Chancellor Olaf Scholz and his allies have struck an agreement in principle on Germany's 2025 budget, a source close to the ruling coalition said early Friday, ending a protracted clash over spending.
"An agreement was reached" at the end of the night between Scholz, Vice-Chancellor and Economy Minister Robert Habeck of the Greens, and Finance Minister Christian Lindner of the pro-business FDP, who had been in talks since Thursday afternoon, the source said.
Details were not immediately available on the compromise, though it does include a plan to support growth.
Scholz will now have to present the plan to coalition parliamentarians Friday morning.
The drawn-out conflict over the budget had threatened to topple the three-way coalition, and the agreement appeared to put an end to weeks of negotiations between Scholz's Social Democrats (SPD), the Greens and the FDP.
The announcement comes as deputies were set to break for the summer holidays, and much later than normal amid the bitter spending disputes.
The FDP's Lindner had demanded close to 30 billion euros ($32 billion) in savings -- a proposal baulked at by the Greens and SPD.
Particularly contentious was Lindner's call to make savings on benefits spending, which the SPD pushed back against strongly.
Scholz's already fractious coalition came under increased pressure after the governing parties took a hit in European Parliament elections last month, and the tense negotiations drove speculation that the budget represented a make-or-break moment.
Next year's budget was initially slated to be approved by the cabinet on Wednesday, but now looks more likely to get full ministerial approval on July 17 after the details are ironed out.
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, has also limited room for new spending.
The constitutional court in Karlsruhe found that the government had broken the rule by trying to move money around special funds outside the main budget.
The judicial setback forced the government to freeze spending for the remainder of 2023 and apply a provisional budget for 2024 until February, as officials redrew the spending plan.
Tighter spending constraints prompted calls for Germany to rethink its tough debt rules to make high-priority investments in the armed forces and decarbonisation.
While the Greens have openly discussed a reform to the brake, Lindner has insisted on sticking to the spending limits.
German media reported that Lindner prevailed on that point in the negotiations and that the defence ministry had received a much smaller increase than it requested.
The budget agreement was struck against a gloomy economic backdrop, as Germany's growth has stagnated due to high inflation and a manufacturing slowdown.
