Published : 4 weeks ago, on 13/11/2024

By Andreas Rinke and Maria Martinez

BERLIN (Reuters) -The leader of Germany’s conservative Christian Democrats (CDU) Friedrich Merz said he could be open to reforming the debt brake, which limits the public deficit to 0.35% of gross domestic product, in certain circumstances.

Merz, who is in pole position to become Germany’s next chancellor, had previously argued the country should stick with the constitutionally enshrined debt brake, which was introduced by his party in 2009 under Angela Merkel.

Within the CDU, the debate about a debt brake reform was reopened this year by Kai Wegner, the conservative mayor of Berlin.

Several powerful CDU leaders from other regional governments have joined the push for reform because the states are more constrained than the federal government, having no structural leeway to incur new debt.

Pressure is building within the party, with CDU state premiers pushing Merz to include reform plans in the election programme in recent party meetings.

“Of course it can be reformed,” said Merz, at an event on Wednesday. “The question is, why? For what purpose? What is the result of such a reform?”

Merz said he would not be open to reform to increase spending on consumption or welfare policies, but if extra borrowing were to boost investment “then the answer may be different”.

He noted that the debt brake was a technical issue and he did not want to get into that discussion now.

DEBT BRAKE DILEMMA

The debt brake played a part in the collapse of Germany’s coalition government that precipitated the calling of a snap election on Feb. 23.

Christian Lindner, the leader of the fiscally conservative Free Democrats party who was last week sacked as finance minister by Social Democrat Chancellor Olaf Scholz, said the chancellor had attempted to force him to suspend the debt brake.

Suspending the brake in an emergency, citing special circumstances, is possible with a government majority. Germany reimposed the debt brake in 2024 after four years in which it was suspended to allow extra spending due to the coronavirus pandemic and the energy crisis following Russia’s full-scale invasion of Ukraine.

However, reforming the debt brake would require a two-thirds majority in the upper and lower houses of parliament.

The CDU state premiers of eastern states support reform, while the head of Bavaria’s conservatives, Markus Soeder, is against it.

Christian Social Union (CSU) leader Soeder said “nonsensical additional expenditure” would have to be cut first, including the citizens’ allowance and heating subsidies. Migration should also be limited, he said.

“Generally speaking, before we talk about the debt brake, the financial equalization of the federal states must be changed,” Soeder said, in reference to Germany’s system of revenue redistribution.

The rich state of Bavaria recently had to hand over more than nine billion euros ($9.57 billion) to other federal states. “It can’t go on like this,” Soeder said.

($1 = 0.9408 euros)

(Reporting by Andreas Rinke, writing by Maria Martinez, Editing by Miranda Murray, Alex Richardson and Christina Fincher)