Germany is about to enter what its next chancellor, Friedrich Merz, calls a historic “whatever it takes” moment of significant fiscal expansion to ramp up military spending and boost its economy, which is denting the appeal of the U.

The defence industry also stands to gain. Under the prospective coalition's plans, Germany's strict cap on borrowing known as the 'debt brake' would be amended in the constitution to exempt defence expenditure above 1% of economic output.

Germany’s plan to create a €500 billion ($534 billion) infrastructure fund puts energy grids on track for a massive spending boost after years of underinvestment, part of a broader effort to revolutionize the country’s public finances and jumpstart the economy.

Germany could keep its top credit score despite a financial package worth hundreds of billions of euros planned by the parties hoping to form the country's next government, a Scope analyst told Reuters on Wednesday.

Berlin’s decision to lift all caps on military spending and binge on infrastructure marks a U-turn for the fiscally conservative country.

European markets rose sharply after Germany announced a historic change to its fiscal rules to spend heavily on defence and infrastructure.