(Bloomberg) -- German Chancellor Olaf Scholz is holding further talks with his two most senior coalition partners Tuesday as his fractious ruling alliance seeks to finalize next year’s budget and set aside differences over how to lift Europe’s biggest economy out of its slump.
With the next scheduled election less than a year away, relations between Scholz’s Social Democrats, the Greens and the Free Democrats have become increasingly fraught, prompting speculation the three-party alliance could break apart and trigger an early national vote.
After a round of talks Monday, Scholz will meet again Tuesday with Economy Minister Robert Habeck of the Greens and Finance Minister Christian Lindner of the business-friendly FDP to try to find common ground ahead of the next regular meeting of a wider group of senior coalition officials on Wednesday.
The government has presented a chaotic image in recent days, with Scholz and his ministers holding rival meetings with industry groups and labor officials and publishing conflicting policy papers.
Habeck, who is also the vice chancellor, appealed to the alliance to show a sense of responsibility given the ongoing war in Ukraine and uncertainty surrounding the outcome of Tuesday’s US election.
“This is the worst time to let a government collapse and there is absolutely no room for irresponsibility,” Habeck said late Monday in an interview with public broadcaster ARD.
“Putin’s troops are advancing in Ukraine, and we are about to face an American election that could send shockwaves around the world,” he added.
“We need to look out toward the horizon and not just at our own election programs to see what level of responsibility we currently have to bear.”
Scholz has urged his partners to focus on pragmatic solutions to Germany’s challenges rather than “ideology.”
There was another reminder of the scale of those challenges on Tuesday when Schaeffler AG became the latest manufacturer to unveil negative news, announcing it will cut about 4,700 jobs in Europe and close two sites.
The auto parts maker and companies across key sectors — particularly in the car industry — are wrestling with weak demand, high energy costs and bloated bureaucracy, which the government has pledged to reduce.
Quizzed Monday by reporters about the sustained infighting after hosting NATO Secretary General Mark Rutte at the chancellery, Scholz acknowledged that coalitions are “sometimes a bit challenging” while insisting that the government “will carry out its tasks,” including getting the 2025 budget through parliament by the end of the year.
The finance plan for next year has been another major source of friction within the coalition, with available funds limited by Lindner’s insistence on adhering to Germany’s strict borrowing rules.
“It’s about us overcoming the challenges we face in difficult times,” Scholz said. “There are tasks that must be addressed and can be addressed. We have to work in a serious way and that is what I expect from everyone.”
Greg Fuzesi, an economist at JPMorgan in London, said that even if the election was brought forward, the victorious party would still face the challenge of needing to combine forces from the center-right and center-left to form a viable ruling alliance.
“Hence, difficult decisions about prioritizing solutions in light of a (largely self-imposed) fiscal constraint will be faced by any government,” Fuzesi wrote in a note.
“A risk is that, whether through new elections or through an overly long run-up to the regularly scheduled vote in September 2025, German policy-making grinds to a halt for a while,” he added.
Opinion polls suggest that voters are roughly split on whether the election should be brought forward. A Forsa survey for Stern magazine published last week showed that 52% are against a snap election, with 45% in favor.
--With assistance from Kamil Kowalcze, Petra Sorge, Michael Nienaber and Christoph Rauwald.
(Updates with additional Habeck comments starting in fifth paragraph.)
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