A two-thirds majority of Bundestag parliamentarians, required for the change, approved the vote on Tuesday.

The law will exempt spending on defence and security from Germany’s strict debt rules, and create a €500bn ($547bn; £420bn) infrastructure fund.

This vote is a historic move for traditionally debt-shy Germany, and could be hugely significant for Europe, as Russia’s full-scale invasion of Ukraine grinds on, and after US President Donald Trump signalled an uncertain commitment to Nato and Europe’s defence.

However, state government representatives in the upper house, the Bundesrat, still need to approve the moves – also by a two-thirds majority – before they officially become law. That vote is set for Friday.

Friedrich Merz, the man behind these plans and who is expected to soon be confirmed as Germany’s new chancellor, told the lower house during Tuesday’s debate that the country had “felt a false sense of security” for the past decade.

“The decision we are taking today… can be nothing less than the first major step towards a new European defence community,” he said, adding that it includes countries that are “not members of the European Union”.

Despite fears the vote would be tight, lawmakers in the end voted in favour of the changes by 513 to 207 – comfortably over the two-thirds majority required.

Under the measure, defence spending will be exempt from Germany’s so-called debt brake – a law in the country’s constitution that strictly limits federal government borrowing to just 0.35% of Germany’s GDP.

Merz, whose CDU party won Germany’s general election last month, proposed the measures swiftly after the win.

In an interview on Sunday he specifically mentioned fears that the US could pull back from defending Europe and Trump’s talks with Russian President Vladimir Putin, saying that the “situation has worsened in recent weeks”.

“That is why we have to act fast,” Merz told public broadcaster ARD.

It is a significant political win for Merz, who will, when he takes power as chancellor, now have access to hundreds of billions of euros to invest in the state – what some in Germany have called a “fiscal bazooka”.

It is also an important moment for Ukraine.

The defence plans approved today by the Bundestag also allow spending on aid for states “attacked in violation of international law” to be exempt from the debt brake.

That will enable outgoing chancellor Olaf Scholz to release €3bn in aid to Ukraine as early as next week.

Merz chose to push the changes through the old parliament, knowing the vote arithmetic was more favourable now than after 25 March, when the new parliament session begins.

The far-right AFD and far-left Linke, which both performed well in February’s election, oppose Merz’s plans.

Merz has still not agreed a coalition deal to govern Germany after his election win, and has announced ambitious plans to have a government in place by Easter.

Coalition negotiations in Germany however can drag on for months at a time.

Germany’s Parliament, the Bundestag, is voting on whether to take the brakes off defence spending. This could pave the way for a massive uplift in military investment just as Russia makes gains in Ukraine and Washington signals that Europe can no longer rely on US protection.

“This vote in the Bundestag is absolutely crucial,” says Prof Monika Schnitzer, who chairs Germany’s Council of Economic Experts.

“After the Munich Security Conference, then the Trump-Zelensky row, Europe got a wake-up call. For the first time Europeans may not be able to rely on Washington. A lot of people had sleepless nights after that.”

“The outlook for European defence spending hinges on developments in Germany, as the holder of the region’s largest defence budget,” agrees Dr Fenella McGerty, senior fellow for defence economics at the London-based International Institute for Strategic Studies.

Defence spending in Germany rose by 23.2% last year, helping to drive a record 11.7% rise in European defence outlay.

“The remarkable initiatives announced in Germany are key to enabling further growth,” adds Dr McGerty.

“Without them, any progress made on strengthening Germany’s military capability may have stalled.”

Germany’s incoming new Chancellor, Friedrich Merz, is in a race against time.

The new parliament convenes on 25 March and not everyone is in favour of all this money being spent, especially on defence.

Both the far-right AfD party and the far-left Linke have vowed to oppose it. The vote needs two-thirds in favour to go through, so Merz has a better chance of this happening today, under the existing (old) parliament. It then needs to be approved by Germany’s upper house.

Meanwhile Europe is still coming to terms with the shock of announcements coming from the Trump administration.

At last month’s Munich Security Conference I watched as delegates sat open-mouthed listening to US Vice-President JD Vance’s blistering attack on Europe’s policies on migration and free speech.

This was preceded days earlier by US Defence Secretary Pete Hegseth telling Nato members that America’s 80-year-long defensive umbrella for Europe should no longer be taken for granted.

Defence strategists in Europe are already planning for the unthinkable: a semi-victorious Russia making gains in Ukraine, then rebuilding its army and threatening Nato’s eastern members, such as the Baltic states, within three years or less.

This, at a time when the US commitment to Europe’s defence is looking extremely shaky. President Trump is being urged by some in his circle to pull US troops out of Europe and even to withdraw from Nato altogether.

