In the wake of escalating geopolitical tensions and shifting global financial flows, Europe is emerging as a preferred safe haven for investors. European government bonds and the euro have experienced notable gains, positioning Europe as a burgeoning safe-haven similar to the long-held US status. Germany has responded to the evolving landscape by proposing nearly €1 trillion in debt-funded defense and infrastructure spending—the largest fiscal boost in modern history. This aligns with broader EU plans for €800 billion in defense spending, partially through joint borrowing. Despite initial spikes in borrowing costs for German and eurozone bonds, these rates have since fallen, reflecting a return of capital to Europe amidst weakening US markets. This shift is drawing speculation that the European Central Bank may further ease credit policies, enhancing appeal for eurozone debt. Analysts suggest that European investors, holding significant US equity exposure—estimated around $7 trillion—might redirect funds to European bonds. With the eurozone’s bond market approaching half the size of the US Treasury market, it appears capable of absorbing notable capital inflows without added cost, potentially financing EU defense spending through repatriated funds and shifting global preferences.
