Summary
Key points
Eurozone growth remains sluggish, but rising incomes, lower ECB rates, and strong household savings support a potential strengthening. US tariffs still pose a significant threat to key European industries like automotive manufacturing.
EU defence spending is increasing, but it still mainly benefits the US. Building a unified European military industry will take years even with broad political consensus. The European Defence Industrial Program (EDIP) aims to shift procurement within Europe to 50% by 2030, but challenges in financing and coordination make this a long-term objective rather than an immediate solution.
Germany’s new government plans to increase public investment through a €500 billion fund and loosen debt constraints on defence spending. This fiscal expansion could provide a fiscal stimulus of 1.5% to 2% of GDP annually from 2026, with potential spillover effects on other European economies.
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