'What more do you want?' Merz pleads with lawmakers on German debt plan

By Sarah Marsh, Thomas Escritt and Matthias Williams

BERLIN (Reuters) -Chancellor-in-waiting Friedrich Merz urged sceptical lawmakers on Thursday to back his proposals for a massive increase in state borrowing, framing them as a test for Germany to stand tall on the world stage and safeguard European security.

Merz is in a race against time to persuade the outgoing parliament to approve a 500 billion euro fund for infrastructure and sweeping changes to borrowing rules to revive growth and ramp up military spending in Europe's largest economy.

The conservative leader has struck a note of urgency over hiking defence spending. After winning Germany's February 23 election, he said it was "five minutes to midnight" for Europe, warning that a hostile Russia and an unreliable U.S. could leave the continent exposed.

Merz wants to secure the funds before a new parliament convenes on March 25, where they risk being blocked by an expanded contingent of far-right and far-left lawmakers.

Acknowledging that his plans could fail, Merz told lawmakers that Germany's credibility was at stake.

"The whole world is watching Germany these days and weeks. We have a task... that goes far beyond the borders of our own country and the well-being of our own people," he said.

"We must live up to this responsibility..."

The prospect of a major spending shift in a country better known for its frugality has rocked markets over the past week, helping lift the euro to five month highs against the dollar.

But despite announcing concessions during a testy session of the lower house Bundestag on Thursday, Merz struggled to win over the Greens party whose support he needs to secure the two thirds majority required to change the constitution.

The plans, backed by Merz's conservatives and his likely future coalition partner, the Social Democrats (SPD), might also be struck down by the Constitutional Court, which could deliver its verdict as soon as Thursday on challenges lodged by the far-right Alternative for Germany (AfD) and the far-left Left party.

OPPOSITION ANGER

The Greens accused Merz in Thursday's debate of using threats to Europe's security as an excuse for a borrowing binge to fund policies such as tax cuts to please his own voter base, while neglecting issues such as climate change and poverty.

They also reminded Merz of his criticism while in opposition of the outgoing SPD-led government's supposed profligacy, only to change his mind about debt after winning the election.

"You have never been able to put the interests of this country first and not your own," Greens parliamentary co-leader Katharina Droege told Merz.

A visibly frustrated Merz said he had tried to address the Greens' concerns by offering to expand the scope of defence spending to include civil defence and intelligence spending. Under another compromise amendment, up to 50 billion euros from the infrastructure fund could be used for climate policies.

"What more do you want from us in so short a time?" he said.

The AfD accused Merz of ignoring the democratic will of the people by ramming his proposals through the outgoing parliament and of putting Germany's strong credit rating at risk.

"Give up trying to become chancellor because you can't," AfD leader Alice Weidel said. "Your time is up before it even began."

Failure to reach a deal could cripple coalition talks now underway between the conservatives and SPD, removing the financial basis for their plans. With few if any other viable coalition options in the new parliament, a no-deal could even lead to another snap national election.

(Reporting by Sarah Marsh, Holger Hansen, Andreas Rinke, Ludwig Burger, Rachel More, Rae Wee, Lucy Raitano, Thomas Escritt; writing by Sarah Marsh and Matthias Williams; Editing by Michael Perry and Gareth Jones)