There is talk of France extending its national nuclear deterrent to cover other European nations.

Meanwhile, most European governments are under pressure to raise defence spending after years of cuts.

The British Army has now shrunk to its smallest size since the Napoleonic Wars, over 200 years ago, and experts predict it would run out of ammunition within two weeks of fighting a full-scale conventional war in Europe.

Germany has long been cautious about defence spending, not just for historical reasons dating back to 1945, but also due to the global debt crisis of 2009.

Which brings us back to today’s crucial vote in the Bundestag. It is not just about defence. One part is about freeing up €500bn (£420bn) for German infrastructure – fixing things like bridges and roads, but also to pay for climate change measures, something the Green Party insisted on.

The other part is about removing the restrictions in the constitution on borrowing that could, in theory, free up unlimited billions of euros for defence spending, both for Germany’s armed forces and for a pan-European defence fund. On 4 March European Commission President Ursula Von der Leyen announced plans for an €800bn defence fund called The ReArm Europe Fund.

The proposal being voted on in Berlin is that any spending on defence that amounts to more than 1% of Germany’s GDP (national wealth) would no longer be subject to a limit on borrowing. Until now this debt ceiling has been fixed at 0.35 pct of GDP.

Other countries will be watching closely to see if this proposal passes. If it does not, then the EU Commission’s ‘ReArm Europe’ project could be off to a shaky start.

The challenge today for Europe’s security is a stark one. If the US no longer has its back, or at the very least cannot be relied upon to come to Europe’s defence, then what does the continent need to do to fill the gap?

Let’s start with the numbers. According to the Kiel Institute, which meticulously tracks these things, Europe spends just 0.1% of its wealth on helping to defend Ukraine, while the US has been spending 0.15%.

“That means,” says the Kiel Institute’s Giuseppe Irto, “that if Europe is to make up the shortfall then it needs to double its contribution to 0.21%.”

But regardless of what happens today in Berlin this is not just about money.

Many of the most sought-after weapons in Ukraine’s armoury have come from the US, like Patriot air defence and long-range artillery systems like Himars. The Kiel Institute puts the proportion of Ukraine’s rocket artillery at 86% coming from the US, with 82% of its howitzer ammunition also being US-sourced.

Then there is the whole question of US intelligence aid for Kyiv, much of it derived from satellites and geospatial imagery. If Washington were to permanently switch that off, then Ukrainian forces risk being partially blinded.

If America’s nuclear arsenal is taken out of the equation then there is a massive disparity between Russia’s 5,000-plus warheads and the combined total of Britain and France’s nukes which amount to less than a tenth of that. But that still theoretically leaves enough to act as a nuclear deterrent.

When it comes to “conventional”, ie. non-nuclear arms, Western defence chiefs are fond of saying that Nato’s combined forces are superior to Russia’s.

Maybe, but if there is one glaring lesson to come out of the Ukraine war it is that “mass” matters. Russia’s army may be of poor quality but President Putin has been able to throw such huge numbers of men, drones, shells and missiles at Ukraine’s front lines that the Russians are inexorably advancing, albeit slowly and at huge cost.

This should not come as a surprise. Moscow put its economy on to a war footing some time ago. It appointed an economist as its defence minister and retooled many of its factories to churn out vast quantities of munitions, especially explosive-tipped drones.

While many European nations have dragged their feet over raising defence spending much above the Nato-mandated 2% of GDP, Russia’s is closer to 7%. Around 40% of Russia’s national budget is spent on defence.

So Europe has a fair bit of catching up to do if it is to even come close to shoring up its defence and security.

“If the vote passes then it will be significant for Germany and for Europe,” says Ed Arnold, senior research fellow for European security at the Royal United Services Institute think tank.

“It will set a precedent and allow others to follow… However, three years on from the invasion of Ukraine the case of Germany is a reminder that more money for defence is necessary but not sufficient.

“Europe needs defence and security leaders who are able to navigate a rapidly deteriorating Euro-Atlantic security environment. Cultural, rather than financial reform, would be most valuable to Europe right now.”

When you arrive by train in Wolfsburg, Lower Saxony, the first thing you see is the Volkswagen factory. Its huge facade, emblazoned with a giant VW logo and flanked by four tall chimneys, dominates one bank of the canal that runs through the city. The 6.5 sq km (2.5 sq mile) complex sits adjacent to the Autostadt, a kind of theme park devoted to the automobile and to VW, Europe’s biggest carmaker. The Volkswagen Arena, a sports stadium, is a short distance away.

