Discord on how to revive a flagging economy and carve up a tight budget has flared between Scholz's Social Democrats (SPD) and his junior partners, the Greens and the Free Democrats (FDP).
A do-or-die moment could come when the three rowing parties, after a series of crisis talks to resolve the deadlock, are due to meet for coalition committee talks Wednesday evening at the chancellery.
Finance Minister Christian Lindner of the business-friendly FDP has demanded sweeping economic reforms and openly flirted with the idea of bolting the unhappy alliance ahead of scheduled elections next September.
He has repeatedly spoken of an "autumn of decisions" when deadlines for tricky budget talks loom -- a phrase widely read as a threat after a previous fiscal row almost ended the alliance in July.
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If he did leave, this could spark snap elections, likely around March - or leave Scholz and the Greens trying to cling on to power in a minority government until next summer.
The row has heightened uncertainty in Europe's biggest economy at a volatile time as the world nervously awaits the US election outcome and wars rage in Ukraine and the Middle East.
Scholz and his mutinous coalition partners have drawn withering fire from conservative opposition leader Friedrich Merz, who has demanded new elections in which polls suggest he would be the frontrunner.
'Slow-motion train crash'
As the German economy is expected to shrink for a second year in a row, Lindner has demanded sweeping measures, including corporate tax cuts, eased climate regulations and a cut in social benefits.
Most of those ideas are anathema to Scholz's SPD, Germany's traditional workers party, and the left-leaning Greens of Vice Chancellor and Economy Minister Robert Habeck.
"The government is in troubled waters," Habeck acknowledged on Monday.
But he warned that "this is the worst time for the government to fail... given what is happening in Ukraine, with regard to the economic situation in Germany, with regard to the American election".
The mood in Germany has darkened as big companies have reported falling profits, with auto titan Volkswagen's threat to close plants sparking large union protests.
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In recent weeks the dispute has seen Scholz, Lindner and Habeck present contradictory economic plans and hold rival meetings with business leaders, deepening the sense of dysfunction and weakening Scholz's authority.
"While all eyes are on the US elections this week, German politics seem to have become a train crash in slow motion," Carsten Brzeski of ING Economics wrote at the start of the week.
"The German government has just entered a new stage of a slow burning political crisis that could be the last step before the eventual collapse of the governing coalition."
'Disbelief and horror'
The dispute has strained nerves in Berlin, where SPD parliamentary group leader Rolf Muetzenich said Tuesday he was "irritated by some of the childishness we have seen in recent days".
Scholz, Lindner and Habeck have held a series of private three-way talks, with more expected on Wednesday when parliament was also set to discuss the flashpoint issue of economic policy.
Merz declared that "we look at the state of the coalition with disbelief and some horror" and reiterated that "if the government fails, there is only one sensible way: new elections".
Scholz has urged pragmatism over ideology from his coalition allies.
"If you want to, you can reach an agreement", he said on Tuesday, a goal he implored "everyone to work on now".
Political analyst Ursula Münch said she was narrowly betting on the survival of the government, but also said that the US election might help set the mood.
"If Trump wins, there is of course a lot to be said for not also having a new government in Germany," said the head of the Academy for Political Education in the city of Tutzing.
"If Kamala Harris wins, there might be a different mood. Maybe there will be a certain sense of optimism. Maybe people will think everything will be fine, everything will be better."
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