Donald Trump will have succeeded in a few days in what most European countries have been calling for for over a decade now: to remove the German budgetary lock. Still unthinkable just a few weeks ago, Friedrich Merz, future chancellor, leader of the CDU/CSU and champion of budgetary orthodoxy (which he still defended during his campaign), took up Mario Draghi's famous "whatever it takes" to announce an ambitious recovery plan: "Given the threats to our freedom and peace on our continent, the watchword for our defense must be: whatever it takes!" This is a real aggiornamento for Germany, criticized in recent years for its lack of investment and its trade surpluses which penalized the activity of its European neighbors. In two years, Germany has seen the disappearance of what was the basis of its economy under the Merkel era: cheap Russian energy, a robust automobile industry (challenged by the Middle Kingdom) and the American military shield (challenged by Donald Trump).
The proposed recovery plan clearly goes beyond expectations. On the one hand, it would aim to create an infrastructure fund of 500 billion euros (11.5% of GDP) over 10 years with a fairly broad scope of intervention (transport, health, energy, education, etc.). This would not be too much when we know that German budgetary rigor is the cause of the dilapidation of many infrastructures. Furthermore, the debt brake rule (in place since 2009 and limiting the annual structural budget deficit to 0.35% of GDP) would no longer take into account defense spending above 1% of GDP. Finally, the Länder would be granted the possibility of a structural deficit of 0.35% (compared to 0% today), or approximately the equivalent of 15 billion euros. Before embarking on conjectures on the economic consequences of such a plan, it must first be adopted. This requires in particular a 2/3 majority in the Bundestag (and the Bundesrat), more easily achievable with the old parliament, hence the government coalition's desire to amend the constitution before the new Bundestag sits. Beyond raising questions of constitutionality, this will require the support of the Greens, who are opposed to the increase in defense spending and who will probably sell their support.
Defense is therefore back at the heart of the game in Europe. In parallel with the German plan, the European Commission has, in fact, announced an investment program of 800 billion euros, including 150 billion in the form of loans to strengthen European defense capabilities and has encouraged States to free themselves from budgetary rules on military spending. While this budgetary stimulus will undeniably boost growth in the Eurozone, not all countries will have the room to maneuver to increase their deficits sustainably.
This awareness of the Old Continent is necessary. To be convinced, just watch Donald Trump's speech last Friday from the Oval Office of the White House. Referring, in his own way, to the unemployment figures (released as slightly disappointing on Friday with fewer jobs created than expected and a slight increase in the unemployment rate to 4.1%), he was accompanied by an infographic displaying "Manufacturing Jobs" with on one side the results of his predecessor displayed at -111,000 and his own at the end of his first month of presidency displayed at +10,000. Everything is summed up here. The art of diverting the gaze of observers. Failing to fully master the art of the deal, President Trump is incontestably a master in the art of creating and maintaining smoke screens. This slight disappointment in the US employment figures is, in any case, not likely to disturb the FED and dynamic investors in stocks or cryptocurrencies should not draw hasty conclusions from it.
During this speech, which he has the secret of, President Trump also declared that "The European Union was created to take advantage of us and that is what they are doing...". It remains to be hoped that the European response will be as strong in practice as the charge by Senator Claude Malhuret (during a Senate debate on March 5) which went viral on social networks and whose following passage sums up the situation well (beyond comparisons with a famous Roman emperor): "Trump's message is that there is no point in being his ally since he will not defend you, he will impose more customs duties on you than on his enemies and will threaten to seize your territories while supporting the dictatorships that invade you." Dolos, Nero..., the nicknames that President Trump is or will be given do not matter. Europe must be realistic so as not to end up like the Phoenician princess of the same name facing Zeus...