By Andreas Rinke and Maria Martinez

BERLIN (Reuters) -The leader of Germany’s conservative Christian Democrats (CDU) Friedrich Merz said on Wednesday 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, in pole position to become Germany’s next chancellor following the collapse of Germany’s coalition government, 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 in recent party meetings to include reform plans in the campaigning for Germany’s snap Feb. 23 election.

“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 raise 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. Later on Wednesday a source close to the CDU leader told Reuters that Merz had no plans, for now, to reform the debt brake.

But Bruno Hoenel, a member of the budget committee of the Bundestag from the Green party, said that once Merz gained power “the debt brake will be reformed immediately”. He added that the budget cannot be financed without borrowing in such a crisis.

“If you want to work with the budget in a forward-looking way, there is no way around reforming the debt brake,” Hoenel told Reuters. He noted that in 2028 a total of 80 billion euros will be needed to comply with the 2% NATO target — almost 30 billion more than in the 2025 draft budget which proposes defence spending of 53 billion.

Regarding the opening of Merz towards a debt brake reform, he said the conservative was prioritising his quest for power.

“Merz has blocked this for three years just to say now, three months before the election, ‘I can actually imagine it.'”

DEBT BRAKE DILEMMA

The debt brake played a part in collapse of the coalition that precipitated the calling of the snap election.

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 COVID pandemic and the energy crisis brought by the war in 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.

Before any talk about the debt brake, the financial equalization of the federal states “must be changed,” Soeder said, referring 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 and Maria Martinez, Editing by Miranda Murray, Alex Richardson, Christina Fincher, William Maclean)

---