By Chelsey Dulaney

Germany on Tuesday unveiled plans to spend big on defense and infrastructure. Investors cheered the proposal as a watershed moment for the budget-conscious country that will bolster Germany's faltering economy and the broader European defense industry.

-- The benchmark DAX stock index jumped more than 3%, while the mid-cap index, the MDAX, soared almost 7%, on track for its biggest daily gain in five years.

-- Heidelberg Materials, a cement maker, rallied 13% in Frankfurt. Bilfinger, an engineering company, jumped 22%, and forklift maker Kion rose 17%.

-- Defense stocks also rose. Rheinmetall was up 4% and Airbus gained 3%. European defense stocks have risen sharply as investors anticipate an increase in military spending.

-- The euro climbed toward $1.07, its highest level since November.

-- Bond yields rose as investors braced for a flood of debt issuance. The German 10-year government bond yield rose nearly 0.2 percentage point to almost 2.68%. Yields rise as prices fall.

Friedrich Merz, who is expected to become Germany's next chancellor after last month's election, described this as a "whatever it takes" moment with threats to "freedom and peace on our continent." European leaders are scrambling to increase military defenses as the Trump administration signals a retreat from support for Ukraine.

The plan from Merz and his coalition partners would create a EUR500 billion, or roughly $531 billion, infrastructure-investment fund and exempt military spending above 1% of gross domestic product from its constitutionally enshrined debt brake. The proposal will be presented in parliament next week.

Deutsche Bank analysts described the plan as "one of the most historic paradigm shifts in German postwar history." The German bank raised its target on the euro, forecasting the currency will rise to $1.10, and said it will also likely boost its economic projections.

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March 05, 2025 05:45 ET (10:45 GMT)

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