Why Markets Are Thrilled About Germany’s Rearmament Push

On March 18, 2025, the Bundestag passed a massive agreement lifting constitutional debt brakes to allocate nearly $1 trillion for defense and infrastructure. This move did not go unnoticed by financial markets, even before the vote. According to Bloomberg, this is a pivotal moment surpassing post-war Marshall Plan spending and German reunification efforts in the early ’90s. It marks a dramatic shift challenging deeply rooted historical perspectives. Previously, Germany’s rearmament in the 1930s led to global catastrophe, but now German militarism is embraced. Bond markets have reacted positively with significant yield jumps on 10-year bonds since the plans were revealed two weeks ago. Analysts like David Onelia of TS Lombard suggest this exceeds expectations set during Donald Trump’s presidency, fueling stock market rallies. The DAX index surged, reflecting confidence that Europe will shoulder more defense costs, allowing the U.S. to reduce its burden. Defense stocks in Europe outperform their American counterparts following Vice President Jay N. Van’s Munich Security Conference speech last month. Germany’s willingness to borrow and invest has boosted shares compared to the rest of Europe. Companies like Rheinmetall are leading defense expansions, announcing record growth since the Ukraine war began, constructing new factories, and creating thousands of jobs. Despite economic challenges, Rheinmetall forecasts up to 40% sales growth in 2025 due to European leaders’ commitment to increased military spending. The broader investment climate shows optimism shifting towards the euro, though concerns linger about where the money will be spent. While many European countries depend heavily on U.S. arms, France’s example suggests reduced reliance over time. Short-term economic growth predictions remain modest, yet Germany’s adoption of long-desired policies could sustain European outperformance if successful.