Germany Plans Historic Defense and Infrastructure Spending Shift

Germany is considering a major fiscal shift, potentially establishing special funds of up to a trillion euros to finance defense and infrastructure. This follows European security concerns after discussions between U.S. and Ukrainian leaders. The proposed funds could significantly impact defense stocks and stimulate military and infrastructure investment.

The prospect of an unparalleled military spending surge by Germany since the Cold War has buoyed Europe's defense stocks, following a Reuters report of potential fiscal reforms in Europe's largest economy. Germany's incoming chancellor, Friedrich Merz, refrained from confirming whether the conservatives and Social Democrats were contemplating nearly a trillion euros in new funds for defense and infrastructure.

Merz emphasized the urgency of spending decisions, citing recent discussions between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy. These talks intensified European security concerns and highlighted Washington's significant policy shift since World War Two. Merz expressed hope for an agreement prior to the European defense summit on Thursday.

Proposed funds sparked significant increases in defense contractor shares, as parties considered special funds worth 400 billion euros for defense and 500 billion euros for infrastructure. This combined sum equals 20% of Germany's GDP. SPD General Secretary Matthias Miersch advocates for joint consideration of defense and infrastructure investments, marking historic fiscal reform akin to post-reunification investments in East Germany.

(With inputs from agencies.)