By Holger Hansen and Matthias Williams
BERLIN (Reuters) -Plans for Germany to unleash a massive increase in state borrowing faced new questions on Wednesday, with a co-leader of the Greens party non-committal about whether a deal could be done and the far-left party filing another legal challenge.
Election winner Friedrich Merz is racing to get debt reforms and a new 500-billion-euro ($545-billion) infrastructure fund through the outgoing parliament, which hinge on support from the Greens and could also be derailed by court rulings.
“Talks are underway now, and that’s a good thing,” Greens co-leader Franziska Brantner told Deutschlandfunk radio. But when asked whether a deal could be reached, she said: “I don’t know. We’ll see in the end.”
Merz has underlined his sense of urgency over increasing defence spending. After winning elections last month, he said it was “five minutes to midnight” for Europe, warning a hostile Russia and an unreliable U.S. could leave Europe exposed.
Merz wants to push through his plans in the outgoing parliament because in the new Bundestag they would be harder to pass with the necessary two-thirds majority. An enlarged contingent of far-right and radical left lawmakers is threatening is block them.
But the Greens have accused Merz of using European security as a pretext to fund measures to please his political base, such as tax cuts and restoring diesel subsidies for farmers.
Brantner doubled down on this point, saying the Greens wanted to prevent Merz using money for “short-term election gifts”.
Deputy SPD chief Anke Rehlinger said she was optimistic talks with the Greens would eventually yield a good compromise.
“These are constructive talks and everyone who is involved assures they are aware of their responsibility,” she told broadcaster Phoenix.
COALITION AIMS
Reform of Germany’s constitutionally enshrined state borrowing limits – known as the “debt brake” – would mark a rollback of measures imposed after the 2008 global financial crisis that many see as an outdated fiscal straitjacket.
Merz wants to amend the constitution so defence expenditure above 1% of economic output is exempt, and for a commission separately to develop proposals for broader reforms to boost investments permanently.
The plans won backing from economists polled by the Munich-based Ifo institute in a survey published on Wednesday. Out of 205 economists, 68% said debt brake exemptions for military spending were appropriate or very appropriate.
But the Greens’ parliamentary group instead has drafted a law that would foresee spending on “defence and security policy tasks” above 1.5% of gross domestic product exempt from the debt brake. It has also argued for a broader debt brake reform rather than a separate fund for investments.
A first parliamentary hearing on the different spending proposals is slated for Thursday and the final vote expected next Tuesday – meaning the conservatives and SPD have less than a week to reach a deal with the Greens.
The plans could also be derailed by legal challenges from the far right Alternative for Germany and radical left party who want to block the old parliament from convening.
Left party parliamentary co-leader Heidi Reichinnek said on Wednesday a constitutional court ruling would likely come later on Wednesday or on Thursday, adding that her party was filing another complaint over the debt deal.
A decision will come by March 18, a court spokesperson said.
Separately Merz’s conservatives want to conclude a coalition deal with the SPD by the week starting April 14, sources told Reuters.
Merz and the SPD unveiled a preliminary deal towards a coalition last Saturday that promised to crack down on illegal migration and support struggling industries in Europe’s largest economy.
(Reporting by Andreas Rinke, Holger Hansen, Rene Wagner and Sarah Marsh; writing by Matthias Williams; editing by Christina Fincher)
