A surge in Eurozone government borrowing costs as a result of Germany’s planned defence spending spree will intensify debt pressures on other countries in the bloc and could make it harder for them to mount borrowing campaigns of their own, investors have warned.

The shift by the region’s biggest economy away from its historic reluctance to borrow — which in the past has led to a scarcity of Bunds and sub-zero yields — to a “whatever it takes” plan for military and infrastructure spending is being felt across the bloc’s financial markets. 

Ten-year Bund yields have risen to close to 3 per cent this month for the first time since a global bond sell-off in 2023. That has pushed other government borrowing costs higher, thanks to German debt’s role as the de facto benchmark for the bloc’s market, prompting warnings about the impact on the finances of more heavily-indebted economies.