The cost of borrowing for the German government rose a staggering 20% in 3 days after the coalition in waiting announced plans for a massive increase in military spending at around 800 billion euros to be financed by debt.
Interest on ten year Bunds rose 20% in 3 days from 2.4% to 2.9% before dropping back slightly to 2.8% by the end of this week.
https://www.business-standard.com/world-news/worst-german-bond-rout-since-1990-triggers-global-selloff-as-yields-surge-125030601326_1.htmlhttps://www.business-standard.com/world-news/worst-german-bond-rout-since-1990-triggers-global-selloff-as-yields-surge-125030601326_1.html
https://www.bloomberg.com/news/articles/2025-03-07/german-bonds-stabilize-as-worst-week-since-1990-draws-to-an-end?srnd=homepage-americas
The rise in interest rates will lead to higher mortgages and loan costs, hammer the economy, fuel inflation and send interest rates higher.
Space for the government to pay for the extra spending by raising taxes, such as VAT, property taxes or by making cuts is limited as Germany has only managed to keep balancing its budget by years of de facto austerity, saving also, ironically, on the military.
Concerns the German government cannot finance the extra interest costs for a massive loan have been fueled by the fact the an investment programme is expected to contribute minimal actual growth to the country s GDP.
The government is expected to purchase weapons from abroad although it has ruled out buying from the USA because it does not produce significant weapons.
Moreover, it will take years for Germany to develop its own military industrial base.
Prrodution processes for weapons are complex.
Germany is very far behind in the arm s race.
For example, Germany s new generation Leopard 2A8 tanks which have been ordered are not expected to be delivered until sometime between 2027 and 2030 and a new submarine is not expected to be available until 2032.
The cost of the new Leopard tanks is hefty at 30 million and observers wonder if investing billions in land forces is wise when air power is proving more significant.
Plans to retool ailing car factories and convert them into ammo and weapons producers may not significantly shorten the development and production cycle of the more complex weapons systems needed for modern warfare which is has a big electronics component.
From media
But it’s not just the price that’s causing concern — there are also major logistical challenges ahead. Deliveries of a full tank battalion, which typically includes 44 to 58 units, could take anywhere from 6 to 8 years. This delay points to a larger issue: Europe’s industrial capacity is shrinking, and the defense sector is increasingly reliant on expensive, small-batch orders that result in long wait times and limited availability.
https://bulgarianmilitary.com/2025/02/18/leopard-2a8-tank-price-hits-30m-equivalent-to-a-used-f-16/
...
In the end, Austria’s decision to purchase new tanks isn’t just about price; it’s about strategic priorities. Europe’s defense posture is at a crossroads, with dwindling industrial capabilities and a growing reliance on small, costly procurement packages. Austria must carefully weigh the balance between air and land forces, ensuring that it is investing wisely in the most effective and cost-efficient ways to maintain its national security.
https://esut.de/2025/01/meldungen/56321/44-neue-kampfpanzer-leopard-2-a8-sind-der-kern-der-runderneuerung-fuer-die-schwedischen-panzerflotte/
https://www.handelsblatt.com/audio/podcast-morning-briefing/handelsblatt-morning-briefing-krieg-das-neue-globale-wettruesten-schulden-kein-langfristiges-wachstum/30245012.html
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