By Eric Peters, CIO of One River Asset Management

“In view of the threats to our freedom and peace on our continent, the rule for our defense now has to be ‘whatever it takes’,” said Friedrich Merz, Germany’s next chancellor. Merz has spoken of an urgent need to boost spending in light of “recent decisions by the American government.” To expand deficit spending in such a dramatic fashion, the Germans must rush through a constitutional change that will remove or alter what they call a debt brake, which had been inserted in 2009 to prevent the kind of runaway deficits and hyperinflation Germany experienced in the Weimar period. 

To get the two-thirds parliamentary majority needed to make this change will require Merz to support a massive infrastructure spending program in addition to the military expansion he seeks. Only in an existential crisis could something this seismic move so swiftly in Germany. It is the kind of change that comes about perhaps once in a generation, and thus its impact has only just begun to be felt.