s automotive industry—a pillar that directly and indirectly supports 3.2 million domestic jobs and accounts for 8 per cent of EU GDP—issues its starkest warnings yet. The VDA industry association called for “personnel adjustments”, tax incentives and labour-market flexibility, citing a persistent loss of competitiveness. Volkswagen is considering eliminating up to 100,000 positions globally and closing four German plants, while Mercedes-Benz has delayed bonus payments and increased weekly working hours to 40 without extra pay. A Boston Consulting Group study cited in the European press estimates continental production overcapacity at 5.6 million vehicles, implying that 35 of Europe’s 90 factories may need to shut.

Cost pressures are also reshaping investment flows. A survey by the DIHK chambers of commerce shows 43 per cent of German industrial firms plan foreign investments in 2026, a three-point rise on the previous year, with cost reduction now overtaking market development as the primary motive. Gardena is shifting 250 jobs to the Czech Republic, and BASF is moving service functions to India. While the state development bank KfW notes a recent drop in the number of mid-sized firms active abroad, it attributes this to deteriorating trade conditions rather than a return of production.

The fiscal logic driving Berlin’s subsidy recalibration is visible beyond Germany. In Israel, banks are seeking to replace the CEO of their industry association after a special 3-billion-shekel tax was imposed on the sector to help close the budget deficit, and the Bank of Israel required an additional 3 billion shekels in consumer benefits. The banks hope new leadership can better manage regulatory relations and public criticism, mirroring the political pressure German policymakers face to contain subsidy bills while preserving industrial employment. The next concrete milestone is the 20 July deadline for households to submit heat-pump grant applications under the old, more generous rules; for the auto sector, attention turns to the implementation of VW’s restructuring plan and any formal EU response to industry demands for regulatory relief.