Leader of the Greens says, "We'll See" on support for German lending bonanza

On Wednesday, the plans for Germany to increase state borrowing massively were questioned by a Greens co-leader who was non-committal on whether an agreement could be reached.

Friedrich Merz, the election winner, is trying to push through debt reforms as well as a new infrastructure fund of 500 billion euros ($545 billion) in the upcoming parliament. These initiatives depend on the support of the Greens but could be derailed also by court rulings.

Franziska Brantner, co-leader of the Greens party told Deutschlandfunk radio that "talks are now underway and this is a positive thing." When asked if a deal would be possible, she replied: "I do not know." We'll find out in the end.

Merz has emphasized his urgency in increasing defence expenditure. Merz said that after winning the elections last month it was "five minute to midnight" for Europe. He warned a hostile Russia, and an unreliable U.S., could leave Europe vulnerable.

Merz wants his plans to be implemented in the upcoming parliament, because they will be more difficult to pass in the new Bundestag with the required two-thirds of the votes. A larger contingent of radical left and far-right lawmakers threatens to block their plans.

The Greens, however, have accused Merz using European security to fund measures that would please his political base. These include tax cuts and the restoration of diesel subsidies to farmers.

Brantner reaffirmed this position, saying that the Greens wanted Merz to refrain from using money as "short-term electoral gifts".

COALITION AIMS

Investors and economists have long called on Germany to change its constitutionally-enshrined borrowing limits, also known as "the debt brake", to encourage investment.

This reform would be a step back from the borrowing rules that were imposed in 2008 after the global financial crisis, which many consider to be outdated fiscal restrictions.

Merz wants a constitutional amendment to exempt defence spending above 1%. Separately, he wants a commission to come up with proposals for debt brake reforms that will boost investment permanently.

In a survey conducted by the Munich-based Ifo Institute on Wednesday, 68% of 205 economists surveyed supported the plans. Sixty-eight percent of 205 economists said that debt brake exemptions were either appropriate or very suitable for military expenditures.

The Greens' group in parliament has instead drafted a bill that would exempt spending on "defence policy tasks" exceeding 1.5% of the gross domestic product from the debt brake. Security is defined in a broader sense.

The plans may be derailed, regardless of whether an agreement can be reached with the Greens. Legal challenges by the extreme right and radical left could prevent the old parliament's convening.

The Constitutional Court could issue a ruling on Thursday or Wednesday morning.

Sources said that Merz's conservatives wanted to reach a deal with SPD in the first week of April.

Merz and SPD announced a preliminary agreement towards a coalition on Saturday. The deal promised to crackdown on illegal immigration and support struggling industries within Europe's biggest economy. (Reporting and Additional Reporting from Rene Wagner, Sarah Marsh, Matthias Williams and Christina Fincher; Writing by Matthias Williams)

(source: Reuters)