According to a report in Handelsblatt newspaper, Germany’s prospective chancellor, Friedrich Merz of the CDU, has reached an agreement with the Greens on a financial reform package that envisions major investments in infrastructure and defense.

The report indicates that party caucus meetings are scheduled for 1:00 PM local time in Berlin to brief officials on the latest status of the negotiations. The news is attributed to unidentified individuals close to the groups.

Yesterday, as German lawmakers debated Friedrich Merz’s spending plans, the Greens stated that his revised proposal, which agreed to billions of dollars in defense and infrastructure spending, was insufficient to pass the parliament.

The CDU/CSU and Social Democrats (SPD) had called for an extraordinary parliamentary session to make progress in passing the proposal, which would overturn Germany’s cautious fiscal policy.

However, the required two-thirds majority was still not achieved, as the parties needed the support of the Greens.

During the first reading of the bill in the Federal Parliament, Merz asked the Greens, “What more do you want in such a short period than what we have offered you in the negotiations?”

The coalition had initially proposed exempting defense spending exceeding 1% of GDP from the country’s strict constitutional debt rules. They also wanted to create a special exempt fund worth 500 billion euros for infrastructure spending.

But Merz said they had amended the draft to address the Greens’ concerns and because he “takes climate protection seriously.” The new draft includes a broader definition of defense spending and paves the way for allocating up to 50 billion euros for the net-zero transformation of the German economy.

The Greens accused Merz of prioritizing only his own interests, as the CDU had rejected a Green proposal to relax German borrowing rules when they were in opposition.

They also insisted that the text should guarantee that the additional fiscal space would not be used for tax exemptions.

The party’s parliamentary leader, Katharina Dröge, said, “If you wonder why the negotiations between us are progressing this way, it is because we do not trust your word.”

The Greens’ alternative draft proposes a defense spending exemption of 1.5% of GDP. They also want the fund to be abolished in favor of a fundamental reform of the borrowing rules with the newly elected parliament.

The market value of arms manufacturer Rheinmetall surpassed that of automotive giant Volkswagen Group on Thursday, marking a significant shift in Germany’s economy from automotive to defense.

As of 4:00 PM yesterday, Rheinmetall’s market value was 55.7 billion euros, while Volkswagen’s stood at 54.4 billion euros.

Since US President Donald Trump took office in January, Rheinmetall’s value, along with that of many other major European defense companies, has more than tripled. Meanwhile, US-based competitors have seen their stock prices fall due to concerns that Trump’s unpredictable policies might harm American arms exports.

VW and Rheinmetall are moving in different directions. The arms manufacturer is benefiting from the increase in defense spending in Europe, which is rearming on the grounds of deterring Russia, supporting Ukraine, and ensuring its security, due to fears that Trump will withdraw from the Continent. Volkswagen, on the other hand, is struggling with challenges caused by problems in China, Trump’s tariffs, and the turbulent transition to electric vehicles.

Automobiles powered Germany’s post-World War II recovery, making it the economic powerhouse of the EU and allowing defense to take a back seat, especially after the end of the Cold War.

Rheinmetall CEO Armin Papperger stated on Wednesday, while announcing the company’s record earnings, “A period of rearmament has begun in Europe that will demand a lot from all of us. This also brings us, as Rheinmetall, growth prospects for the coming years that we have never experienced before.”

As a sign of the transition process, Volkswagen plans to end production at its Osnabrück plant, and Papperger said on Wednesday that the factory would be “very suitable” as a potential tank factory.

“One thing is clear: before building a new tank factory in Germany, we will definitely look at this,” Papperger said.

In the months preceding the early election in Germany in February, the problems of the automotive sector occupied the public agenda, while security concerns are shifting attention and funding towards defense.

Friedrich Merz, who is expected to be Germany’s new chancellor, wants to exempt defense spending from the restrictions of the country’s debt brake.

Explaining the strategic change, Merz said, “Given the threats to our freedom and peace on our continent, what is necessary must now also apply to our defense.”

VW Group CEO Oliver Blume also acknowledged this change during Tuesday’s balance sheet briefing. “We need to invest more to be safe again,” Blume said.

The VW official added that no private meeting had yet taken place, but the company was ready to advise other manufacturers on defense production, a role it has played before.

VW produced armored vehicles for the Nazis in World War II. Its truck transport subsidiary, MAN Truck & Bus, is affiliated with Rheinmetall through a joint venture to produce logistics vehicles for the army.

Germany, the United Kingdom, France, Italy, and Poland are seeking to reduce regulations on weapons manufacturers to help them increase production.

“We are calling for the defense industry to no longer be seen as just another industry,” French Defense Minister Sébastien Lecornu told reporters on Wednesday in Paris, following a meeting with defense ministers in the so-called E5 format.

He also addressed European Commission Defense Commissioner Andrius Kubilius, who was present at the meeting, saying that the European Commission has a role to play here.

The E5 is meeting for the third time since the format was created following the re-election of US President Donald Trump in November.

Wednesday’s meeting, where ministers discussed Ukraine as well as European defense, came immediately after 37 chiefs of staff from the EU, NATO, and beyond (excluding the US) met on Tuesday to discuss security guarantees for Ukraine.

The meeting also follows an American proposal, accepted by Kyiv, which envisages a 30-day ceasefire in the war-torn country if Russia accepts it.

In a joint statement after the meeting, the five ministers called for an assessment of EU regulations and national laws that “could hinder or slow down” arms production and supply.

“We need to reduce bureaucracy within the EU to make practical progress for European defense,” Guido Crosetto of Italy told reporters.

Boris Pistorius of Germany echoed this sentiment, stating, “We want to deregulate, both at the European level and in our nation-states.”

While Tuesday’s meeting of military chiefs seemed like an effort to build a new security architecture without the Americans, on Wednesday the defense ministers from Italy, Britain, and Poland were keen to emphasize the importance of the transatlantic bond.

When asked about his country’s dependence on the American-made F-35 fighter jet, Crosetto said, “We do not want to stop our commercial relationship with the US, no one in Europe wants to be enemies with the US. We cannot break the Western alliance for the sake of industrial autonomy.”

Polish Minister Władysław Kosiniak-Kamysz agreed, saying he wanted to “strengthen the transatlantic relationship,” adding that for now, Europe’s arms industry does not have the same production capacity as the US.

Germany, however, seemed more prepared to start thinking about a future with less US involvement.

Last month, Pistorius revealed that he had asked his US counterpart, Pete Hegseth, to “develop a roadmap to prevent gaps in capabilities, gradually regulate burden-sharing, and know who is doing what” if the US shifts some of its forces to the Indo-Pacific region.

Regardless of the alliance with the US, all countries pledged to deepen European industrial cooperation in areas such as ammunition, air defense, and early warning systems.

On the other hand, all defense ministers emphasized that when it comes to the war in Ukraine, the ball is in Russia’s court and it should accept the ceasefire on the table.

Meanwhile, a ‘coalition of the willing’ consisting of 15 countries will reportedly begin preparations for different scenarios.

According to Lecornu, the 15 countries, led by France and the United Kingdom, will begin planning next week, but Lecornu did not provide details on the security guarantees or a list of the 15 countries.