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Indian Express
2 days ago
- Business
- Indian Express
Germany's defence awakening is rooted in geopolitical realities
Germany's post-World War II identity has long rested on pacifism, diplomacy, and a deep aversion to military assertiveness. It changed dramatically in 2022 when Russia's invasion of Ukraine jolted Berlin into a strategic reset. Chancellor Olaf Scholz called it a Zeitenwende — a turning point — announcing Germany would commit 2 per cent of its GDP to defence spending and create a €100 billion special fund to modernise the Bundeswehr. It marked a historic departure from decades of military restraint. In 2025, the new Chancellor Friedrich Merz doubled down on this trajectory. In his first address to the Bundestag, Merz vowed to transform the Bundeswehr into 'the strongest conventional army in Europe.' He coupled this with a sweeping economic recovery package and a tough new migration policy. 'Germany and Europe must become so strong together that we never have to use our weapons,' he said. To realise this vision, Merz pledged unlimited financial backing for the military, and suggested that Germany would shoulder greater responsibility within NATO and the European Union. Defence Minister Boris Pistorius echoed this ambition, suggesting a long-term goal of raising defence spending to as much as 5 per cent of GDP — a dramatic leap from the current ~2 per cent. The Merz-led coalition secured a key parliamentary provision: Defence spending beyond 1 per cent of GDP would be exempt from the constitutionally enshrined 'debt brake'. The legal framework is in place. The ambition is clear. But will the German public support hold? Initially, it seemed so. In 2022, the emotional shock of war in Europe led to broad support for increased military expenditure. Nearly 70 per cent of Germans backed the move — remarkable in a country so wary of militarism. The special fund enabled Germany to order F-35 fighter jets, procure Israel's Arrow 3 missile defence system, invest in cyber capabilities, and digitise command operations. For many, this was not militarism, but a belated correction of decades of underinvestment. But by 2025, that enthusiasm has tapered. A Koerber Stiftung poll from November 2024 found that while 73 per cent of Germans favoured greater investment in European security, 58 per cent opposed Germany playing a leading role if the US retreated from global affairs. Currently, around 55 per cent support strengthening national defence. Support for the far-right AfD, which advocates a more restrained defence posture, has grown. Cracks are appearing in the national consensus. Several fault lines now threaten the sustainability of Germany's defence transformation. First, economic concerns are mounting. Inflation, stagnation, and budget constraints have sharpened debates over fiscal priorities. Critics ask whether Germany can afford to spend billions on tanks and jets while underfunding schools, housing, and its energy transition. With austerity on the horizon, Germans are being forced to choose between security and social services. Many want both — but doubt whether both are affordable. Second, implementation has been slower than expected. Bureaucratic inertia, procurement delays, and supply chain disruptions have hampered progress. The Bundeswehr remains under-equipped in key areas. Reports of soldiers lacking basic gear persist, and many major systems are still years from deployment. If voters perceive the Zeitenwende as mostly talk with little delivery, support will wane further. Third, Germany's pacifist tradition remains strong. On the political left and among younger voters, scepticism toward militarisation is pronounced. Some fear entanglement in foreign wars; others are uneasy with NATO's expanding mission. In eastern Germany, with its historic links to Russia and persistent economic grievances, alignment with the West is more contested. The political implications are complicated. Defence expansion finds strongest support among Merz's CDU/CSU and the SPD. The Greens, though supportive of Ukraine, are divided between their anti-war roots and current geopolitical realities. The Free Democrats (FDP) support spending but worry about fiscal discipline. Meanwhile, Die Linke and the AfD oppose rearmament from opposite ideological perspectives. Parliamentary arithmetic could thus prove tricky, despite constitutional backing for the special fund. Another challenge: Any defence procurement over €25 million still requires approval