Wolfsburg is Germany’s answer to mid-20th Century Detroit – not so much a city with a car factory as a factory with a city that has grown up around it. Some 60,000 people from across the region work in the plant, while the town itself has a population of around 125,000. Locals say that even if you don’t work in the factory yourself, it’s certain many of your friends will, along with half of your class from school.

“Wolfsburg and Volkswagen – it’s kind of a synonym,” explains Dieter Landenberger, the VW Group’s in-house historian, as he looks lovingly at an early model Beetle. It is one of an array of beautifully restored classic cars in the Zeithaus – a huge, glass-fronted museum in the Autostadt dedicated to icons of the motor industry.

“We’re proud of the plant,” he says. “It is a symbol of that period in the 1950s when Germany had to reinvent itself and rebuild after the war. It was a kind of motor for the German economic miracle.”

Today, however, the plant has also come to symbolise some of the main problems affecting the German car industry as a whole. The Wolfsburg factory is capable of building 870,000 cars a year. But by 2023 it was making just 490,000, according to the Cologne-based German Economic Institute. And in Germany it is far from alone. Car factories across the country have been operating well below their maximum capacity. The number of cars produced in Germany declined from 5.65m in 2017 to 4.1m in 2023, according to the International Organisation of Motor Vehicle Manufacturers.

All of this matters deeply as the German public prepares to go to the polls on 23 February. The car industry is not just a source of national pride; it is also a significant driver of national wealth. Disagreements over how to resolve the country’s economic malaise were a factor in the collapse of the coalition government in November. Whoever is in power after the election will inevitably need a plan to revive the economy – and getting the motor industry back in gear is likely to play an important role.

Car-making makes up about a fifth of the country’s manufacturing output, and if the supply chain is taken into account, it generates around 6% of GDP, according to Capital Economics. The industry employs some 780,000 people directly – and supports millions of other jobs.

It’s not just production that is down. Sales of cars made by German brands are far lower than they were just a few years ago. Between 2017 and 2023, those of VW fell from 10.7m to 9.2m, while over the same period BMW’s went from 2.46m to 2.25m and Mercedes-Benz’s went from 2.3m to 2.04m, company reports show.

All of the Big Three saw their pre-tax profits fall by about a third in the first nine months of 2024, and each warned that their earnings for the year as a whole would be lower than previously forecast.

The development of electric cars has sucked up huge investment, but the market for them hasn’t grown as quickly as expected, while foreign competitors are flexing their muscles. The threat of tariffs being imposed by the US and other governments also looms large.

“There are so many crises, a whole world of crises. When one crisis is over, another is coming up,” is how Simon Shütz, a spokesman for the German Automotive Industry Federation (VDA) puts it.

Car sales across Europe have been declining since 2017, according to Franziska Palmas, a senior Europe economist at Capital Economics. “Lately they’ve recovered a bit, but they’re still around 15 to 20% lower than they were at the peak in 2017,” she says. “That’s partly due to factors like the pandemic, the energy crisis. But it’s also cars lasting longer – and people already have a lot of cars in Europe. So demand has been weak.”

Another key factor has been the aforementioned transition to electric cars. Since the diesel emissions scandal of 2015 – in which VW was found to have rigged emissions tests in the US – the industry has been undergoing a technological revolution.

With the EU and European governments determined to phase out petrol and diesel cars over the next decade, manufacturers have had little choice but to invest tens, and collectively hundreds of billions of Euros on developing electric models and building new production lines.

However, although electric cars do now make up a significant share of all cars sold – 13.6% in the EU and 19.6% in the UK last year, for example – their market share has not been growing as quickly as anticipated.

And in Germany itself, the sudden removal of generous subsidies for electric car buyers in late 2023 actually contributed to a dramatic 27% fall in sales of all electric cars within the country last year, making life still more difficult for German firms in their home market.

“The decision to drop subsidies suddenly – that was very bad, because it undermined trust among our customers,” says the VDA’s Simon Schütz.

“Going from the combustion engine to electric mobility is very big process. We are investing billions in rebuilding all the factories. And so that takes some time, there’s no question about it.”

While all of this has been going on, German manufacturers have also been grappling with another serious concern. Doing business in Germany itself, operating factories here and employing hundreds of thousands of people, is very expensive.

Workers in the automotive sector have traditionally enjoyed generous pay and benefits thanks to agreements drawn up between unions and management. According to Capital Economics, in 2023 the average monthly base salary in the German auto industry was about €5,300, compared with €4,300 across the German economy as a whole.

