BERLIN — A looming €30 billion hole in the Germany’s federal budget for 2027 will pose a major challenge to the coalition government led by Chancellor Friedrich Merz, Finance Minister Lars Klingbeil warned on Wednesday.

The 2027 budget “will place massive demands on us in government,” Klingbeil said in Berlin. “This will be one of the biggest domestic policy challenges we have to tackle in the next twelve months.”

Germany’s previous left-leaning government led by former Chancellor Olaf Scholz collapsed due to budget constraints and massive disagreements on spending in November, setting the stage for the February snap election that ushered Merz and his conservatives to power in a coalition with the center-left Social Democratic Party (SPD).

In order to avoid a similar fate, Merz — before even taking office — moved to pass landmark legislation loosening Germany’s so-called “debt brake,” overturning years of self-imposed fiscal austerity and allowing for massive spending on defense while unlocking €500 billion in borrowing for infrastructure. But despite that legislation, a major budget gap still looms, forcing Merz’s government to make tough spending decisions in the next several months.

“There’s no time to lose now,” said Klingbeil, a leader of the SPD. “Everyone in the cabinet will have to save. There’ll be a strict consolidation course, which I also demand of everyone.”

Klingbeil, who also serves as vice chancellor, proposed a combination of measures to close the 2027 budgetary gap. He said the German economy must grow more rapidly to increase revenue while, at the same time, the government reassesses subsidies.

The €30 billion gap projected for 2027 is due to increased interest rate payments and to new coalition spending on measures such as the so-called “mothers’ pension” — a benefit that grants additional retirement credits to parents who spent time raising children instead of working — Klingbeil said.

Even if the necessary cuts are found, the coalition’s spending crunch is not likely to end in 2027. The government will have to close a budgetary gap of approximately €172 billion by 2029, according to the finance ministry.