It is, in the end, a strange and unintended alliance between Friedrich Merz and Donald Trump that has finally revived hopes for the realization of the much-discussed “change of era” — the Zeitenwende proclaimed by Olaf Scholz in his speech to the Bundestag on February 27, 2022, three days after Russian tanks rolled into Ukraine.
Almost exactly three years after Moscow launched its assault, a brutal altercation between Zelensky, Trump, and Vance — caught on camera in the Oval Office — followed by a sharp trade escalation between the United States and its neighbor and ally Canada, has jolted Europe awake, with Germany leading the way.
Although his party platform for the February 23 federal election stated the opposite, CDU leader Friedrich Merz, who emerged victorious, seized the moment to upend Germany’s constitutional and fiscal status quo by pledging to partially lift the country’s “debt brake” — even before the current legislature ends on March 25.
With additional defense spending, debt-raising powers granted to local authorities, and a long-awaited infrastructure investment plan, at least 15% of Germany’s GDP is expected to be injected into the economy over the coming decade.
The projected impact on growth is substantial. According to early Goldman Sachs estimates, depending on how swiftly the measures are implemented, German GDP could see an annual boost of 0.6% to 1% between 2025 and 2027 — a notable uptick, given that recent forecasts were barely skirting recession levels.
This major shift in direction is excellent news for the eurozone and the EU as a whole, both of which have been trapped in stagnating domestic demand and are now facing the tightening grip of Trump’s protectionist agenda on the world’s most open continent. All else being equal, and given Germany’s economic weight, the EU could hope for a modest extra annual growth of 0.1% to 0.2% from the German stimulus alone.
But things are unlikely to remain equal. As Germany finally moves to unlock its fiscal potential, Europe is simultaneously entering a new investment era, with an €800 billion plan unveiled on March 4, 2025, by Commission President Ursula von der Leyen to “rearm Europe.”
Although this is not fresh funding — additional outlays are hard to imagine when the €750 billion “Renew” plan from 2020 has yet to be fully spent — it nonetheless removes defense spending from the constraints of the Stability and Growth Pact. The impact on European economic activity can only be positive.
Europe now has a unique opportunity to relaunch its growth and reposition itself in the global race.
But that’s not all. The euro itself has a historic chance to improve its international standing, as the dollar risks coming under pressure due to paradigm shifts in Washington.
Doubts about the strength and centrality of the dollar in the global financial system have already begun to surface in recent weeks, as the Trump administration’s erratic and aggressive trade stance unfolds and key U.S. economic fundamentals deteriorate.
More worryingly, some members of Trump’s inner circle — locked into a mercantilist worldview that equates national power with net capital inflows — are reportedly open to taxing capital flows in dollars.
This idea, recently reported by the Financial Times, is backed by the think tank American Compass, a known supporter of Vice President J.D. Vance. It draws on a proposal floated during Trump’s first term that was never officially discarded. The measure would aim to weaken the dollar — a long-standing Trump goal.
Further fueling speculation, the February repeal of a law restricting Chinese investment has raised concerns about what might come next — including a potential tax on dollar flows. This possibility has rattled investors, especially in Asia, who fear it could reduce the liquidity of dollar-denominated assets — one of the greenback’s key strengths.
While still a distant scenario, this prospect has undeniably contributed to recent weakening of the U.S. dollar. The euro, by contrast, has benefited from a reputation for institutional and regulatory stability. The most risk-averse investors may be turning to gold — the ultimate safe haven — but despite the continent’s complex geopolitical context, the euro also stands out as a symbol of solidity.
Paradoxically, it is precisely this geopolitical volatility and the transactional nature of Trump’s foreign policy that opens a third historic opportunity for Europe: the chance to reposition itself as a third power in a new Great Game.
The unpredictability of America — once a reliable ally — is pushing several European countries to rethink their defense strategies in favor of deeper continental integration. Portugal, for example, has reopened debate on its planned F-35 purchases to explore more European alternatives.
In addition, a new informal group of European countries has emerged in recent weeks, known as the E5. It includes France, the United Kingdom, Germany, Italy, and Poland, and aims to lead the way in bolstering Europe’s geostrategic cooperation — with the ambition of increasing influence in international institutions and future European security negotiations.
Once again, these turbulent times appear to be forcing Europe to rise to the occasion. Now, it is vital to turn momentum into action — starting with Germany.
Markets are slowly regaining confidence in Europe. It is up to policymakers and economic actors across the political spectrum to quickly transform that momentum into tangible progress.