UPDATE 1-Merkel's conservatives block proposal to ease debt limit rules

(Adds more Rehberg, background)

BERLIN, Feb 27 (Reuters) – German Chancellor Angela Merkel’s conservatives said on Thursday they will not support a proposal by centre-left Finance Minister Olaf Scholz to ease strict debt limit rules and help indebted municipalities to hike public spending on local infrastructure.

Eckhardt Rehberg, chief budget lawmaker of Merkel’s Christian Democratic Union (CDU), told Deutschlandfunk radio that changing the constitutionally enshrined debt rules would require approval by a two-thirds majority in parliament.

“The constitution is not a craft shop,” Rehberg said, adding that he expected his parliamentary group to block any proposal to temporarily suspend the debt restriction to fund local infrastructure, notably on roads and schools.

Germany’s debt-brake law limits the federal deficit in any given year to 0.35% of economic output. The government is overachieving this goal by sticking to its budget policy of no new borrowing.

Weekly paper Die Zeit reported on Wednesday that Scholz planned to suspend the debt brake for a short time to allow the federal government to assume some of the obligations of heavily indebted municipalities, thereby freeing up funds for them to increase spending on crumbling infrastructure.

Scholz is still hoping to become the Social Democrats’ (SPD) candidate for chancellor in the 2021 federal election despite losing his bid to become their party leader last year. His proposal is supported by opposition parties left from the political center, mainly The Greens and The Left. (Reporting by Michael Nienaber; editing by Thomas Seythal)

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