Lars Klingbeil, Germany’s finance minister and vice chancellor, publicly blamed former President Donald Trump’s war in Iran for the recent surge in global bond yields and borrowing costs. He made the remarks on August 24 after a meeting of German-speaking finance ministers in Liechtenstein [1].
Klingbeil said, “This war has changed nothing for the better in the region; it has also had profound economic effects on us. People are feeling the impact daily at the gas stations.” He added that the rising borrowing costs seen in recent weeks stem from global uncertainty triggered by Trump’s conflict in Iran [1].
The conflict heightened global uncertainty, which pushed up fuel prices and unsettled financial markets, resulting in higher government bond yields worldwide [2, 1]. Brent crude oil prices spiked up to $92 per barrel amid the tensions, while U.S. gasoline prices exceeded $4 per gallon [3]. This increase contributed to broader market volatility, including pressure on Germany’s 10-year government bond and others globally [2, 1].
Rising bond yields have worsened economic hardships in Europe, with higher gas prices adding strain on consumers and increasing costs for governments. Germany’s federal budget is under added pressure due to these developments [2, 1]. Klingbeil renewed calls for a windfall tax on oil companies which have profited from the higher prices triggered by the conflict [1].
The uncertainty also weighed on international markets, reflected by a 461-point drop in Taiwan’s stock market index (TAIEX) on August 24 [3]. With the U.S. national debt surpassing $40 trillion, any increases in borrowing costs due to geopolitical risks are widely seen as alarming for global financial stability [3].
Officials are monitoring how the ongoing instability will affect borrowing costs and inflation, with potential policy responses under discussion. The next key event for German finance officials will likely be their upcoming budget review session scheduled for early September.
