German upper house of parliament expected to clear huge spending package

*

Upper house expected to pass 500 bln euro fund, debt brake reform

*

Vote is final major hurdle for passing of legislation

*

Package would end decades of fiscal conservativism in Germany

BERLIN, March 21 (Reuters) - Germany's Bundesrat upper house of parliament is set to vote on Friday on a spending splurge aiming to revive growth in Europe's largest economy and scale up the military for a new era of European collective defence.

The vote in the Bundesrat, which represents Germany's 16 states, is the last major hurdle the package has to clear before being signed into law, unleashing billions of euros into an economy that has contracted for two consecutive years.

Earlier this week, the legislation passed the Bundestag lower house after its initiators, the conservatives and Social Democrats (SPD), secured the support of the Greens for a two-thirds majority. It is widely expected to pass the Bundesrat.

The package would create a 500 billion euro ($546 billion) fund to spend on infrastructure over 12 years and ease constitutionally enshrined borrowing rules - the so-called debt brake - to allow higher spending on defence.

The conservatives and SPD, who are in talks to form a coalition after last month's election, are racing to push it through the outgoing parliament. They fear it could be blocked by an enlarged contingent of far-left and far-right lawmakers in the next Bundestag starting March 25.

Chancellor-in-waiting Friedrich Merz has justified the tight timetable with the rapidly changing geopolitical situation, namely shifts in U.S. policy under President Donald Trump, which European leaders fear could leave the continent exposed to an increasingly hostile Russia and assertive China.

Should the legislation pass the Bundesrat, that would hand Merz a major win before he is even sworn in as chancellor. The 69-year-old, whose conservatives won last month's election, hopes to conclude coalition talks with the SPD by Easter. (Reporting by Sarah Marsh Editing by Alexandra Hudson)