For years, this approach gave German-based companies certain advantages, for example in avoiding industrial unrest and in attracting and retaining talented staff. However, it also led to German car manufacturers having the highest labour costs in the global industry. In 2023, these averaged €62 per hour, compared to €29 in Spain and €20 in Portugal, according to the VDA.

The situation for Germany’s domestic car industry became more acute following Russia’s invasion of Ukraine. This choked off Germany’s once-abundant supplies of cheap Russian gas, at the very time when the country was phasing out nuclear power.

The result was a sharp increase in energy prices. Although they have since subsided, energy costs for industrial users in Germany remain very high by international standards. “Energy prices here are three to five times higher than in the US, or in China – much higher than for our main competitors,” says Mr Schütz.

And this is being felt across the industry, not just at the carmakers themselves. “From the Thysenkrupp and Salzgitter steel mills producing the sheet metal rolls that are later turned into doors and bonnets, to makers of smaller components used in drivetrains, costs have exploded as a result of high energy prices,” says Matthias Schmidt of Schmidt Automotive Research.

Last year these pressures came to a head. At VW, which has 45% of its global staff in Germany, managers finally decided radical action was needed to bring down costs.

“It was a very big shock,” IG Metall union spokesman Steffen Schmidt tells me over a cup of coffee near the VW factory in Wolfsburg. “The company didn’t say anything publicly.”

It was left to Daniela Cavallo, head of the powerful VW works council and the top employees’ representative, to deliver the news. “They held a big meeting outside the gates of the factory. Thousands of workers – and you could have heard a pin drop,” says Mr Schmidt.

“They were stunned. Thousands of people, all completely silent.”

What VW proposed was unprecedented. Union representatives had come to meetings expecting to negotiate an annual pay rise. They were asking for a 7% boost. Instead, they were told, the company needed them to take a 10% pay cut.

Worse was to follow. The company said it might have to close up to three of its factories within Germany itself – and was tearing up a job security agreement that had been in place for decades.

Arne Meiswinkel, VW’s chief negotiator, said at the time that the situation it faced in Germany was “very serious” and that “Volkswagen will only be able to prevail if we future-proof the company now in the face of rising costs and the massive increase in competition”.

Volkswagen had never previously closed a German factory in its 87-year history. In the face of intense opposition from unions and politicians, and following short but disruptive “warning strikes” by unionised workers, the idea was ultimately shelved. But the very fact it had been put forward sent a seismic shock through the entire sector.

In the meantime, the workforce did agree to painful limits on pay and bonuses, and VW said it would cut more than 35,000 jobs by the end of the decade, albeit in a “socially responsible manner” that avoided compulsory redundancies.

Less conspicuously, Mercedes-Benz also launched a cost-cutting drive last year, aimed at saving several billion euros annually – albeit compulsory redundancies in the German workforce are highly unlikely, as a job security agreement effectively rules them out until 2030. Meanwhile Ford, which operates two factories in Germany, recently announced plans to cut 2,800 jobs in the country.

Not all of the German car industry’s problems are confined to Germany itself. With the European market saturated, for several decades the continent’s manufacturers have looked for growth elsewhere.

One of the most lucrative markets has been China, where for a while the growing middle class had an apparently insatiable appetite for upmarket European vehicles. VW, Mercedes-Benz and BMW all teamed up with local businesses, setting up factories in China itself to meet local demand.

But now that source of growth is drying up. The Big Three have all seen sales fall recently – in 2023 VW’s China sales were down 9.5% on the previous year, Mercedes-Benz’s by 7% and BMW’s by 13.4%. Their combined share of the Chinese market has shrunk as well to 18.7%, from a peak of 26.2% in 2019. This appears to be the result of a slowing Chinese economy, falling interest in expensive, foreign-badged cars and the rapid growth of local marques, especially in the electric car market.

“Not that long ago, Western brands represented quality and trust,” explains Mark Rainford, founder of the Inside China Auto website. However, he says, since then the reputation and appeal of Chinese brands has improved beyond recognition.

All of the Big Three say trends in China have had a significant impact on their earnings.

Chinese brands are also attempting to build a share of the European market, helped by their much lower operating costs than more established rivals, both because wages are lower in China and because, as pure EV firms, they don’t have the same legacy costs carried by manufacturers making the transition from petrol and diesel to battery-powered cars.

According to the European Commission, Chinese brands also benefit from hefty government subsidies, which allow them to sell cars at artificially low prices. In October, the EU introduced extra tariffs on imports of Chinese-made EVs, in an effort to create a more level playing field.

German firms opposed the EU tariffs, because they feared retaliation from China could affect their own exports. Now they also face the threat of new protectionist measures being introduced by the Trump administration, including possible tariffs on cars shipped from the EU. For an industry that relies heavily on exports, the rise of protectionism is a growing threat.

