Merz told a press conference that the two parties would "in the next week" bring proposals to parliament for "a special fund in the size of 500 billion euros for the next 10 years" for economic development, and also to exempt more defence spending from Germany's constitutionally enshrined "debt brake".

The proposal would mean that there would be no limit to debt taken out for defence above an amount corresponding to one percent of GDP -- 45 billion euros when applied to the current size of Germany's economy.

The CDU/CSU came first in last month's general elections and quickly entered negotiations with the SPD towards forming a coalition government.

The talks have been given new urgency by the Trump administration's clash with Ukrainian President Volodymyr Zelensky and the freezing of US military aid to Ukraine.

Merz also said he wants to get immediate approval for a three-billion-euro aid package for Ukraine which has been held up for weeks.

Merz said he would meet outgoing Chancellor Olaf Scholz on Wednesday "to speak about the urgent help needed for Ukraine, around 3.0 or 3.5 billion euros, which... can be approved now as off-budget expenditure".