The special fund for defence proposed by Germany’s presumptive next Chancellor Friedrich Merz would secure funding for defence spending to rise from 2% of GDP to 3.5% and make budget negotiations a bit easier for the next government. But Germany is still unlikely to loosen fiscal policy much in the coming years. Meanwhile, a 25bp cut by the ECB at its meeting next week looks nailed on, and though easing beyond that will be more contentious, we still expect further cuts this year.
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