Conservative Merz and his probable future coalition partners from the centre-left Social Democrats (SPD) said Tuesday they wanted to ease Germany's strict constitutional "debt brake" to boost the defence budget by hundreds of billions of euros over the next years.
The announcement came just over a week after national elections and while Europe is fretting over its own defence and a weakening of the US security umbrella.
The plans were revealed as part of speeded-up talks between Merz's centre-right CDU/CSU bloc and the Social Democrats over a possible new governing alliance.
Their tempo was stepped up further after Friday's televised row between US President Donald Trump and his Ukrainian counterpart Volodymyr Zelensky, with the White House subsequently freezing aid to Kyiv.
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"There are moments in which the history of a country takes an unexpected turn," the Zeit newspaper said on Wednesday, adding that Merz's plans "may turn out to be one such moment".
Merz, a longtime Atlanticist who had previously baulked at financing public spending through large-scale debt, has quickly changed his tune given the head-spinning pace of events.
Germany's EU partners, who are gathering for a key summit on Thursday to discuss Ukraine and defence, had been waiting for action from Berlin after months of political paralysis since the collapse of Chancellor Olaf Scholz's government in November.
According to Manuela Schwesig, a senior Social Democrat and member of the party's team for coalition negotiations, said she expected Germany to at least double its defence budget to €100 billion per year.
Merz and his partners also want to set up a €500 billion fund to upgrade Germany's creaking infrastructure and help drag the country out of two straight years of recession.
If the plans succeed, they could be a "real game changer" and also "quickly overcome Germany's economic stagnation", said Sebastian Dullien, director of the IMK economic research institute.
Germany's duty
Current German Defence Minister Boris Pistorius described the plans as "a historic day for the army and for Germany", which has been wary of projecting military might since the horrors it perpetrated under Nazism.
Given the possibility of the United States turning "openly hostile" to Europe, it was now Germany's "duty as the most populous, most economically powerful country on the continent... to bring Europeans together, to lead them and spur them on in ensuring their own security," Der Spiegel magazine said.
But not all of Germany's media were so understanding, with the Bild newspaper saying Merz had performed a "180 degree turn" to take on "gigantic debts".
The plans need to be quickly shepherded through the outgoing parliament, where they will require a two-thirds majority to modify the debt brake, most likely with the help of the Greens.
Then the CDU/CSU and SPD will have to hammer out the rest of the coalition agreement before they can take office and spend the eye-watering sums.
READ ALSO: Germany's Merz vows billions to boost economy and defence
Potential conflict
Jacob Ross of the German Council on Foreign Relations said the importance of Tuesday's plans has "a lot to do with psychology and the signals that such announcements send".
As for how such enormous amounts could be spent in practice, Ross told AFP that many questions remain unanswered.
"Who is going to build the necessary weapons? Does Europe have access to the necessary raw materials? What will happen to inflation when such sums are pumped into the economy?" he asked.
There is also the question of coordination with other EU states and with Brussels, where EU chief Ursula von der Leyen also presented a plan on Tuesday to mobilise some 800 billion euros for Europe's defence and support for Ukraine.
"I do think there's a potential for conflict, particularly with Paris," Ross said.
He recalled the reaction to the €100 billion special fund announced by Scholz in the wake of Russia's invasion of Ukraine in 2022, which was quickly used up.
"Back then (French President) Macron was caught unawares and warned that Germany could be 'isolating' itself," Ross said.
"Now we're talking about more than twice the amount of money and naturally European partners will ask what this will mean for their own economies, for the eurozone and for the balance of power in Europe."
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