Germany Proposes €500 Billion Spending Plan, Euro Rises

Germany's incoming Chancellor Friedrich Merz has initiated a significant shift in fiscal policy, proposing a €500 billion infrastructure fund and exempting defense spending from the constitutional debt brake. This move has led to a surge in the euro, which rose to its highest level against the dollar since November, and has caused a notable increase in Germany's 10-year government bond yields, reaching their highest in nearly three years. Analysts highlight this as a historic change in Germany's approach to public spending, with expectations for continued euro strength moving forward. The proposals, which require parliamentary approval, have sparked concerns over potential fiscal risks but are largely viewed positively by investors. The anticipated increased borrowing and spending could result in yields rising further, with Goldman Sachs predicting a significant long-term increase. Overall, the market response indicates optimism about the potential economic benefits of these fiscal changes.