“We know that trade wars only create losers on both sides. Tariffs will cost wealth, cost growth and cost jobs,” says the VDA’s Simon Schütz.

Although some of the pressures facing Germany’s car companies were not foreseeable, there was still an element of complacency, believes analyst Matthias Schmidt: “They knew the structural issues were there, but were blindsided by cheap Russian gas,” he says.

“The expansion to China and the high profits being shipped back to Europe plastered over the high labour cost issues, giving unions a joker card to play with.

“Germany has effectively been an export-driven market, and once those markets sneeze, Germany catches a cold, which is what’s happened.”

So can Germany’s carmakers revive their fortunes? It is a vital question for the manufacturers, for their networks of suppliers and for the country as a whole.

“The problem for Germany is we are not competitive,” says Dr Ferdinand Dudenhöffer, head of the Bochum-based Center for Automotive Research. “Not just in cost terms, but also in terms of the new technologies which will run the world in future”.

He thinks China has become the centre of gravity for innovation in areas such as digitisation and battery technology. “The solution for the carmakers and for the suppliers, in my view, will be that they take their factories abroad,” he says

Simon Schütz is more optimistic. He thinks the industry can prosper, but only if it gets the support it needs from the government after the elections later this month.

“Our automotive industry will be world-leading, I am sure of that,” he says.

“The question is, where will the future jobs be? Will they be in Germany, because we can build cars here, or will our companies go elsewhere?’

For union rep Steffen Schmidt, however, the solution is to go back to Germany’s traditional industrial values. “We have to become a leader in innovation and technology again,” he says. “Then we can keep high pay and good conditions for workers.”

He thinks the path ahead for the new government is very clear: “Invest, invest, invest. In infrastructure, in technology, in green energy and in education.”

For tens of thousands of workers in Wolfsburg, and in Germany’s other “car towns” such as Ingolstadt, Weissach, Munich, Stuttgart and Zwickau, the stakes could not be higher.

Merz, who aims to lead a government with the Social Democrats in the coming weeks, is in a rush to push through a big boost in spending on defence and creaking infrastructure.

After winning elections last month, he said it was his absolute priority to strengthen Europe because President Donald Trump appeared indifferent to its fate.

After 10 hours of talks with the Greens, he said the deal sent a clear message to his country’s allies: “Germany is back.”

He added: “Germany is making its major contribution to defending freedom and peace in Europe.”

Merz, who is expected to become Germany’s next chancellor, is bidding to get his debt and spending reforms through the outgoing parliament before the newly elected MPs are able to take their seats in the Bundestag on 25 March.

The far-right Alternative for Germany (AfD) party doubled its number of MPs in the election and could jeopardise Merz’s spending push if it fails to go through in time. The Left party also objects to the reforms.

Under Germany’s constitution, Merz needs a two-thirds majority to get the changes passed. With the support of the Greens and Social Democrats, he should succeed.

Urgent motions by both the AfD and the Left to challenge next week’s sessions of the outgoing parliament failed at the constitutional court on Friday, enabling the vote to go ahead.

The conservative Christian Democrat leader said the three-party plan agreed by his party, the Social Democrats and Greens involved:

• A big boost in spending on defence, civil protection and intelligence – with spending over 1% of GDP (economic output) exempt from debt restrictions
• A special €500bn (£420bn) infrastructure fund for additional investments over 10 years, including €100bn to cover climate-protection initiatives
• Germany’s 16 states will be allowed to borrow up to 0.35% of GDP above the debt limit.

The defence plans also allow spending on aid for states “attacked in violation of international law” to be exempt from the so-called debt-brake.

That would enable outgoing chancellor Olaf Scholz to release €3bn in aid to Ukraine as early as next week.

Germany’s last government collapsed late in 2024 because of disagreements over loosening debt restrictions brought in by Chancellor Angela Merkel’s government during the financial crisis in 2009.

It meant that the government could not borrow more than 0.35% of Germany’s gross economic output, while the country’s rail and bridge infrastructure creaked from years of underinvestment and ministers tried to boost military spending.

Social Democrat chairman Lars Klingbeil said Friday’s agreement sent a “historical signal” for Germany that would make the country stronger and “strengthen Germany’s role in Europe too”.

Although the Greens were in the old government, they will not be part of Merz’s coalition. However, the party was delighted that the €100bn secured for climate funding would go “in the right direction”.

Outgoing Greens Foreign Minister Annalena Baerbock also hailed the defence package as not just making Germany safer but sending “a clear signal to Ukraine, Europe and the world”.

