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By Andreas Rinke and Matthias Williams
BERLIN (Reuters) -Election winner Friedrich Merz said on Friday he was open to reforming Germany's legally prescribed spending limits as his conservatives started exploratory talks on forming a coalition with outgoing Chancellor Olaf Scholz's Social Democrats.
Investors want a rapid easing of the limits known as the "debt brake" to lift Europe's largest economy out of the doldrums and fund an overhaul of Germany's military, which has taken on urgency with Donald Trump back in the White House and dealing with Russia over the heads of Europe on Ukraine.
Merz told the Frankfurter Allgemeine newspaper the parties were discussing the limits, and also whether to start a fund to hike defence spending, though he said he did not want to prejudge party negotiations.
"I would like to get a feel for what the opinion-forming process will be like in my own parliamentary group and in the SPD," Merz told the paper.
Parliamentary arithmetic means the centre-left SPD is the most likely ally to help Merz's conservatives form a new governing majority, but there is ill-feeling between the parties after a bruising election campaign.
"The exploratory talks began in an open and constructive atmosphere," read a joint statement after several hours of talks, which continue next week.
Merz, who criticised the Trump administration on the night he was elected, said Germany should "hope for the best and prepare for the worst" from the United States.
Pressed on Ukraine, Merz was still open to supplying Kyiv with longer-range Taurus missiles but said that needed agreement on a European level.
The 69-year-old leader said Germany should help Ukraine but now was not the time to discuss European boots on the ground to defend a future ceasefire.
"We have learned that you shouldn't go anywhere if you don't know how to get out again. We have to learn from this experience in Afghanistan," he said.
GETTING A MOVE ON
The CEO of German chemicals group BASF, which is undergoing a massive restructuring programme to cut costs as Germany's economy falters, joined those calling for a quick agreement.
Markus Kamieth told a press conference after the release of financial results that the two parties "need to get their act together" and focus negotiations on a limited number of the most important topics.
Critics - even some within his own party - worry that Merz's abrasive style could complicate the formation of a viable coalition and leave a vacuum at the heart of one of Europe's major powers at a critical juncture.
The radical Left party performed strongly in Sunday's election and, together with the far-right Alternative for Germany (AfD), could block some legislation in the new parliament.
On Friday it threatened legal action at the Constitutional Court if parties tried to pass a new special defence fund worth hundreds of billions of euros in the outgoing parliament, as some lawmakers have called for.
A separate Constitutional Court ruling in 2023 about unspent pandemic funds blew a hole in the government's budget.
(Reporting by Andreas Rinke, Holger Hansen, Matthias Williams, Ludwig Burger; writing by Matthias Williams; Editing by Alex Richardson and Andrew Heavens)
