Capital Economy, Business and Finance
Germany under Friedrich Merz is not Britain under Liz Truss. This is obvious, but still instructive.
In the 48 hours since Merz persuaded the Bundestag to lift Germany’s debt brake and allow hundreds of billions of dollars’ worth of extra public borrowing for defence and infrastructure, the bond markets have barely flinched.
Yields fell yesterday on benchmark 10-year German bonds as investors piled in, grateful for what they see as a safe haven and confident that whatever Merz does in power (he isn't even chancellor yet) the country isn’t about to overextend itself and the economy will grow.
When Truss put her faith in debt to juice growth, the markets didn’t share her faith. Yields spiked as appetite for British bonds collapsed.
The lesson for the UK’s Rachel Reeves should be that when a British chancellor can’t cut enough and won’t raise taxes she can still borrow – provided the point is to invest, and there's a plan.
