UBS On-Air: Market Moves Across the Pond: Is Germany’s chancellor-in-waiting Merz the comeback kid?
Mar 6, 2025
Paul Donovan, Chief Economist for UBS GWM, dives into Germany's political and economic landscape, focusing on chancellor-in-waiting Friedrich Merz's push for independence from the U.S. and plans for increased defense and infrastructure spending. The discussion highlights the surprising resilience of Germany's DAX index amid geopolitical tensions and examines consumer confidence despite recent economic challenges. Donovan also explores broader Eurozone dynamics and the potential impact of demographic trends on Europe's economic future.
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European Defense Spending Shift
- Germany will increase defense spending, but with a new focus on European companies.
- This shift aims to boost the European economy and reduce reliance on US manufacturers.
Germany's Debt Break
- Germany's debt break limits deficits, but exceptions exist, and defense spending might be exempted.
- The incoming government might modify the debt break using the current parliament's composition.
DAX Performance
- Germany's DAX index performed well despite US tariff threats, due to factors like potential fiscal stimulus and a focus on European companies.
- European domestic demand and shifting technology focus also contribute to this positive performance.