Christian Kraemer

The prospect of a military spending boom by Germany unprecedented since the Cold War sent Europe's defence stocks soaring after Reuters reported the likely next government was mulling a fiscal sea change for Europe's biggest economy.

Germany's incoming government must address the economy's structural faults quickly and should reform fiscal rules to allow for greater investment in Europe's largest economy, Bundesbank President Joachim Nagel said on Wednesday.

The far-right Alternative for Germany (AfD) and the Left Party jointly secured one third of seats in the new parliament, enough to block a loosening of Germany's debt brake - a mechanism some investors and political parties say stymies economic growth.

Threats by U.S. President Donald Trump to impose tariffs of around 25% on car imports are a "provocation," Germany's car lobby group said on Wednesday, calling on Brussels to strike a deal with what is its biggest export market.

Germany's parliament rejected on Friday an opposition draft law on tightening immigration policy, averting the prospect of a law passing for the first time in modern German history thanks to the backing of the far-right.

Germany's long-awaited economic recovery has been postponed once again, as the government cut its forecasts for this year amid trade tensions and growing domestic uncertainty over the upcoming election.

The German government approved on Wednesday a defence industry strategy that aims to make it easier for companies to ramp up capacity and to accelerate weapons production, with an eye to the current security situation and the war raging in Ukraine.

Germany's cabinet on Wednesday approved a package of measures to promote startups and improve access to capital markets, government sources said, though it was unclear if it could get green-lit by parliament before February elections.

German Economy Minister Robert Habeck wants to change the European Union's laboriously negotiated debt rules, calling them "a security risk" because they are preventing much-needed spending on defence and other priorities.

The chancellor denied trying to ram through his policy agenda by delaying holding an election.