German court throws out new challenges against Merz's borrowing plans

By Friederike Heine and Andreas Rinke

BERLIN (Reuters) -Germany's constitutional court on Monday threw out new challenges by opposition parties against a plan by the prospective coalition government to push a massive public borrowing initiative through the outgoing parliament.

The decision paves the way for parliament to convene on Tuesday to consider the proposals of conservative election winner Friedrich Merz to ease constitutional debt rules and set up a 500-billion-euro ($546.1 billion) infrastructure fund.

Merz wants to push the measures through the outgoing parliament, fearing they could be blocked by an enlarged contingent of far-right and far-left lawmakers in the next Bundestag starting March 25.

He says the timetable is necessary due to rapid shifts in U.S. policy under President Donald Trump, warning that a hostile Russia and an unreliable U.S. could leave the continent exposed.

Lawmakers from the far-right Alternative for Germany, the pro-business Free Democrats, the far-left Left party as well as the Sahra Wagenknecht Alliance had filed last-minute complaints with the constitutional court.

The court however "rejected (the) further urgent applications, in which the applicants primarily opposed the scheduling and holding of the special session of the 20th German Bundestag on March 18, 2025," it said in a statement released late on Monday.

Merz had secured the crucial backing of the Greens party last week to pass the measures in the outgoing parliament, which he hopes will revive ailing growth and boost defence spending in Europe's largest economy.

The parliamentary budget committee approved the plans on Sunday. The measures have already survived earlier legal challenges last week from the AfD and the Left party.

Merz's conservatives and the Social Democrats (SPD), who are in talks to form a coalition government after elections last month, are jointly pushing the measures.

Merz cannot afford many defectors on Tuesday as his conservatives, the SPD and Greens are set to clear the two-thirds majority needed to pass constitutional amendments with just 30 votes to spare.

He and the leaders of the SPD and Greens on Monday said they were confident the measures would pass.

WEAK ECONOMIC OUTLOOK

The scale of the challenge facing Merz was underlined by new forecasts on Monday.

The Munich-based Ifo Institute predicted Germany's economy would barely grow by 0.2% this year after two consecutive years of contraction, citing weak demand for industry and pressure from international competition.

"The German economy is stuck," said Timo Wollmershaeuser, head of Ifo's economic forecasts. "Despite a resurgence in purchasing power, consumer sentiment remains subdued, and companies are also reluctant to invest."

Separately, a survey by the German Chamber of Industry and Commerce (DIHK) said 40% of companies polled were planning investments abroad to cut costs.

"Germany is in danger of falling behind," said Volker Treier, head of foreign trade at the DIHK. "If companies increasingly move abroad because high energy costs, paralysing bureaucracy, and a rising tax burden are choking them here, that sends a dangerous signal."

The Organisation for Economic Co-operation and Development (OECD) cut its 2025 German growth forecast to 0.4% from 0.7% while the economy ministry in its monthly report flagged high levels of domestic and foreign policy uncertainty.

The ministry did, however, talk up the prospect of a "stabilising effect" if Merz's plans succeeded.

($1 = 0.9188 euros)

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(Reporting by Ursula Knapp, Friederike Heine, Andreas Rinke, Rene Wagner, Sarah Marsh, Alexander Ratz, Christian Kraemer; Writing by Ludwig Burger and Matthias Williams; Editing by Ros Russell and Stephen Coates)