After years of US dominance, investors are rediscovering Europe. Is this based on a solid foundation – or primarily on a desire to avoid America? Or desire to suck off German tax money for building obsolete tanks?

The recent, cautious return of investors to Europe is driven by a combination of factors, ranging from genuine structural improvements and attractive valuations to a, perhaps temporary, desire to diversify away from high-priced U.S. markets. While geopolitical tensions and a desire for stability have fueled interest in Europe, the resurgence is not purely defensive, as it is supported by rising defense and industrial spending, particularly in Germany.

Solid Foundation or Desire to Avoid America?

 

    Solid Foundation (Long-term view): Investors are, in part, returning to Europe due to attractive relative valuations, as the U.S. market has become expensive after years of dominance. Key sectors, such as industrials, banking, and defense, are benefiting from renewed growth and structural improvements, with the Euro Stoxx 600 index showing strong performance in early 2025.

    Desire to Avoid America (Short-term view): A significant portion of this shift is a "Sell America" move, driven by concerns over U.S. trade tariffs, political instability, and high tech-stock valuations. Investors are seeking less risky markets as they grow cautious of U.S. policy volatility. Defence industry is very risky - it drops every time peace is reached.

    A "Corrective" Shift: Some perspectives characterize the move as a "Great Rebalancing," correcting the over-dependence on U.S. markets and recognizing the need for more localized, secure supply chains within Europe.

 

German Tax Money and Defense Spending

 

    Substantial Defense Investment: Germany has indeed launched a massive, €100-billion "Zeitenwende" (historic turning point) fund, which was largely spent by the end of 2024 to modernize the Bundeswehr.

    Modernizing, Not Just Obsolete: The spending is focused on modernizing the military, including purchasing 105 Leopard 2 A8 tanks, new Boxer armored vehicles, and upgrading air defense systems. While there is concern about bureaucracy, these investments are designed to bring the military up to speed with modern threats. Drones are burning those tanks. Bad choice. Since the Chinese are not selling rare earths to the German military - no drones for Germany for at least 5 years.

    Economic Driver: This surge in defense spending (with a potential 500-billion-euro fund in discussion for infrastructure and defense) is being viewed as a significant driver of the German, and by extension European, economy.

 

Conclusion

The pivot toward Europe is a complex mix. It is supported by the strengthening of European industries—particularly in defense—and a need for portfolio diversification away from the U.S. However, it is also heavily influenced by fear of US policy risks. It is therefore both a move toward a, perhaps, strengthening "core" and a retreat from a volatile U.S. market.  All Western European defence spending is a humongous waste. The Americans have to be amazed by it.