Germany is set to approve a significant spending law for defense and infrastructure, enabling the country to inject hundreds of billions of euros into its economy. Both the euro and Germany’s stock markets could maintain their upward trends due to optimism surrounding the fiscal reform. Germany’s stock market and the euro continued to rise ahead of Tuesday’s parliamentary vote on the spending bill. The proposal, introduced by Germany’s expected Chancellor Friedrich Merz, will allow the country to spend over 1% of its Gross Domestic Product (GDP) on defense, which is approximately €45 billion. The bill’s approval will also create a special fund of up to €500 billion for infrastructure investment. Merz reached an agreement with the Green party on the debt-funded spending package, clearing the path for the final parliamentary votes. The DAX, Germany’s stock market index, rose 0.73% to 23,154.57 on Monday, just 1% below its all-time high of 23,419.48 on March 6. The euro increased 0.43% against the US dollar to 1.0922, holding a near four-month high despite a slight drop during Tuesday’s Asian session. European defense stocks have surged since mid-February, following US President Donald Trump’s peace talks with Russian President Vladimir Putin, which excluded the European Union and Ukraine. In early March, European Commission leader Ursula von der Leyen proposed €800 billion in special funds for the bloc’s defense budget, urging member states to increase military spending. Merz announced plans to exempt defense spending from Germany’s debt brake, which was endorsed by the member states. European major defense and aerospace stocks, such as Rheinmetall, BAE Systems, and Rolls-Royce Holdings, saw significant gains over the past month. Rings to European defense and aerospace manufacturers are expected to secure substantial contracts from EU member states, particularly Germany. The Euro Stoxx Aerospace & Defense Index has risen 33% year-to-date, surpassing the 8% rally in the pan-European Stoxx 600. Meanwhile, Germany’s benchmark DAX has climbed 16% this year, outperforming most global indices. The euro has strengthened by 7% against the US dollar since its January low due to optimism surrounding European defense spending. The Germany-led fiscal reform is expected to inject hundreds of billions of euros into defense and infrastructure, potentially revitalizing Europe’s once-strongest economy. In contrast, the US dollar has weakened against other G10 currencies amid an escalating global trade war. Analysts anticipate further declines due to growing economic uncertainties in the United States. The Federal Reserve’s rate decision on Wednesday will be a significant event for the currency market. Any dovish shift by the central bank could put additional pressure on the dollar, potentially pushing the euro higher.

Source: https://www.euronews.com/business/2025/03/18/the-dax-and-euro-rise-ahead-of-germanys-parliamentary-vote-on-a-major-spending-bill