Germany was taking responsibility in turbulent times, she added.

AfD co-leader Alice Weidel was less impressed, and accused Merz of bending the constitution and loading future generations with a “gigantic burden”.

“This is nothing less than a financial coup,” she complained.

Germany’s economy has contracted for the past two years and with tariffs, the country “could expect a recession for this year” too, Joachim Nagel, the head of the Deutsche Bundesbank, told the BBC World Service in an exclusive interview.

Without tariffs, the bank forecasts the German economy will stagnate but still grow, by about 0.2%, he added.

He said “there are only losers” when imposing tariffs, and supported the EU’s retaliatory measures against US President Donald Trump’s 25% tariff on all steel imports from overseas.

Tariffs are a central part of Trump’s overall economic vision – he hopes they will boost US manufacturing and protect jobs, but critics say in the immediate term they will raise prices for US consumers.

In response to Trump’s move, the EU has hit back with import taxes on a range of US products, which are set to come into force on 1 April.

Mr Nagel called Trump’s tariff policy “economics from the past” and “definitely not a good idea”.

A global trade war is one of the concerns from tariffs and retaliatory tariffs, he said, but added it was a “necessity” for the EU to react “because if something is working against you, you can’t accept a policy like this”.

However, he suggested that when the US realises that the price that needs to be paid will be “highest on the side of the Americans”, it will allow further opportunity for all sides to come to a different resolution.

“I hope that in the end, good policy will succeed,” he said.

Germany’s export economy had been one of its strengths in past decades, and its cars such as BMW, Mercedes, Volkswagens and Audis are popular in the US.

Mr Nagel refuted claims that Germany was the “sick man of Europe”, saying it had a “strong economic basis” and “strong small and medium sized companies”.

“But nevertheless, when you are exposed to an export-oriented model, then you are more exposed in a situation when tariffs are going up and there are so many uncertainties, so many unknowns,” he added.

He said Germany could overcome such challenges “over the next couple of years”.

However, German consumers are set to face higher prices.

The head of Germany’s BGA federation of wholesale, foreign trade and service, Dirk Jandura, warned on Wednesday that Germans might have to dig deeper into their pockets to pay for American products, such as orange juice, bourbon and peanut butter, in supermarkets.

Commenting on recent unprecedented changes in Germany’s economic policy, which were altered allow the country to borrow more to spend on defence and infrastructure, Mr Nagel said it was an “extraordinary measure” for an “extraordinary time”.

“The whole world is facing tectonic changes which makes the current situation very different from those seen in the past, hence the fiscal change,” he said.

He added the policy change would allow Germany some financial breathing room for recovery in the next few years, adding it provided a “stability signal to the market”.

Two German newspapers say they have uncovered details of an assessment carried out by spy agency BND in 2020 but never published.

The intelligence service had indications that the Wuhan Institute of Virology had been carrying out experiments where viruses are modified to become more transmissible to humans for research, they say.

China repeated its denial saying the cause “should be determined by scientists” – and pointed to a World Health Organization investigation which found the lab-leak theory was “extremely unlikely”.

There is no consensus on the cause of the Covid pandemic.

The lab leak hypothesis has been hotly contested by scientists, including many who say there is no definitive evidence to back it up.

But the once controversial theory has been gaining ground among some intelligence agencies – and the BND is the latest to entertain the theory. In January, the US CIA said the coronavirus was “more likely” to have leaked from a lab than to have come from animals.

According to Die Zeit and Sueddeutscher Zeitung, the BND met in Berlin in 2020 to look into the origin of coronavirus in an operation called Project Saaremaa.

It assessed the lab theory as “likely”, although it did not have definitive proof.

The BND also found indications that several violations of safety regulations had occurred at the lab.

The assessment was commissioned by the office of Angela Merkel, Germany’s chancellor at the time, but was never publicly known of until now.

According to the papers, the findings were shared with the CIA in autumn of last year.

In January this year, the CIA said that a “research-related origin” of the pandemic was more likely than a natural origin “based on the available body of reporting” – although it cautioned it had “low confidence” in this determination.

Both the BND and outgoing chancellor Olaf Scholz declined to comment.

China’s foreign ministry spokeswoman Mao Ning said in response: “We believe that tracing the origin of Covid-19 is a scientific issue that should be determined by scientists with a scientific approach.

“The conclusion that a laboratory leak is extremely unlikely was reached by the China-WHO joint expert team after on-site visits to relevant labs in Wuhan and in-depth discussions with researchers.

“This authoritative scientific conclusion has been widely recognised by the international community and the scientific community.

