Can defence spending revitalise the eurozone economy? “Higher defence spending will likely significantly lift growth in 2026, in both the eurozone and the Netherlands • A lot will depend on how quickly spending ramps up, and the extent to which Europe can re-tool industry • All else equal, this is likely to mean the ECB cutting interest rates less than we currently expect The confluence of Germany’s federal elections and the US pulling back from the decades-long transatlantic alliance is fomenting a revolution in European defence spending. Germany is abandoning fiscal frugality in the face of an existential threat to Europe’s independence and security, while the EU is likely to significantly loosen the fiscal rules, supported by c0.8% of GDP in new common debt financing. In this note, we explore the potential impact of these changes for the near-term growth outlook.”
Morten W. Langer
