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ABN AMRO Euro Rates Watch - France’s Government Faces Collapse and Markets React
- Macro economy
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Yesterday, French Prime Minister François Bayrou announced that a no-confidence vote will be held on September 8th. This comes in the wake of the ongoing political impasse, a phenomenon we have been highlighting for some time.
France budget 2026 - government threatened with censure after proposals
- Macro economy
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Yesterday, the government unveiled its proposals for the 2026 budget. The Prime Minister's tone was intentionally solemn, emphasizing the unsustainable debt trajectory that France currently is on. In one of his initial statements, he reminded the public that France has been unable to present a balanced budget for 50 years. He warned that this might be the last opportunity to address the issue before it triggers a financial crisis. Consequently, the government reaffirmed its commitment to further reduce the deficit, aiming for 4.6% next year, compared to the anticipated 5.4% this year. This goal translates to a total savings of EUR 40 billion, and even more when factoring in increased defence spending, bringing the total to EUR 43.8 billion that needs to be found.
Japan - The Land of the Rising Yields
- Macro economy
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We expect drags from US tariffs to keep a lid on Japanese growth. Trade talks with the US are taking quite some time. The Bank of Japan (BoJ) recently lowered its inflation forecasts, but upside risks remain. We expect the BoJ to stay on a cautious, gradual hiking path. In its June meeting, the BoJ announced to slow its pace of tapering, as expected. High public debt and rising rates pose challenges, but there are risk-mitigating factors. Meanwhile, the Japanese government bond curve has steepened due to a higher term premium. We do not have indications for structural US debt outflows by Japanese investors, yet. We expect the yen to appreciate versus the US dollar in 2025-2026.
NATO Summit - Defence spending to still rise significantly, even if 3.5% is unrealistic
- Macro economy
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NATO leaders today voted to officially raise the alliance’s defence spending target to 5% of GDP from 2% previously, comprised of 3.5% in core defence spending (the figure directly comparable to the previous 2% target) and 1.5% in infrastructure related to defence. With many countries likely to have already met the latter target, the really important number is the 3.5%, and it is here where there are major doubts over both the willingness but also the capability of meeting this target. Spain has a vague exemption from the target, while other countries openly doubted the target in the run up to the Summit.
Tariffs risk recession - a forecast update
- Macro economy
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President Trump announced sweeping ‘reciprocal’ tariffs based on the size of the bilateral trade deficit. We expect both the US and the eurozone to slow sharply and only just skirt a recession, while the US will also have to deal with higher inflation. Monetary policy divergence is likely to re-emerge as a theme, with the ECB cutting rates further but the Fed remaining on hold. Fiscal stimulus should help drive a eurozone recovery in 2026, but growth improvement in the US next year will be more tepid.
German bazooka will lift growth but tariff threats loom large
- Macro economy
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The announcement on Tuesday evening of game-changing reforms to Germany’s debt brake are likely to significantly change the growth outlook. There were three main consequential announcements: 1) a €500bn infrastructure fund, 2) spending on defence above 1% of GDP to be exempt from the debt brake, 3) German länder can now borrow up to 0.35% of GDP (previously zero).
Global Monthly - Cracks emerge amid tectonic shifts
- Macro economy
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The fracturing of the transatlantic alliance is going to mean higher defence spending in Europe over time, though the immediate macro-economic implications of this are likely to be modest. The most imminent threat still comes from higher US trade tariffs, with a host of measures due as soon as next week. Last month, Trump blinked at the last moment on the biggest tariff rises, will souring confidence in the US make him do so again? Spotlights: 1) European defence spending: We summarise the available options for an increase and the macro implications; 2) German election: We look at the likely policy agenda of the new GroKo.
Rates Conviction - EU defence spending could shake EGB market
- Macro economy
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Recent comments by Trump regarding Russia and Europe have suggested a diminished US commitment to NATO, prompting European nations to significantly increase their defence spending.
ESG Strategist - Climate disasters to exacerbate European fiscal deficits
- Sustainability
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Global warming is resulting in a rising number of climate and weather-related disasters. Although annual data is volatile, the costs of these disasters as a share of GDP are on a rising trend and expected to continue increasing during the coming years, even in a favourable 1.5°C global warming climate scenario where the targets of the Paris Agreement are met. In a previous research note ‘Which EU countries will suffer the most from extreme climate disasters?’ [1] we focused on the economic impact of climate and weather-related disasters in the EU at an individual country level under various scenarios of global warming. In this note we look more in depth at the impact on the public finances for a number of EU countries, namely their debt ratio levels, the impact on sovereign yields, and, ultimately, on their sovereign ratings.
Is Germany still the safe bet in Europe?
- Macro economy
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The German public will shortly go to the ballot box, in an important election for Germany and Europe. As well as immigration and defense, the economy is increasingly a major election theme. After two years of contractions, the economy is projected to grow again this year, but by just 0.5%. In this Euro Rates Watch we look from an investors point of view to the German elections.
