European Bond Investors Worry About German Defense and Infrastructure Stimulus Size

Bridgette Randall
19 Mar, 2025
London

European markets rested after advancing in the previous session following a historic constitutional amendment in Germany and Ukraine ceasefire talks.

Benchmark indexes in Frankfurt, Paris and Milan traded around the flatline as investors reviewed the details of the debt brake revision in Germany. 

Late Tuesday, Germany's Bundestag approved a measure to exclude defense spending from the structural deficit calculation, allowing the new coalition government to ramp up arms spending without any upper limit. 

German coalition government is likely to increase defense spending from the current 0.35% to as high as 3.5% of GDP, starting from the current fiscal year. 

The presumed German Chancellor, Friedrich Merz, announced a €500 billion fund to invest in replacing Germany's ageing infrastructure fund, after an agreement with the Green Pary to dedicated about €100 billion in climate control related investments.

The debt brake revision provides a much needed shot to revive economic growth, support the European Union's efforts in Ukraine, and improve Europe's military security.

The Bundesrat, the upper house of the parliament, is scheduled to approve the landmark bill on Friday.

Ukraine and Russian ramped up militarty atacks after Russia agreed to a temporary halt on attacks on energy and other vital infrastrucure in Ukraine, after leaders of Russia and the U.S. held formal talks on Tuesday.

On the economic front, the Euro Area wage growth in the fourth quarter of 2024 slowed to an annual 4.1% from the downwardly revised 4.3% in the third quarter, Eurostat reported on Wednesday.

Wage growth in France eased to 1.7% from 2.7%, in Spain to 3.2% from 4.9%, and in Belgium to 2.2% from 2.6%, but accelerated in the Netherlands to 6.2% from 5.9%, in Germany o 4.4% from 4.0%, and Ireland to 5.4% from 5.2% in the third quarter, respectively.

However, wage growth in Italy was steady at 4.3%.

 

Europe Movers

Eseentra plc dropped 5.5% to  109.33 pence, and the essential product  maker reported a decline in organic  sales growth in 2024. 

Vonovia SE dropped 1.7% to €25.08, and the German real estate developer reported a narrower loss in the fiscal 2024. 

Rio Tinto plc decreased 0.1% to 4,903.0 pence, and the company's management urged shareholders to vote against the proposal by a hedge fund to review company's dual listing in London and Sydney. 

Traton SE dropped 5.5% to €33.70 after the parent company Volkswagen AG said it sold 2.2% stake in the commercial vehicle maker for €360 million.