European markets rallied after German Chancellor-in-waiting Friedrich Merz announced plans to ditch Germany’s debt brake, sparking a shift in the country’s fiscal policy. The move has raised hopes of unlimited borrowing to fund Europe’s defense, as seen by EU leaders in their push for “ReArm Europe.” President Ursula von der Leyen suggested mobilizing up to €800bn (£671bn) to counterbalance US withdrawal and Trump’s isolationist policies.
Meanwhile, the European Union faces a new challenge from the US, with tariffs imposed on Canada and Mexico, sparking concerns over trade wars. The administration remains committed to enforcing “fair trade,” but critics argue it is driven by personal grievances rather than logic.
As the EU prepares for retaliatory measures, analysts warn of potential economic fallout, including a recession in Europe if tariffs are imposed at 20%. The UK appears relatively safe from Trump’s attention, but other policies, such as the digital services tax, may still be targeted. With global markets on high alert, the next few weeks and months will likely see increased tensions over trade agreements.
The EU’s decision to abandon its debt brake has cheered European markets, with bond yields rising and stocks following suit. However, the move also raises concerns about Germany’s ability to manage its finances, as Merz’s plan must still be confirmed by the outgoing parliament. As Trump continues to reshape the global trading system, Europe must navigate these complex challenges to protect its economic interests.
Source: https://www.theguardian.com/business/2025/mar/09/eu-must-brace-for-impact-of-trump-wrecking-ball-on-global-trading-system