German government avoids crisis by reaching budget agreement for the largest economy in Europe.

The German government has recently reached an agreement on a budget for the year 2025 as well as a stimulus package for the country’s economy. The resolution of this issue comes after a prolonged dispute that posed a threat to Chancellor Olaf Scholz’s center-left coalition.

Chancellor Scholz, along with leaders from the Free Democrats and Greens, finalized the budget early on Friday following extensive negotiations. Details of the budget and stimulus package were expected to be shared in a news conference later in the day.

Chancellor Scholz took office after the federal elections in 2011, succeeding conservative Chancellor Angela Merkel. His coalition government focuses on modernization efforts in areas such as climate protection, infrastructure, and research.

In order to finance these initiatives, the government repurposed 60 billion euros in unspent emergency credits initially raised for COVID-19 pandemic relief. However, this move was declared illegal by the Constitutional Court in November 2023, leading to a scramble to identify spending cuts in various sectors.

The disagreement over how to address the budget shortfall created tensions within the Social Democrats and between the Free Democrats and Greens. The Greens, in particular, advocated for additional emergency borrowing to support Ukraine in its conflict with Russia and to bolster Germany’s military capabilities.

The internal divisions within the government had raised concerns of a potential collapse and an early parliamentary election, which could have shifted Germany’s political landscape towards the right.