The dramatic rise in Germany’s financing costs this week is far from a rejection of Friedrich Merz’s fiscal bazooka, investors say, with many believing the chancellor-in-waiting’s spending plan can boost growth without stretching Berlin’s finances beyond a sustainable level.
German Bunds had their biggest one-day sell-off in decades on Wednesday as markets adjusted to a dramatic change in German fiscal policy, and a massive increase in debt issuance, following Merz’s “whatever it takes” plan to spend on defence and infrastructure.
Despite settling down at the end of the week, the 10-year Bund remained elevated above 2.8 per cent on Friday, having started the week below 2.5 per cent.
“German authorities have finally woken up to the fact that they needed to take drastic actions to revive their economy” and bolster their defence, said Nicolas Trindade, a senior portfolio manager at Axa’s investment arm. “This is…
