French Risk Gauge Hits Seven-Month High as Political Fears Grow

    For the first time in more than ten years, the yield differential between French and German 10-year government bonds has increased to 80 basis points. As the government struggles to pass a €44 billion austerity package amid parliamentary turmoil, the move shows growing investor apprehension about France's political risks and economic situation. French bonds are being sold off, which is raising yields in comparison to Germany's, even if German bunds continue to be the Eurozone's standard safe haven. Analysts caution that if rating agencies downgrade France or if domestic political tensions increase, the difference may continue or perhaps worsen. The French-German yield spread's dramatic increase reflects differing opinions on the Eurozone's political stability and fiscal credibility. While France's difficulties raise questions about the sustainability of its debt and the possible transfer of political risk into financial markets, Germany's tenacity highlights its position as the fulcrum of investor confidence. By eroding fiscal unity and raising borrowing costs for weaker nations, this difference might erode Eurozone cohesiveness if left unchecked. While authorities confront the pressing task of reestablishing market confidence in France's fiscal trajectory, investors interpret the trend as a shift toward German assets as a haven. 

https://www.bloomberg.com/news/articles/2025-08-27/french-german-10-year-yield-spread-climbs-to-80-basis-points?embedded-checkout=true

Will AI Spending Keep Propping Up the Economy?

The article “The A.I. Spending Frenzy Is Propping Up the Real Economy, Too” from The New York Times explains how huge investments in AI are not only raising tech stock prices but are also helping the U.S. economy grow. In 2025, companies worldwide are expected to spend $375 billion on AI infrastructure like data centers and computer equipment, and next year that number is set to rise to $500 billion. Investment in software and computer equipment alone (not counting data center buildings) made up about a quarter of all economic growth in the U.S. last quarter, according to Commerce Department figures. This increase in spending is leading to lots of new construction jobs for electricians, engineers, and equipment operators, even as other parts of the real estate market slow down.

Although there’s excitement and optimism, experts warn that there are risks because many AI projects aren’t yet profitable. Still, the strong growth continues to drive business activity and employment in the sector, with even more spending planned for next year. It will be interesting to see whether this increased investment will keep the economy growing, or if there will be challenges like those seen in earlier tech booms.

Read more here; https://www.nytimes.com/2025/08/27/business/economy/ai-investment-economic-growth.html

German Economy Shrunk by 0.3% in Second Quarter

 

    Germany's economy has shrunk by 0.3%, which is significantly worse than initially reported. To find this data, they compared their results with the previous 3 month period. The Federal Statistical Office said that the GDP contracted by 0.1% in April to June, and found this data by comparing it with the 1st quarter for Europe's biggest economy (2025).

    The data also showed that the manufacturing and construction industry had also worsen, and the household spending was revised down in the quarter. These results were shown after a 0.3% growth (2025). 

    Since the German economy has been shrinking for the past two year, it's been Chancellor Friedrich Merz's top priority since taking office and has launched a program to encourage investing. He plans to set up a $582 billion-euro fund to pour money back into Germany's infrastructures over the next 12 years. Companies have pledged to invest at least 631 billion-euros in Germany over the next three years (2025). 

    Economist Carsten Brzeski stated that the surge in economic activity is the result from the U.S. front-loading of German exports in the first quarter, while the economy experienced a reversal of this front-loading effect. The U.S. tariffs took effect second quarter and this was the first full-blown impact of the tariffs (2025).  

    I need to further my research on the tariffs that are being placed, but it seems like the U.S. is doing a lot of harm on other countries economies. I think the U.S. should become more aware of how these policies are effecting other countries as well as how they are effecting the U.S. 

    I am also curious about how many companies are contributing to the 631 billion-euro investment in the next three years. Will small businesses be apart of this later on?

    German Economy Shrank by 0.3% in Second Quarter in Worse Showing than Initially Thought, AP News. (2025, August 22). AP News. https://apnews.com/article/germany-economy-gdp-shrank-second-quarter-ed5a0ca6732d3cf92828e045144defc2