The Comeback
Germany and Europe's forthcoming investments in defense and infrastructure present an opportunity for Austria to begin its economic recovery
Servus!
Europe is back—or better to say, it might be. Since the start of the year, in the context of the United States’s political and economic self-sabotage, while the S&P 500 has fallen 1.57 percent, the EURO STOXX 50 has grown by 12.39 percent. Germany’s next government has already agreed an enormous defense and infrastructure spending package, relaxing its debt brake in the process. And the European Commission has published what it describes as an “ambitious defense package providing financial levers to European Union Member States to drive an investment surge in defense capabilities.”
Austria’s own stock index, the ATX, has grown by 16.78 percent since the start of 2025, besting the German DAX and French CAC 40 in the process. While Austria as an export-oriented economy and the EU as a free trade bloc are threatened by a breakdown of the international economic order brought on by a trade war with the U.S. and a decoupling of the U.S. from Europe, for the U.S. is Austria’s third-largest individual market for exports, there are potential benefits to both Berlin and Brussels’s spending plans.
The German measures are of particular interest, for Germany’s is Austria’s largest single import and export partner, and thus the German and Austrian economies remain deeply intertwined. Germany’s future government will allocate some €500 billion to infrastructure spending—and not a moment too soon, for those forced to ride its railways and interact with its bureaucracy—of which €100 billion will go towards the country’s climate and economic transformation fund. Defense spending above 1 percent of GDP will henceforth be exempted from Germany’s stringent debt rules, which limit public borrowing to 0.35 percent of GDP.
Austrian companies stand to take advantage of German defense and infrastructure spending down wind via contracts and supply chains, though their ability to do so will depend on Austria getting its own house in order. In its program for government, the new coalition has pledged to “strengthen Austria as a place for business, manufacturing, and innovation” via a structural reform package that will tackle energy costs, bureaucracy, and non-wage labor costs. In the defense sector, the government wants to improve conditions for manufacturers of key technologies like microchips and cyber security.
The EU’s ReArm Europe Plan will afford member states “additional budgetary space to increase their defense spending within the EU’s fiscal rules,” a privilege, chancellor Christian Stocker has said, of which Austria plans to take advantage. Defense spending will rise to 2 percent of GDP by 2032. At around that time, Austria will have to make a decision about replacing its fleet of 15 European Typhoon fighter aircraft. The coalition also plans to fund the procurement of a successor fleet to its Saab 105 surveillance aircraft, which were retired in 2020, and a new long-range air defense missile system. This, on top of joining the European Sky Shield common air defense initiative.
There is a recognition in both Austria and Europe that the unstable international political and security environment triggered by the U.S.’s undermining of the postwar order it itself constructed means that the continent has to seize the initiative. This has spurred a stock market rally and a great stock rotation; “in the first two months of the year, investors added more than $2 billion more than they pulled from U.S.-based exchange-traded funds that invest predominantly in European stocks,” the Wall Street Journal reports. In spite of everything, however, the U.S.’s fundamentals remain solid; Austria and Europe’s long-term political and economic health depends on reforms that will make its economy more competitive, social system more secure and sustainable, and the vulnerable groups in its society more capable and better integrated.
Bis bald!
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“the postwar order”- there lies the root of all the problems.