Such a plan would mark a step-change in Germany’s traditionally conservative approach to public borrowing. Berlin in 2009 enshrined a debt brake in its constitution, which limits government borrowing and keeps the structural deficit at 0.35 per cent of GDP.

Still, borrowing of the planned scale would have a significant impact. Moody's, a rating agency, estimates that Germany's deficit would widen by up to 2.5% of GDP (still below the EU average). The debt-to-GDP ratio could increase by 5 percentage points over the next two years.

FILE PHOTO: German Chancellor of the Social Democratic Party (SPD), Olaf Scholz and his conservative rival of the Christian Democratic Union (CDU) Friedrich Merz are pictured in a WELT TV studio ahead of a TV debate between Scholz and Merz, in Berlin, Germany, February 19, 2025. REUTERS/Fabrizio Bensch/Pool/File Photo

As in the rates space, FX markets have seen substantial moves as the euro’s prospects have been re-assessed. EUR/USD has had its largest five-day move since November 2022 and one-week realised volatility also sits close to the highest levels seen in two and a half years.