The DAX and euro rise ahead of Germany's historic debt reform vote

Euronews

18-03-2025

The German stock market and the euro continued to rise ahead of Tuesday's parliamentary vote on a major spending bill.
The proposal, initiated by Germany's Chancellor-in-waiting Friedrich Merz, will allow Germany to spend beyond 1% of Gross Domestic Product (GDP), or roughly €45 billion, for defence. The bill's passage will also enable the government to create a special fund of up to €500 billion for infrastructure investment.
Last Friday, Merz reached an agreement with the Green party on the debt-funded spending package, clearing a key hurdle of the final parliamentary votes. The three parties, including Merz-led CDU/CSU, the SPD, and the Greens, hold 520 seats in the Bundestag lower house, more than enough to make the two-thirds majority to amend the constitutional law.
The DAX rose 0.73% to 23, 154.57 on Monday, just 1% below its all-time high of 23,419.48 on 6 March. The euro rose 0.43% against the US dollar to 1.0922, holding a near four-month high after reaching 1.0947 last week, despite a slight pullback during Tuesday's Asian session.
Defence stocks surged since mid-February after US President Donald Trump launched peace talks with Russian President Vladimir Putin, initially excluding the European Union and Ukraine. The US president's decision to halt all military aid to Ukraine has increased the urgency for the European Union to boost defence spending.
In early March, the European Commission leader Ursula von der Leyen proposed a total of €800 billion in special funds for the bloc's defence budget, urging member states to raise their military spending by an average of 1.5% of GDP.
Following this proposal, Merz unexpectedly announced plans to exempt defence spending from Germany's debt brake. The 27 member states subsequently endorsed Merz's plan and reached an agreement to bolster the bloc's defence spending at a summit in Brussels on 6 March.
European major defence and aerospace stocks, including Rheinmetall, BAE Systems, and Rolls Royce Holdings, all skyrocketed over the past month. These major manufacturers of ammunition and air defence systems are expected to secure substantial contracts from EU member states, particularly Germany.
Shares in the German arms manufacturer Rheinmetall have surged 52% month-over-month and 123% year-to-date, repeatedly hitting new highs. BAE Systems and Rolls-Royce Holdings have also seen gains of 42% and 36% this year, respectively.
The Euro Stoxx Aerospace & Defence Index has risen 33% year-to-date, outpacing the 8% rally in the pan-European Stoxx 600. Meanwhile, Germany's benchmark DAX has climbed 16% this year, outperforming most global indices.
The common currency has strengthened by 7% against the US dollar since its low in January amid optimism surrounding the surge in European defence spending. The Germany-led fiscal reform is expected to inject hundreds of billions of euros into defence and infrastructure, potentially revitalising what was once Europe's strongest economy.
Conversely, the US dollar has weakened significantly against other G10 currencies amid an escalating global trade war. Analysts anticipate further declines due to growing economic uncertainties in the United States. 'I still view any USD rallies as selling opportunities and would be fading any USD upside across the G10 board,' Michael Brown, a senior research strategist at Pepperstone London, wrote in a note. The Federal Reserve's rate decision on Wednesday will be a crucial event for the currency market.
Any dovish shift by the central bank could place additional pressure on the dollar, potentially pushing the euro even higher.
The first Circular Economy Strategy came out in 2015, and was updated in 2020 at the start of president Ursula von der Leyen's first administration.
For her second term, von der Leyen has chosen to ratchet things up a notch, and has tasked her new environment commissioner Jessika Roswall with producing a fully fledged Circular Economy Act to codify in law the EU's approach to reducing its drain on global resources. With current consumption trends suggesting that by 2050 humanity will be draining the world's resources at a rate that would take three planets to sustain, the case for action is clear.
But what does the Commission plan to cover in the forthcoming law? The two strategies to date have seen a raft of measures to increase circularity, not least targets for the recyclability and sorting of waste and extended producer responsibility in areas such as fast fashion.
We've had a couple of hints. In her mission letter to Roswall, von der Leyen said the Act should 'create market demand for secondary materials and establish a single market for waste, notably in relation to critical raw materials'. In a speech last week, the Swedish commissioner pointed to 'untapped potential' in waste streams and need to invest in reuse, recycling and new extraction technologies.
No surprise, then, that the business community is keenly watching the signals coming from the EU executive, and has started to set out its own vision of the path Europe should take. The debate will come to the European Parliament building in Brussels on 18 March, when Italian MEP Massimiliano Salini – a vice-chair of the European People's Party – will host a discussion with colleagues and representatives from companies across Europe.
Lara Ponti, vice-president of the Italian trade association Confindustria – which represents over 150,000 manufacturing and service companies across Italy – will present a report looking at how Europe can marry the key objectives of sustainability and competitiveness in circular economy policy.
Also due to speak are Antonio Decaro, chair of the European Parliament's environment committee, which will play a key role in negotiations on the new Circular Economy Act, and Aurel Ciobanu Dordea, Director for Circular Economy at the European Commission's environment directorate will be offering insights into thinking within the EU executive. Completing the line-up are Confindustria President Emanuele Orsini and Italy's Minister of Environment and Energy Security, Gilberto Pichetto Fratin.