"Germany's back!" (yes, in the 1930s)

Key Markets report for Tuesday, 25 March 2025

On Friday, 14 March 2025 Germany's soon to be Chancellor Friedrich Merz reached a deal with the Green Party to secure a massive infrastructure and defense spending bill. "Germany's back!" said jubilant Merz: "Germany is making its great contribution to the defense of freedom and peace in Europe." The deal will exempt defense spending from the constitutional debt brake and create a €500 billion fund to finance projects outside of the normal budgetary spending. Among other things, this will enable Germany to boost aid to Ukraine.

Full disclosure: the moustache is not real - it was skillfully photoshopped in this image.

€20,400 per man woman and child

Today, the Bundestag will vote on constitutional amendments that could remove fiscal restraints and unleash a massive boost to military spending, which could ultimately reach up to €1.7 trillion. How much money is that? It's a cool €20,400 per man woman and child in Germany. Germany is back, indeed, but not exactly in a way anyone hoped for.

It's the 1930s all over again, and it's not just Germany. In France, Emmanuel Micron too is looking to boost the military-industrial complex along with France's nuclear arsenal and future hypersonic missiles. Across the channel, Sir Keir is obsessing about conscriptions, scotching up "coalitions of the willing," and sending British troops to Ukraine. The EU is driving to ReArm Europe and hijack ten trillion euros of European savings to militarize the old continent.

A tragedy in the making

Policy choices of European leaders are nothing less than tragic and will have one predictable consequence: the rise of a large and powerful military industrial complex (MIC) - an alliance of big banks, government, military and private, for-profit defense corporations. They'll need to repress their populations at home and seek out enemies abroad. In his January 1961 farewell address, U.S. President Dwight Eisenhower singled out this association as one of the greatest threats to a nation’s security and liberty. Today, it is worth pondering his words as they foreshadow the future of Europe:

“… we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence – economic, political, even spiritual – is felt in every city, every state house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Of course, Eisenhower’s words fell on deaf ears and the disastrous rise of misplaced power is now displacing the democratic processes and liberties all over the Western world. Europe’s leaders are now deliberately creating and funding this future, making it all but inevitable that its military industrial complex will metastasize through a systematic arms buildup and warfare.

The price of growth

To be sure, this will boost Europe's economic performance during one business cycle. But one business cycle is enough for the political class to celebrate and claim credit for boosting employment and GDP growth. Businesses will welcome a lifeline from the government without questioning longer-term consequences and the working class will be grateful for the jobs: it's certainly better than finding oneself on the street with no income.

The cost of this bonanza might come in the guise of early death for their children who'll be forced to fight our future wars as, to paraphrase herr Merz, they make their "great contribution to the defense of freedom and peace in Europe." Of course, we can trust the slogans; Merz is a BlackRock man and all he wants is what’s best for all of us, without regards to the many billions BlackRock invested in Ukraine. It’s not about money, you see, it’s about freedom and peace.

After all, when was the blood of innocents spilled for anything less than such lofty goals like civilization, enlightenment, progress, democracy, freedom and peace. The fact that the whole juggernaut always turns out to be so profitable for all the usual suspects must be one of those mystery virtuous cycles of civilizational progress. They mobilize capital to defend peace and freedom and then they make out make out like bandits every time!

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Trading signals for Key Markets, 25 March 2025

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