“China firmly opposes any form of political manipulation on the issue of Covid-19 origin tracing.”

The WHO investigation in early 2021 saw a team of scientists fly to Wuhan on a mission to look into the source of the pandemic.

After spending 12 days there, which included a visit to the laboratory, the team concluded the lab-leak theory was “extremely unlikely”.

But many have since questioned their findings, with one prominent group of scientists criticising the WHO report for not taking the lab-leak theory seriously enough – it was dismissed in a few pages of a several-hundred-page report.

Supporters of the natural origin hypothesis – which was backed in the WHO report – say Covid-19 emerged in bats and then jumped to humans, most likely through another animal, or “intermediary host”.

This hypothesis was widely accepted at the start of the pandemic, but as time has worn on, scientists have not found a virus in either bats or another animal that matches the genetic make-up of Covid-19, leading some to doubt the theory.

The industrial action, led by the trade union Verdi, began unexpectedly on Sunday at Hamburg Airport, before expanding to a nationwide strike.

Passengers at Frankfurt, Munich, Berlin and other major hubs have been urged not to travel to airports, with operations severely disrupted. Frankfurt, Germany’s busiest airport, said passengers would be unable to board flights and transfer would “almost certainly” be affected.

Verdi, which represents public sector and transport workers, is in an ongoing dispute over wages and working conditions.

German media reports thousands of flights could be cancelled across the day, disrupting travel for more than 500,000 passengers.

Lufthansa, whose main hub is in Frankfurt, confirmed “delays and extensive cancellations” across all its airlines, while Munich Airport warned of a “greatly reduced flight schedule.”

Katja Bromm, spokeswoman for Hamburg Airport, where all 143 departures scheduled on Monday have already been cancelled, said Verdi was “dishonourable” to call a strike without notice at the start of the holiday season.

She said that Sunday’s walkouts were “excessive and unfair to tens of thousands of travellers who have nothing to do with the disputes”.

A spokesman for Verdi accepted that the strike would affect many, but told German media that causing disruption was necessary to extracting a better offer from employers.

Many of Frankfurt Airport’s 1,770 scheduled flights have already been cancelled, while the majority of Munich’s 820 flights are expected to be cancelled.

Hundreds more cancellations are anticipated across Stuttgart, Dusseldorf, Cologne and Berlin.

Many passengers had already checked in their luggage and were having problems getting it returned, according to public broadcaster NDR. It also reports that the strike has brought air traffic at Hanover Airport to a standstill.

Beyond airports, Verdi has also called for strikes in waste collection across several German cities, including Berlin, Essen and Kiel, where bins have gone unemptied since last week.

The union is demanding an 8% pay increase for airport workers, or at least €350 more per month, along with higher bonuses and extra time off. Employers have so far rejected these demands as unaffordable.

Further strikes were expected to go ahead this week in facilities operated by the federal government and local authorities, news agency DPA reported, citing a Verdi spokesperson.

The next round of talks is set to take place on Friday in Potsdam.

The bank stuck to its plan to lower rates in the face of economic challenges, including threats of US tariffs and plans to boost European military spending.

The ECB cut its main interest rate to 2.5% from 2.75%, and once again reduced its forecasts for economic growth in the eurozone.

The latest cut came as a sell-off of German government bonds spread to other bond markets, including the UK.

The sell-off came after Germany’s move this week to increase military and infrastructure spending.

Political parties in talks to form a new government plan to pay for this by loosening Germany’s fiscal rules, raising the prospect of a big increase in debt.

In response, longer term German bonds saw their biggest sell-off in years on Wednesday, and the euro jumped to its highest level in almost four months, while stocks also rebounded.

On Thursday, German borrowing costs – as measured by the yields on the country’s bonds – continued to rise, and other countries were also affected, with UK borrowing costs also increasing.

UK government borrowing costs have already risen due to concerns about persistent inflation and interest rates not coming down as quickly as previously thought.

However, Lindsay James, an investment strategist at Quilters, said the market was still expecting the Bank of England to make two further rate cuts in 2025, “with recent inflation data reasonably encouraging”.

With inflation getting closer to its 2% target, the ECB said its interest rate cuts were “making new borrowing less expensive for firms and households”.

But it trimmed its prediction for eurozone growth, putting expansion in 2025 at just 0.9%, only slightly above the 0.7% pace recorded last year.

The ECB faces a number of upcoming challenges as it tries to get inflation to its 2% target.

The eurozone economy may suffer if the Trump administration goes ahead with plans to impose “reciprocal tariffs” on every country that taxes US imports.

“In view of the threats to our freedom and peace on our continent, the rule for our defence now has to be ‘whatever it takes’,” he said.

