European Markets Surge as Germany Loosens Debt Brake for Defense Spending

European financial markets experienced a significant rally as German leaders agreed to ease the country's 'debt brake,' allowing for increased fiscal spending on defense and infrastructure. This move resulted in a notable surge in German stocks, particularly in industrial and defense sectors, with companies such as Rheinmetall seeing substantial gains. The German DAX index rose by almost 4%, while the yield on 30-year German government bonds saw its largest increase since 1998, reflecting heightened borrowing costs. The euro also strengthened against the US dollar, partly due to optimism around potential tariff reductions involving the US, Canada, and Mexico. The proposed fiscal changes suggest a substantial increase in defense funding, aligned with broader European and UK plans to boost military spending. Analysts note the rapid fiscal policy shifts in Germany and Europe, which are intended to stimulate the regional economy.