German lawmakers reached an agreement on Friday to exempt some defense spending from the nation’s tight rules on running up debt as European leaders are scrambling to shore up the continent's defenses themselves in the face of a Trump administration that is threatening to back out.

Germany’s next chancellor, Friedrich Merz, struck a deal to loosen borrowing limits, unleashing €500 billion for defence and infrastructure. Markets surged, while analysts debated its impact on inflation and ECB rate policy.

Germany’s likely next chancellor on Thursday urged outgoing members of parliament to exempt some defense spending from the nation’s tight self-imposed rules on running up debt.