German government averts crisis with budget agreement for Europe’s largest economy

BERLIN -- The German government on Friday agreed on a budget for 2025 and a stimulus package for Europe’s largest economy, ending a monthslong squabble that threatened to upend Chancellor Olaf Scholz’s center-left coalition.

Scholz, a Social Democrat, and leaders of the Free Democrats and Greens agreed on the budget early Friday after marathon talks, German news agency dpa reported, citing party sources. The leaders were expected to provide details at a news conference later on Friday.

Scholz replaced long-serving conservative Chancellor Angela Merkel after federal elections in 2011, heading a coalition built around a program of modernization in areas including climate protection, infrastructure and research.

To pay for it, the administration sidestepped rules limiting public borrowing by repurposing 60 billion euros ($65 billion) in unspent emergency credits raised for measures to soften the impact of the COVID-19 pandemic.

But that maneuver was ruled illegal in November 2023 by the Constitutional Court, prompting a government scramble to seek spending cuts in areas from farm subsidies to overseas development aid.

The squeeze opened rifts within the Social Democrats and between the financially conservative Free Democrats and the environmentalist Greens, with the latter calling for parliament to suspend the so-called “debt brake” and allow more emergency borrowing, including to keep supporting Ukraine in its war with Russia and to strengthen Germany’s own armed forces.

The disagreements had fueled speculation that the already unpopular government could collapse and prompt a snap parliamentary election in which Germany could follow other European countries by swinging toward the political right.