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German government averts crisis with budget deal for Europe’s biggest economy
BERLIN (AP) — The German government said Friday it has reached an agreement on the 2025 budget and a stimulus package for Europe’s largest economy, easing a months-long dispute that threatened to topple Chancellor Olaf Scholz’s center-left coalition.
Scholz, a Social Democrat, and leaders of the Free Democrats and Greens reached an agreement on plans including higher defense spending and affordable housing after marathon talks that dragged on into the early hours of Friday. Scholz said ministers would formally approve the plan at a Cabinet meeting later this month.
By balancing security, social cohesion and economic growth, Scholz said the budget was designed to reassure citizens upset by the war in Ukraine, the impacts of climate change and irregular migration, and offer an alternative to the “divisive” policies of far-right parties that are gaining ground across Europe.
“We don’t need an either-or policy,” Scholz said. “We need support for Ukraine and stable pensions, modernization of industry and affordable energy, a strong army and good roads and stable bridges.”
Scholz replaced conservative Chancellor Angela Merkel after the 2011 federal election, leading a coalition built around a program of modernization and digitalization in areas such as climate protection, infrastructure and research.
To help pay, the government has bypassed rules limiting public borrowing by redirecting 60 billion euros ($65 billion) in unused emergency credits raised to measures to mitigate the impact of the COVID-19 pandemic.
But that maneuver was ruled illegal in November 2023 by the Federal Constitutional Court, sending the government into a scramble to seek spending cuts in areas ranging from agricultural subsidies to foreign development aid.
The squeeze has opened fissures within the Social Democrats and between the financially conservative Free Democrats and the environmentalist Greens, with the latter calling on parliament to lift the so-called “debt brake” and allow more emergency borrowing, including to continue supporting Ukraine in its war with Russia.
The disagreements have fueled speculation that the already unpopular government could collapse and lead to an early parliamentary election, in which Germany could follow other European countries in shifting to the political right.
Opposition leaders said on Friday they were skeptical of the government’s budget arithmetic, especially its ability to fund an expanded defense budget, and predicted that coalition partners would clash again over the details.
Friedrich Merz, Merkel’s successor at the helm of the Christian Democratic Union, dismissed the deal as “a truce for an exhausted coalition. … When we return in September from the parliamentary recess, then the arguments will really start to happen.”
Scholz, however, said coalition leaders had crafted a budget that respected borrowing limits and still funded priority areas for all three parties.
To support economic growth, the government plans to create incentives for investment, including allowing companies to write down the value of assets more quickly, supporting research and development, reducing red tape and promoting the development of renewable energy.
Scholz also said the government would continue to meet a NATO target of spending at least 2 percent of GDP on defense, even after his defense minister failed to force a steeper increase. Germany is Ukraine’s second-largest arms supplier after the United States.
“Germany must be an anchor of stability in Europe,” he said. “As a country at the heart of the continent with strategic importance, economic power and political clout, we must not turn away from the world.”