The Edge
14.10.20263 min
Germany and the Nordics : Pillars of European Resilience
Long regarded as a model of fiscal discipline, Germany is now accepting more debt to finance its economic transformation. In contrast, the Nordic countries continue to benefit from robust public finances. In a world where money is no longer free, these two models are attracting investors’ attention.
- The strategy rests on three pillars: investment, fiscal consolidation, and structural reforms.
- Berlin is restarting public investment with a EUR 500 billion fund dedicated to infrastructure, defence, and the green transition.
- The Nordic countries display solid fundamentals, combining fiscal discipline, export dynamism, and targeted growth.
- The region remains mixed: Denmark is leading, Sweden is recovering, Norway is driven by energy, Finland is more sensitive to the economic cycle and indebtedness.
Germany leaves its comfort zone
Faced with several years of sluggish growth and an erosion of its industrial competitiveness, Germany has decided to change pace and accelerate its reforms. The rise of the AfD (Alternative for Germany) in the last elections has strengthened the sense of urgency within Chancellor Friedrich Merz’s coalition. The consensus is widely shared: the status quo no longer allows the largest European economy to maintain its position. The challenge now is to sustainably restore its competitiveness and growth potential.
Performance history since december 2024
Source : Bloomberg, Indosuez Wealth Management.
Invest, consolidate, reform: the three-step plan
The German government’s roadmap rests on three pillars: investment, fiscal consolidation, as well as pension and bureaucracy reforms. This combination reflects a desire for balance: to restart activity through future-oriented spending, while maintaining control over public accounts and easing structural barriers that weigh on both businesses and state finances. The aim is to support growth without losing sight of long-term sustainability.
EUR 500 billion: Berlin changes doctrine
This figure sums up the turning point: an investment fund of EUR 500 billion. To make this possible, Germany is significantly easing its fiscal discipline, a meaningful gesture for a country that had made it a cardinal principle. The funds will go primarily to infrastructure, defence, and the green transition — three priority areas for public investment that should help sustainably strengthen the country’s growth potential.
Germany changes doctrine, the Nordic countries confirm theirs.
Eloi Ziegler - Head of Advisory Solutions
Northern Europe, or the art of doing more with less debt
The Nordic countries combine fiscal prudence, export champions, and pockets of targeted growth. However, this common approach should not mask the differences: the region is not a uniform bloc, and each economy follows its own rhythm, with distinct drivers and sensitivities.
- Denmark: the engine of regional growth;
- Sweden: in a recovery phase;
- Norway: driven by its energy wealth;
- Finland: the most cyclical of the four, and the most sensitive to indebtedness.
Why the North has a lead
Compared to the United States and the rest of Europe, the Nordic countries benefit from a number of strengths, related both to the solidity of their public finances and the quality of their economic fabric:
- Lower indebtedness than many major countries;
- More room for manoeuvre: fewer fiscal tensions, therefore greater latitude to support growth;
- Exporters who set their prices thanks to their champion status;
- An advantage over the United States in many rate-cut scenarios;
- Structural quality in health, industry, and services.
Evolution of 10-year sovereign yields in Northern Europe (2016-2026)
Source: Bloomberg, Indosuez Wealth Management.
Interest rates: the North reaches the end of the tunnel sooner
The Nordic countries are approaching the end of their rate hike cycles faster than the United States. In Sweden as in Norway, the next move is generally expected to be moderate and will depend on economic data published in the coming months, leaving little room for bad surprises. This context can be welcomed by equity markets, as visibility on credit cost improves.
In summary
For decades, Berlin made fiscal discipline a political marker. Accepting more debt to finance infrastructure, defence, and the energy transition represents a major change - one that is likely to support European growth. On their side, the Nordic countries, although with some disparities, benefit from solid balance sheets and fiscal discipline.
