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.

According to a draft “White Paper” on defense obtained by POLITICO, the EU aims to launch a significant project to bolster its defense industry. This initiative is intended to “deter Russia” and “support Ukraine” as the US reduces its presence on the continent.

“The reconstruction of European defense requires a major investment over a long period,” the draft states.

The document, prepared by EU Defense Commissioner Andrius Kubilius and EU Chief Diplomat Kaja Kallas, is expected to be presented to EU leaders next week. It remains subject to change before publication.

Key elements of the new EU policy include supporting arms production within the bloc and in “like-minded third-country companies,” promoting joint arms purchases, facilitating the financing of defense projects, and focusing on critical areas where the bloc has capacity gaps—such as air defense and military mobility. Additionally, it aims to reduce bureaucracy related to defense investments.

Russia’s actions are cited as the driving force behind this new policy. The draft states, “Russia is an existential threat to the Union. Given its track record of invading its neighbors and its current expansionist policies, the need to deter Russian armed aggression will continue even after a just and lasting peace agreement with Ukraine.”

Therefore, the immediate priority is “ensuring that Ukraine can continue to fend off Russian attacks.”

“Especially now that the US is suspending its support, without a significant amount of additional military resources, it will not be possible for Ukraine to negotiate a just and lasting peace in a strong position,” the draft says.

The shift in US policy towards Ukraine, Europe, and NATO is evident throughout the 20-page document. “Europe cannot rely on the US security guarantee and must significantly increase its contribution to protect NATO,” it asserts.

However, it emphasizes that “NATO remains the cornerstone of collective defense in Europe.”

The document notes Europe’s dependence on American military capabilities, creating a risk that the US “may reconsider its approach and decide to restrict or even stop the use of these supports.”

Rebuilding the EU’s military-industrial complex means the bloc “should consider introducing a European preference for public procurement for strategic defense-related sectors and technologies.”

It also highlights the need for “cooperative procurement” to address the bloc’s fragmented defense market and provide countries with the financial means to secure advantageous deals. The European Commission could act as a central purchasing body for member states.

Seven key areas for priority investments are identified: air and missile defense; artillery systems; ammunition and missiles; drones and anti-drone systems; military mobility; artificial intelligence, quantum, cyber, and electronic warfare; and strategic enablers, combat capabilities, and critical infrastructure protection.

The document assures that member states will remain “in the driver’s seat”—a sensitive point for capitals concerned about Brussels interfering with national sovereignty.

“Member States are responsible for their own armed forces, from doctrine development to deployment. The radically changing strategic context, coupled with acute capability deficiencies of the Member States, requires much greater cooperation among Member States to rebuild their defenses,” it states.

Initial steps include member states approving the proposed relaxation of the bloc’s fiscal rules to facilitate increased defense spending, agreeing to cooperate on 35% of defense spending, approving the €1.5 billion European Defence Industry Programme, and agreeing on critical capability areas with NATO.

The document also outlines key measures such as providing 1.5 million artillery shells and air defense systems to aid Ukraine, continuing to train Ukrainian troops, placing orders with the Ukrainian defense industry, linking Ukraine more closely to EU military financing plans, and extending the bloc’s military mobility corridors to include Ukraine.

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.