John Plassard, senior investment specialist at Mirabaud Group, shares his latest analysis with us as follows:
We’ve been discussing the wake-up call facing several countries amid the global economic slowdown and Donald Trump’s tariff threats.
Among them, Germany stands out, having just modified its constitution to ease its debt brake. But there’s a hidden part of the iceberg: the lack of investment in infrastructure (rail, roads, bridges, and schools). And this represents a major investment opportunity!
The facts
German lawmakers have passed a historic spending package, marking the end of decades of restrictive budgetary policies.
The bill, backed by Friedrich Merz, unlocks hundreds of billions of euros to modernise infrastructure and bolster defence capabilities against the Russian threat.
With a fund of several hundred billion euros dedicated to infrastructure and a military budget largely exempt from debt restrictions, the reform also aims to revitalise the struggling German economy after two years of contraction and a historic investment shortfall.
Markets responded positively, with the DAX hitting a record high and German bond yields rising in anticipation of increased borrowing.
While the bill still requires approval from the Bundesrat – where a vote by Germany’s 16 federal states is expected on March 21 – its adoption could redefine Germany’s economic and military role in Europe and accelerate the construction of a common European defence system.
However, this study is not focused on Germany’s investment potential but rather on rebuilding what has ‘stopped working’ after decades of underinvestment.
What’s in the Agreement?
Germany’s Chancellor-in-waiting, Friedrich Merz, struck a deal last week with the Green Party to significantly boost defence and infrastructure spending.
The pact establishes a €500bn infrastructure fund over the next 12 years, with 20% allocated to green transition initiatives. Additionally, defence spending exceeding 1% of GDP will be exempt from the constitutional debt brake, allowing for increased military funding.
The agreement also extends defence spending to include support for Ukraine, civil protection, information technology, and intelligence agencies. This comprehensive approach aims to modernise Germany’s military capabilities and infrastructure, marking a break from past fiscal conservatism.
This initiative is among the final acts of the current Bundestag before the new parliament convenes on March 25.
Economists estimate that Germany could raise its debt-to-GDP ratio to 86% over the next decade, creating up to €1.9tn in fiscal space without harming economic growth.
This agreement reflects a significant policy shift, highlighting Germany’s commitment to strengthening defence capabilities and modernising infrastructure while addressing environmental concerns.
The collaboration between the CDU/CSU, SPD, and Greens demonstrates a unified approach to tackling current challenges and investing in the country’s future.
What is the Infrastructure Fund?
Germany’s proposed €500bn infrastructure fund is a major initiative to revitalise the country’s infrastructure over the next 12 years. It represents a substantial fiscal policy shift, moving away from traditionally strict debt constraints to address urgent infrastructure needs.
Key elements of the Infrastructure Fund:
Total allocation: €500bn over 12 years, averaging approximately €42bn per year.
Fund Distribution:
- Federal government: €300bn for national infrastructure projects.
- State governments: €100bn allocated to regional infrastructure initiatives.
- Climate and economic transformation: €100bn reserved for the Climate and Transformation Fund (KTF), focusing on climate action and energy transition projects.
Investment Areas:
- Transport: Modernisation and expansion of transport networks.
- Energy: Development of sustainable energy infrastructure.
- Digitalisation: Improvement of infrastructure and digital services.
- Healthcare: Modernisation of hospitals and healthcare facilities.
- Education: Investment in schools and research facilities.
- Civil protection: Strengthening defence and civil protection mechanisms.
Is Germany in need?
The question is deliberately provocative, but it’s not without merit. Germany has not experienced sustained growth since the COVID crisis!
The Financial Times even made it a front-page story recently, criticising former Chancellor Scholz. However, the problem runs deeper than it seems—it stems from decades of economic decline and chronic underinvestment.
Germany, long praised for the quality of its infrastructure, is now facing a worrying deterioration in its transport and communication networks.
Its aging railway network struggles to meet national demand, with increasing train delays and cancellations. Deutsche Bahn estimates that €45bn is needed for modernisation.
Road infrastructure isn’t in much better shape: 4,000 bridges require urgent renovation, according to former Transport Minister Volker Wissing, while highways show advanced signs of deterioration. A €27bn, ten-year program had been launched to modernise the rail network and create 40 high-speed corridors, but its financing remains uncertain following the government’s collapse, casting doubt on the projects’ realisation.
On top of that, Germany faces a striking technological lag: 82% of German businesses were still using fax machines in 2023, and the country has one of the lowest fibre broadband penetration rates among OECD nations. In a context of heightened global competition, this digital deficit could weigh heavily on Germany’s economic competitiveness.
Which companies could benefit from Germany’s reconstruction?
Many companies will be involved in Germany’s modernisation and reconstruction.
Based on the investment categories outlined in point (c), here are the leading companies (non-exhaustive list) in each sector:
Transport: Modernisation and expansion of transport networks
- Alstom
- Siemens Mobility
- Vinci
- Hochtief
Energy: Development of sustainable energy infrastructure
- RWE
- Orsted
- Siemens Energy
- Schneider Electric
Digitalisation: Improvement of digital infrastructure and services
- Deutsche Telekom
- Nokia
- Atos
- Healthcare: Modernisation of hospitals and healthcare facilities
- Fresenius
- Philips
- Siemens Healthineers
Education: Investment in schools and research facilities
- Dassault Systèmes
- SAP
Conclusion
Germany is making a historic shift with a massive stimulus plan to modernise infrastructure and strengthen defence, turning the page on decades of fiscal conservatism.
While long overdue, this transformation could boost Germany’s economy and reinforce its leadership role in Europe, creating significant opportunities for companies in transport, energy, and digital sectors. The key question remains: will this initiative spark a virtuous cycle for German and European growth, or will further adjustments be needed to ensure its full impact?
By John Plassard, senior investment specialist at Mirabaud Group