from the Bundestag's Budget Committee. This postwar safeguard against militarism makes defence planning highly sensitive to shifting coalitions, public opinion, and political bargaining. There's no doubt that Zeitenwende marks a new era. For the first time since reunification, Germany is taking its defence obligations seriously. NATO allies — especially in Eastern Europe — have welcomed the shift. Even the US, long frustrated by Germany's military hesitancy, acknowledged the change during Chancellor Merz's visit to Washington on June 6, with Donald Trump cautiously commending the new direction. But transformation requires more than budgets and weapons — it needs a cultural shift. Germany must forge a new strategic consensus: That military readiness is a safeguard for peace, not a threat to it. This demands political leadership, public dialogue, and tangible improvements in the Bundeswehr's capabilities. Critics who argue that defence spending diverts resources from social needs often ignore a fundamental truth: Without security, prosperity cannot be sustained. Germany's export-driven economy depends on a stable global order — one now threatened by Russian aggression, cyberwarfare, terrorism, and authoritarianism. The days of complacency are over. At the same time, defence advocates must tread carefully. German strategic culture remains cautious. Any sense that the Bundeswehr is being rebuilt for adventurism — or that civil liberties are being eroded in the name of security — could provoke backlash. Transparency, restraint, and adherence to democratic norms are essential. Germany's real test lies not just in spending more, but in spending wisely. That means delivering visible outcomes: Enhanced operational readiness, better troop morale, and credible deterrence. It also means preserving democratic values while projecting stability. The Zeitenwende Plus is not a singular moment but a sustained commitment. Germany must internalise that its global role has changed — not just because of Ukraine, but because the geopolitical environment demands it. A well-equipped, principled Germany can be a pillar of European security — but only if its leaders bring the public with them, not only in moments of crisis, but through steady, transparent governance. In the end, Germany's defence awakening will not be measured by euros spent — but by what it defends, and how. The writer is former ambassador to Germany, Indonesia, Ethiopia ASEAN and the African Union
Euronews
18-03-2025
- Business
- Euronews
Bank of England expected to pause rate cuts despite contracting output
The Bank of England is expected to hold rates steady at 4.5% this Thursday, following a quarter-point rate cut in February. Policymakers will be seeking to steer the UK away from stagflation, as growth remains weak and inflation sticky. Recent figures show the UK economy shrank unexpectedly in January by 0.1%. That was driven by decreased manufacturing output — and comes as a blow to the government ahead of its Spring Statement. Inflation, on the other hand, is nearing the BoE's 2% target but remains stubborn. Price pressures rose 3% year-on-year in January, up from 2.5% in the 12 months to December. On a monthly basis, inflation fell by 0.1% in January, compared to a 0.6% fall in the prior year. 'It's a bit of a tricky time for the Bank of England,' Marion Amiot, chief UK economist at S&P Global Ratings, told Euronews. 'We've seen that inflation has fallen…but the strength of the wage growth profile has been quite surprising if you look at the weakness of the economy at the same time. It points to an underlying weakness in the country's ability to grow,' she noted. 'We might see two more rate cuts this year,' Amiot said, 'but definitely not this week'. Excluding bonuses, the annual growth in employees' average earnings was 5.9% in October to December 2024, according to the latest figures from the Office for National Statistics (ONS). That's up from 5.6% in the previous quarter. The Bank of England will also be watching trade decisions made by the US administration. Amiot argued that the UK is not 'too exposed' to a potential tariff war sparked by President Donald Trump. Even so, she noted that uncertainty over trade policies is denting investor and consumer confidence, hitting UK growth. Watch the full interview above. 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.
Euronews
18-03-2025
- Business
- Euronews
The DAX and euro rise ahead of Germany's historic debt reform vote
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.
