The three parties in the German government are embroiled in a heated conflict over the 2025 budget, with experts cautioning that the deadlock could be the breaking point for the fragile coalition.

Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens and the liberal Free Democratic Party (FDP), who came to power in 2021, have until July 3, the end of the current parliamentary term, to reach a compromise.

FDP Finance Minister Christian Lindner, a fiscal hawk, is demanding close to 30 billion euros ($32 billion) in savings – which the Greens and SPD have balked at.

The coalition has faced many rows in the past, but some pundits believe this could be the one that finally blows the government apart.

“These talks will decide the coalition’s continued presence in office,” said the Sueddeutsche Zeitung daily this week.

While budget discussions have been difficult before, they have never lasted this long.

“It’s much more difficult than usual,” Jacques-Pierre Gougeon, an expert on German politics at the French Institute for International and Strategic Affairs, told Agence France-Presse (AFP).

He pointed to a gloomy backdrop due to Germany’s recent poor performance, with Europe’s biggest economy hit hard by high inflation and a manufacturing slowdown.

Tax woes

According to the Finance Ministry, tax revenues for 2025 are set to be 11 billion euros lower than originally forecast.

A ruling by the country’s top court in November that the coalition had contravened the constitutionally enshrined “debt brake,” a self-imposed cap on annual borrowing, also has limited room for new spending.

In addition, all three parties are increasingly worried about their own levels of support after doing badly in this month’s EU elections – in which the opposition conservative Christian Democratic Union (CDU)-Christian Social Union (CSU) bloc came first, with the far-right Alternative for Germany (AfD) second.

A key sticking point in discussions centers on unemployment benefits.

Lindner wants to restrict the current payouts, which he believes are too expensive and do not provide enough incentive to get people to return to work.

But the SPD won’t accept this. Improving benefits was central to the party’s 2021 election campaign, as it sought to win back the support of lower-income voters.

“Politically, the Social Democrats cannot afford to give it up,” said Gougeon.

There is also disagreement about any measures affecting diplomacy and defense at a time when Germany is seeking to stand up for liberal European values and overhaul its creaking military in the wake of Russia’s invasion of Ukraine.

Defense Minister Boris Pistorius is calling for an increase in his ministry’s budget, and for military spending not to be covered by the debt brake.

Debt disagreement

“It would be disastrous to have to say in a few years’ time: We saved the debt brake at the expense of Ukraine and the European security order,” said Foreign Minister Annalena Baerbock from the Greens.

While calls have grown for the debt rules to be relaxed, Lindner and the FDP categorically refuse to countenance any changes.

Maintaining the brake is an “existential question” for the party, according to Gougeon.

Lindner did, however, promise on Wednesday not to push for any savings in defense.

Scholz, Lindner and Economy Minister Robert Habeck, from the Greens, are due to meet on Sunday in an attempt to make progress.

The aim is to prevent “the budget crisis from turning into a crisis of confidence,” which could lead to new elections, according to the left-leaning daily TAZ.

The parties may ultimately compromise as the alternative – a collapse of the government – will not be in their favor.

They “know that they would be swept aside if there were new elections, and will want to avoid them,” said Gougeon.

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