For the past quarter century, Germany’s finance ministry has been housed in a vast, gloomy edifice in central Berlin that used to be the power base of Hermann Göring, the Nazi leader and Luftwaffe commander-in-chief.

Officials who work at the Detlev-Rohwedder-Haus find it a creepy place, but they consoled themselves with hopes of escape. Plans were afoot to construct a brand new, €600mn extension on the other side of the road.

But the scheme has been blocked, the casualty of an escalating budget row that is destabilising Chancellor Olaf Scholz’s three-party coalition and bringing cabinet business to a grinding halt.

Officials cannot hide their disappointment. “It would have been so nice to move,” said one, ruefully. “Now we’re stuck in this Nazi building forever.”

The controversy has its roots in a spending dispute between Scholz and Christian Lindner, Germany’s hawkish finance minister. Scholz is overseeing a €777mn expansion of the chancellery, a plan conceived under his predecessor Angela Merkel. Lindner said this month it was “unnecessary”, considering so many people now work from home.

When Scholz’s aides countered that Lindner’s ministry was also expanding, at huge cost to the German taxpayer, the finance minister announced he would place the project under review.

The dispute is emblematic of the rising tensions in Scholz’s government, a coalition made up of his Social Democrats (SPD), Lindner’s Free Democrats (FDP) and the Greens. It is the first such three-party alliance in German postwar history and the strains are beginning to show.

“It’s increasingly looking like an unhappy marriage, and there’s no easy way out of it,” said an official.

For the first year of its existence, their differences were papered over by the war in Ukraine. “We were just in crisis mode the whole time,” said a senior official, “and relations were pretty harmonious.” 

But with a semblance of normality now returning, internal rivalries and mutual recriminations are increasingly undermining coalition unity and threatening to sabotage the government’s legislative agenda.

The tensions are even spilling over into the EU. Last month FDP transport minister Volker Wissing blocked an EU initiative to ban the sale of new internal combustion engines in the EU by 2035, enraging the Greens and causing consternation in European capitals.

Some think the rancour is so great that it could trigger a break-up of the coalition. “I’ve always dismissed that possibility but these days I’m not so sure,” said Andrea Römmele, professor of communications in politics at the Hertie School in Berlin. “We have to think the unthinkable.”

MPs say the three parties are deliberately blocking each others’ initiatives, with some 30 bills falling victim to internecine brinkmanship.

“Too many things are being taken hostage,” said the senior official. “A lot of things are being linked that have nothing to do with each other. It’s creating a blockage.”

Steffen Hebestreit, Scholz’s spokesman, has played down the conflicts. “These are three parties that aren’t suddenly going to agree on everything because they’ve formed a government together,” he said this week.

“The important thing is that there’s a strong desire to reach good, constructive solutions, and that is very much this government’s goal.” 

Hopes are high that some of the disagreements can be resolved this Sunday at a crucial meeting of the coalition committee, an informal body bringing together party leaders, ministers and senior MPs.

The list of Gordian knots to cut through is, however, long. Lindner is blocking a €12bn plan advanced by the Greens and SPD for a “basic child allowance” aimed at alleviating child poverty.

He is also resisting calls to increase defence spending by €10bn, raise taxes on the rich and abolish “environmentally harmful” subsidies, such as perks for company cars.

Lindner, who is committed to Germany’s “debt brake”, its constitutional restriction on new borrowing that was suspended during the pandemic and was reinstituted this year, has said the ministries have demanded extra spending totalling €70bn.

That, he told ARD TV this month, shows a “lack of understanding of the fiscal realities” Germany faces. The government has a structural deficit that was obscured by vast borrowing programmes during the pandemic and the energy crisis, he said.

“We have a massive spending problem,” he added. “We have a situation where we lack the revenues for existing state expenditures”, let alone additional ones.

Pure party politics is also forcing Lindner to dig in his heels. His Free Democrats are performing poorly in the polls and lost the last five regional elections. “It’s crunch time for the FDP,” said Römmele. “They’re fighting for their very existence.”

The Greens, too, are under pressure, as was evidenced by an extraordinary outburst by Green economy minister Robert Habeck on ARD this week.

Habeck has come under intense criticism over a bill to ban the installation of fossil fuel-powered heating systems in private homes from 2024. The FDP says it would impose excessive costs on homeowners.

In an interview on Tuesday, Habeck lashed out at unnamed government colleagues for leaking an unfinished version of the bill to the press. “Whoever interprets transparency as meaning you can blacken other people’s characters is deliberately destroying trust in this government,” he said.

The FDP, meanwhile, has been just as combative. Wolfgang Kubicki, a senior Free Democrat MP who is deputy chair of the Bundestag, sparked widespread outrage this week by comparing Habeck to Russian president Vladimir Putin, who is wanted for alleged war crimes.

“Putin and Habeck have a similar conviction that the state, the Führer, the Chosen One knows better than ordinary people what’s good for them,” he said. He apologised for the remark.

Some politicians have criticised Scholz for failing to impose cabinet discipline. His aides say that is not his style. “Leadership doesn’t mean banging the table like some authoritarian,” Hebestreit said.

Others see it differently. “Scholz should just lock them in a room until they agree on everything,” an official said. “Instead he just shows stoic calm while the FDP and Greens storm the barricades.”