Euro interest rates & the defense spending bazooka

Investment Analysis Clubs Macro Economic Trends and Risks
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Germany’s historic turnaround on public spending has sent shockwaves through financial markets, sending the euro and government borrowing costs sharply higher…Tuesday’s deal signaled a radical departure from the obsession with debt sustainability that has characterized German policy since the global financial crisis — and arguably before then…

Berenberg Chief Economist Holger Schmieding welcomed that “Germany is finally taking on the leadership role” and expressed hope that the new government will find the courage to enact the pro-growth supply-side reforms at the same time, to boost private as well as public investment…

Germany’s borrowing cost surged following the announcement with the yield on the 10-year note rising more than 20 basis points to above 2.7 percent, marking the biggest jump since June 2022. That had the knock-on effect of pulling borrowing costs for all eurozone governments up in parallel…To some, that’s an alarming reminder of why the debt brake was there in the first place.

DB2

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The well-meaning debt brake combined with spend-thrift politicians had led to cuts in necessary infrastructure maintenance and lack of investment in the country‘s future, in favor of dubious social spending and tax cuts for JCs.

The special debt package was voted on and passed only today, since your article was posted, the green party (out of all!) had managed to change the package from a free-for-all to one that is now restricted to additional investment, and strengthening of the military. Seems like a reasonable trajectory if the leading figures spend it wisely…. Big if.

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