Governing parties failed to reach a deal on the 2024 budget, prolonging Germany’s fiscal freeze.

The German government missed a self-imposed deadline for reaching a 2024 budget deal Wednesday, fueling concerns that the European Union's biggest economy is headed for a prolonged period of political and fiscal paralysis.

Time is running out for Chancellor Olaf Scholz's government to agree on a spending plan for 2024 and secure required parliamentary approval by year's end. If no budget is in place by January, the government will have to resort to using a temporary budget that keeps a freeze on new spending.

Coalition officials had previously set the goal of agreeing to a 2024 draft budget ahead of a cabinet meeting on Wednesday morning. Economy Minister Robert Habeck even canceled his trip to the COP28 summit in Dubai to stay in Berlin for the ongoing negotiations. But late Tuesday, Scholz, Habeck and Finance Minister Christian Lindner — representing three different parties with differing priorities — failed to reach a breakthrough during discussions.

Government spokesperson Steffen Hebestreit told reporters on Wednesday that even though no deal had been reached, negotiations are continuing "very intensively." He added a note of optimism: "I expect that we will be able to announce something very soon."

Germany's ruling coalition has been in disarray since a bombshell ruling by the country's top court last month blew a €60 billion hole into its finances. The ruling also limited the government's ability to draw money from special funds that had been set up to circumvent the country's constitutional debt brake, which strictly limits deficit spending.

German leaders are now struggling with the immediate task of how to plug an estimated €17 billion gap in the 2024 budget. However, the three parties in Germany's ruling coalition — the Greens, the center-left Social Democratic Party (SPD) and the fiscally conservative Free Democratic Party (FDP) — have sharply divergent political priorities.

The Greens wish to maintain subsidies targeted at accelerating the clean energy transition while the SPD wishes to maintain social benefits. The FDP opposes higher taxes and a suspension of the debt brake for 2024 that would allow for greater spending.

Should the ruling coalition be forced to rely on a temporary budget, the government would continue to function, with social benefits and pensions continuing to be paid out. But that would prolong Germany's political and fiscal standstill.

Economic consequences could follow as well. The budget chaos, which is delaying payout of several promised subsidies for Germany's green transition, has unsettled German industry. Funding for new microchip and battery plants depends on a settled budget.

Meanwhile, political pressure is increasing. There are concerns at the highest levels of government that a persistent inability to reach a budget deal could lead to snap elections next year. Given the plummeting approval ratings of the ruling parties, this is a scenario their leaders will likely want to avoid.

While the path forward remains unclear, government officials sought to project confidence.

"I certainly assume that the cabinet decision will be made this year," Hebestreit said. Yet he could not clarify whether there would be enough time to push a draft budget through parliament before the end of the year.

Indeed, even if ruling parties are able to reach a deal in the coming days, it's far from certain the Bundestag would move swiftly to approve it. The conservative opposition may opt to file a complaint to the Constitutional Court for giving parliament insufficient time to debate a draft budget.

Earlier this year, the conservative opposition filed a similar suit when the government tried to quickly push through a controversial law on heat pumps.

The Greens' co-leader Ricarda Lang said that all sides must now show willingness to compromise in order to reach an agreement and prevent a national crisis.

"We can do this together, and stick together as a government," she said.