Merz, whose conservatives won Germany’s election last month, said he and his likely coalition partners from the centre left would put new proposals to parliament next week.

He has spoken of a need for urgency on German spending in light of “recent decisions by the American government”.

Merz, 69, did not elaborate but he has been outspoken in his criticism of President Donald Trump’s treatment of Ukraine’s Volodymyr Zelensky in the Oval Office.

Earlier this week he said European leaders had to show “we are in a position to act independently in Europe”.

At a news conference on Tuesday, alongside leaders from the Social Democrats and his conservative sister party in Bavaria, Merz said Germany was counting on the US to stand by “mutual alliance commitments… but we also know that the resources for our national and alliance defence must now be significantly expanded”.

Merz said, in English, he would do “whatever it takes” to protect freedom and peace – a reference to Mario Draghi’s vow to save the euro in 2012 when he was European Central Bank president.

At the heart of his proposals is a special €500bn (£415bn) fund to repair Germany’s creaking infrastructure, as well as loosening stringent budget rules to allow investment in defence.

In the wake of Europe’s financial crisis, Germany imposed a “debt brake” or Schuldenbremse, limiting the budget deficit to 0.35% of national economic output (GDP) in normal times.

The new defence proposal recommends that “necessary defence spending” above 1% of GDP should be exempt from debt brake restrictions, with no upper limit.

Although Germany has provided more aid to Ukraine than any other European country, its military is notoriously underfunded.

Olaf Scholz’s Social Democrat-led government set up a €100bn fund after Russia’s full-scale invasion of Ukraine in 2022, but most of that has already been allocated.

Germany will have to find an extra €30bn a year just to meet the current Nato target of 2% of GDP on defence, and security experts believe it will need to raise its target closer to 3%.

Scholz was due to meet Friedrich Merz and Social Democrat leaders on Wednesday on the eve of an EU summit devoted to Ukraine and European defence. His government fell apart late last year because the three parties in coalition could not agree to reforming debt restrictions.

The debt brake has been written into Germany’s constitution, or Basic Law, and any change would require a two-thirds majority in parliament, which is not a foregone conclusion because of the large number of seats held by the far-right AfD and the Left party.

However, the new parliament will not convene until late March and this measure will initially go before the old parliament.

Boris Pistorius, the Social Democrat defence minister in the outgoing government, said the spending plans were a “big, important step” even if they were far from being a coalition deal. Ten days after Germany’s elections, the parties are taking part in exploratory talks, which continue on Thursday.

Pistorius told German TV that removing defence from national debt rules was not about armaments as much as “the security of our country – nothing more, nothing less”.

Social Democrat leader Lars Klingbeil, standing alongside Merz on Tuesday, gave details of the plan to re-invest in German infrastructure, saying: “Our country is wearing itself out.”

Loans of €500bn would go into a fund to cover repairs to roads, railways and other critical infrastructure; €100bn of the money would go to Germany’s 16 federal states, with a loosening of the debt brake to allow the states to rack up small amounts of debt too.

Mannheim police said a “lone” suspect had been arrested and there is no evidence of a second perpetrator.

The police have asked the public to avoid the area, but said that there is currently no further danger to the public.

No information has been given about the number of people injured or the severity of their injuries.

Police and rescue services have cordoned off a large part of the city centre as the investigation continues.

No details about the suspect or their potential motivation have been shared by police at this stage.

The incident comes at a time of heightened security for Mannheim’s annual carnival. There was a parade through the city centre on Sunday, with major events scheduled for Tuesday.

Police have not said whether there will be a change to the schedule in light of the incident.

Police have not confirmed if the incident was a deliberate attack – only that a car drove into a group of people, and that a suspect has been arrested.

But, Germany has endured a number of violent attacks over the last year, which have left several people dead and hundreds injured.

Nine months ago, also in Mannheim and only a few blocks away from where Monday’s attack is believed to have taken place, an Afghan man stabbed several people, killing a policeman.

Then, in August, another knife attack left eight people injured and three dead in Solingen. The Syrian man who was charged with the crime was suspected of links with the Islamic State terrorist group.

In December a man rammed a car into a crowd at a Christmas market in Magdeburg, leaving six dead and 299 injured. A 50-year-old Saudi psychiatrist was arrested.

In January, a 28-year-old Afghan asylum seeker attacked a group of small children in a park in the Bavarian town of Aschaffenburg, killing a two-year-old child and a passer-by who tried to help the boy.

And in February, a 24-year-old Afghan asylum seeker drove a car into a crowd, injuring more than two dozen people. A mother and child later died from their injuries.