German conservatives quash calls for more debt as budget fight looms

Leading German conservatives on Monday quashed calls for a further loosening of the country's strict debt rules as pressure builds on Chancellor Friedrich Merz's coalition to plug holes in the national budget.

Lawmakers voted last year to exempt military expenditure from Germany's constitutional rules on government borrowing - known as the debt brake - to finance a massive spending spree on defence and infrastructure.

The landmark move was a departure from the tight fiscal line usually advocated by Merz's Christian Democratic Union (CDU), as Berlin sought to build up its military capabilities in response to the Russian invasion of Ukraine.

Nevertheless, Finance Minister Lars Klingbeil from the centre-left Social Democrats (SPD) has warned of a €20 billion gap in funding in his plans for the 2027 budget, which he is due to present on Wednesday.

Over the weekend, SPD parliamentary leader Matthias Miersch raised the possibility of further efforts to circumvent the debt brake should the Iran crisis continue, amid rising concerns of the war's impact on the German economy.

Miersch told the Neue Osnabrücker Zeitung that in a worst-case scenario, all options should be on the table, including declaring a budgetary emergency to allow additional borrowing.

The proposal was immediately shot down by Merz's Christian Democratic Union (CDU), however, with senior parliamentary figure Steffen Bilger telling broadcaster ZDF on Monday that "reacting to every crisis with even more debt makes no sense."

"We are living in times of record debt anyway," Bilger said, calling on Klingbeil to present suggestions for budgetary savings.

The CDU's general secretary, Carsten Linnemann, said "talking about new debt now is a sign of political laziness."