Since I started to be interested in investing, we are faced with the development that has surprised me the most. Germany is starting to borrow. Germans are normally very famous for their debt discipline. Germany's debt to its gross national product is at 60%. For example, this is 120% in America. It is much higher in both China and other Western countries. Germany is a country that has given great importance to managing debt after World War II when its money became money. In fact, this is even included in their constitution. But now they are easing. And what an easing, they are going to such a monetary easing and they started to print so many bonds or said they would print them that the yield on German bonds reached one of the highest levels in history on Wednesday. What is happening now resembles the period when West and East Germany were united. At that time, the markets believed that the West would need to borrow a lot to support East Germany, and the bonds fell sharply and their interest rates rose sharply. Wednesday's rise was similar.
Of course, this is beneficial for Germany's stocks, by the way. The Dax index had been going very positive since the beginning of the year. It jumped 4.05% in a single day on Wednesday. These are the things that investors in American stock markets look at with sadness and envy. So what happened that made the Germans decide to go for monetary easing? While we were expecting the increase in liquidity in the world from America and China, why did Germany jump into this business at full speed? Will these things spread behind Europe? I will try to explain all the effects this may have on the stock markets.
German bonds have perhaps experienced their sharpest decline since the fall of the Berlin Wall. The main reason for this decline is that this giant country decided to increase both its defense and infrastructure spending on a massive scale. They have put forward a plan in this regard. This is what triggered all this change. The yield on German 10-year bonds increased by exactly 30 basis points on Wednesday. Because German Chancellor Friedrich Merz made an announcement and said that we are starting to spend money. This is the biggest daily jump since March 1990. Merz is not alone in this. Both Merz's Christian Democrat-led bloc and the Social Democrats support this and intend to spend 500 billion euros on infrastructure, roughly equivalent to $538 billion, and they say let's forget Germany's constitutional debt brake in order to do this. We have to do this. Let's forget about the brakes, let's put the money on.
The main issue behind the plan is US President Donald Trump's pressure to quickly resolve the Ukraine War and the fact that Europe has lost trust in America because of this. Europe says we could get into trouble with the Russians at any moment. So we need to improve our own defenses against the Russian threat. Because we can no longer trust America. This was a development that surprised me a lot, to be honest. I thought the German stock market would do well this year. In fact, I hadn't even started investing in different ETFs and companies in Germany and Europe. The scenario I had in mind was that peace would ease Europe. Energy costs were high and countries were anxious because of the war. The arrival of peace will ease these places. I was thinking that this would also increase the stocks, but things are developing differently than I expected.
Peace came, but this time relations with America deteriorated. This also increases spending. After the plan announced on Wednesday, the 10-year German bond yield came to 2.8%. This is the highest level since November 2023. Interest rates have always increased throughout Europe. Interest rates in France, Italy and Spain increased by more than 25 basis points. American 10-year bonds also increased on Wednesday. However, very bad employment data came in America on Wednesday. I was expecting a decrease, but it did not. The interest rate increases in bonds are reflected all over the world. The euro has also strengthened, by the way, it has gained more than 1% against the US dollar and is equal to $1.07. This also means the strongest three-day gain since 2015. By the way, the dollar has been declining for a while and the euro is strengthening. By the way, this is not bad news for American companies. It is also useful to say that. Because as the dollar gets cheaper, it becomes easier for them to export. It can also have a positive effect on their balance sheets. Trump wanted the dollar to fall anyway. But I guess he didn't have such a plan. Things are going way beyond expectations here.
Investors and analysts see the events as a generational change in Germany's fiscal policy. Because they are acting against the constitution and therefore expect a broader spending increase in the eurozone. Meanwhile, European Commission President Ursala von der Leyen has a new loan proposal of 150 billion euros. They want to revitalize Europe. On the other hand, the European Central Bank is expected to continue lowering interest rates. Economists are also a little confused and surprised. Christoph Rieger from Commerzbank says, for example, that this policy change has a transformative nature, and will increase financing capacities to the maximum in the coming years. This could bring a serious growth rate to the European region.
Of course, Germany is not the only issue here. As you know, Germany is the main locomotive of the entire European Union. Germany's abandonment of fiscal restrictions could also lift the entire eurozone. So how will this affect the euro-dollar balance in the coming days? Hedge funds expect a strengthening of more than 10% on the Euro side and therefore they say that the Euro may become equal to 1.20 US dollars. On the other hand, for example, Goldman Sachs says that they are no longer making parity estimates, the developments are very extraordinary, we want to continue to monitor. I think this is very important news. This may also be behind the easing in American stock markets. Because for a long time, it was always said that both German and Chinese stock markets were much cheaper than American ones and had much lower price-earnings multipliers. However, Europe did not have the dynamics. Now that dynamic is coming into place.
They are printing money and increasing defense spending. European defense stocks are also over the moon. I am trying to research these issues, but you should definitely research them too. It seems like there are brand new opportunities there. I do not know how Trump will react to these. Because the world has come to an interesting place right now. Both China and Europe are expanding money, printing money. On the one hand, China is eliminating customs tariffs in many countries and creating free zones. America is going the opposite way. The reason America is going in the opposite direction is that it has been on the path that Europe and China are on long ago and is currently suffering the consequences. It is an extremely indebted country, it needs to borrow heavily in the coming year.
Europe, or rather Germany, is more comfortable, I cannot say that the rest of the European countries are that comfortable, China is already finding its own solutions. For this reason, American stock markets continue to fall while European and Chinese stock markets continue to rise. Chinese stock markets also rose to record levels on Wednesday. I wonder what Trump's reaction will be to these things. How will America's economic policy be shaped. But this is certain, if not in America, then in many parts of the world, money is plentiful. This will increase the demand for risky assets, perhaps not America's risky assets, but risky assets. This may have a role in Bitcoin's rise yesterday, I continue to watch with curiosity.
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