Yahoo
10-03-2025
- Business
- Yahoo
Why Germany's Merz could take 'more rational' approach to China
A future German coalition government could take a "more rational" approach to China policy, a former Chinese envoy to Germany says, pointing to likely chancellor Friedrich Merz's focus on the economy and trade. Centre-right election winner Merz, leader of the Christian Democratic Union, is trying to put together a coalition government with the centre-left Social Democrats. The chance of the China-critical Green Party securing a position in the new leadership, however, appears slim. According to Wu Ken, who was China's ambassador to Germany from 2019 to 2024, a Merz-led government could be expected to focus on the two countries' economic ties. Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team. "This stems primarily from Merz's long-standing emphasis on the economy, particularly in trade," Wu said. "More measures to secure economic and trade relations between the two nations could be implemented ... I remain confident about the prospects." During his diplomatic posting, Wu had extensive exchanges with Merz and Social Democratic Party co-leader Lars Klingbeil, who is in talks to form a coalition government. "These two figures certainly do not see China in exactly the same way, especially in terms of how to perceive China and its development," Wu said. "However, one thing they agree on is that China is an indispensable partner to Germany." Wu Ken, who was China's ambassador to Germany from 2019 to 2024, is expecting "positive energy" in relations under the new German leadership. Photo: Handout alt=Wu Ken, who was China's ambassador to Germany from 2019 to 2024, is expecting "positive energy" in relations under the new German leadership. Photo: Handout> Wu anticipated a fresh outlook for China-Germany relations under the new government after outgoing Foreign Minister Annalena Baerbock, of the Green Party, leaves office. "Whichever of the two parties sends someone to be foreign minister, I think it will bring a new look - that is, positive energy - in terms of cooperation and advancing the relationship with China," Wu said. On China relations, he expected a new Merz administration to try to strike a balance between the approach of the outgoing Olaf Scholz government and that of Angela Merkel, when trade and economic ties served as an anchor for ties between the two nations. "Her approach ensured that the Sino-German relationship remained steady and continued to develop smoothly over the long term," Wu said. Relations between China and the European Union have been strained in recent years, including over Beijing's ties with Moscow since Russia invaded Ukraine, and alleged Chinese industrial overcapacity, unfair subsidies and the large trade deficit. Wu said ideological factors were increasingly part of the bilateral relationship and that Germany's stance on China since 2023 - as a partner, competitor and systemic rival - was "perplexing". "In my view, this strategy has not only failed to advance Sino-German relations but has, in some areas, hindered the progress of bilateral ties, especially on trade and the economy," he said. "These classifications seem to lack a clear basis and rationale, fragmenting China into three segments without clear distinctions. Even I, as the ambassador to Germany, found myself uncertain of when I was considered a partner, a competitor, or an adversary." Relations have been strained between China and the European Union. Photo: Reuters alt=Relations have been strained between China and the European Union. Photo: Reuters> The Greens, one of three parties in Scholz's last coalition government and holder of the foreign ministry portfolio, were the driving force behind Berlin's first-ever and rigorously worded China strategy in July 2023. The strategy emphasised the need to de-risk, diversify and reduce Germany's reliance on China. It also called for tariffs to be applied - including EU levies on Chinese electric vehicles - to counteract the influx of inexpensive Chinese imports into the region. The Greens also regard Russia's ongoing war in Ukraine and the broader global conflict with authoritarian regimes like China as catalysts for a strategic realignment of the country's economic security, trade and supply chains. From 2016 to 2023, China was Germany's largest trading partner. But last year the United States overtook China in this position as German exports to China fell by 7.6 per cent. Despite this shift, China has remained an important trading partner as Germany's economy contracted in the past two years, adding to urgency for the new government to address economic challenges. This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.
South China Morning Post
10-03-2025
- Business
- South China Morning Post
Why Germany's Merz could take ‘more rational' approach to China
A future German coalition government could take a 'more rational' approach to China policy, a former Chinese envoy to Germany says, pointing to likely chancellor Friedrich Merz's focus on the economy and trade. Advertisement Centre-right election winner Merz , leader of the Christian Democratic Union, is trying to put together a coalition government with the centre-left Social Democrats. The chance of the China-critical Green Party securing a position in the new leadership, however, appears slim. According to Wu Ken, who was China's ambassador to Germany from 2019 to 2024, a Merz-led government could be expected to focus on the two countries' economic ties. 'This stems primarily from Merz's long-standing emphasis on the economy, particularly in trade,' Wu said. 'More measures to secure economic and trade relations between the two nations could be implemented … I remain confident about the prospects.' During his diplomatic posting, Wu had extensive exchanges with Merz and Social Democratic Party co-leader Lars Klingbeil, who is in talks to form a coalition government. Advertisement 'These two figures certainly do not see China in exactly the same way, especially in terms of how to perceive China and its development,' Wu said. 'However, one thing they agree on is that China is an indispensable partner to Germany.'
