The German bonds recorded their worst day since the fall of the Berlin Wall

The German bonds They suffered their worst day since the months after the fall of the Berlin wall. This happened after the incoming chancellor, Friedrich Merz, committed To allocate more than 1% of the budget limit to defense spending.

bonuses like this, The German bond lived its worst stock market in almost 28 years, An earthquake that markets did not see since the fall of the Soviet Union.

“The operators pushed the performance of the bund German at ten years strongly by 25 Basic points in Berlin this Wednesday, the most violent movement in the German parquet since the gathering of Germany, after the fall of the Berlin wall. A movement, that of the bonus, which occurs in response to the promises of a debt brake reform and defense spending. For the first time in the country’s recent history, Germany renounces the debt brake that characterizes its fiscal austerity, “international analysts explained.

Germany, given a change in its fiscal policy

The leader of the CDU, Friedrich Merz, candidate for chancellor after the February elections, said so much Germany as Europe must urgently reinforce their defense capabilities. Therefore, their party and the SPD agreed to present a motion to modify the debt brake established in the German Constitution.

As Merz explained, The proposal seeks that defense expenses that exceed 1% of GDP are exempt from the debt brakethus allowing an increase in military budget without strict tax restrictions. However, he left over that this additional expense in defense will only be sustainable if the economy grows rapidly, which requires better competitiveness conditions and large investments in infrastructure.

“That is why we want to create a special fund worth 500,000 million euros in ten years”said the conservative leader, announcing that the constitutional modification will be proposed next week.

European market and policy reactions

During your speech, Merz He emphasized the urgency of strengthening Germany’s defense in a challenging geopolitical context: “I want to make it very clear. In view of the threats to our freedom and peace in our continent, our defense now must also be based on what is necessary”citing the iconic phrase “Whatever It Takes”pronounced by Mario Draghi In 2012 to save the euro.

Berenberg’s chief economist, Holger Schmieding, described the measure as A “true bazuca” to deal with the challenges facing Germany. In addition, he considers that the decision sends a clear message to Putin, Trump and European partners on German commitment to defense and support for Ukraine.

“Germany is finally assuming leadership that by size and fiscal margin should have assumed years ago,” Schmieding states, adding that infrastructure investment shows that the new government plans to address the structural weaknesses of the German economy.