Chancellor Friedrich Merz expresses concerns about EU tax plans, indicating Germany’s resistance
by VT Markets
/
Jul 18, 2025
Chancellor of Germany, Friedrich Merz, has raised concerns about the European Union’s plan to increase budgets through higher corporate taxes. Merz believes these budget measures could face strong opposition from Germany.
The EU needs to carefully consider the size of its future budget and manage with the funds it already has. Merz thinks it is not acceptable to fund the EU through a continent-wide corporate tax.
German Political Friction
Germany’s main opposition leader has voiced worries about new EU corporate taxes. This indicates potential political conflict that could increase market volatility in the upcoming weeks. The main issue is the clash between the need for a centrally funded EU and Germany’s focus on fiscal conservatism.
This uncertainty could negatively impact European equity markets and corporate earnings forecasts. Therefore, buying volatility could be a wise strategy. Options on the Euro Stoxx 50 index are currently priced to react to important news. With the VSTOXX, Europe’s main volatility index, trading near 15, call and put options are affordable ways to prepare for significant market movements.
Mr. Merz’s party’s position might also affect the Euro. Any signs of division within the EU often weaken the common currency. We saw this during the sovereign debt crisis ten years ago when disagreements among member states caused sharp declines in the EUR/USD exchange rate. Traders might want to consider protective put options or short positions on the Euro against the dollar.
Fiscal Pressure on Member States
If the EU can’t secure new funding, it will put more fiscal pressure on individual member states, especially those with high debt. We are closely monitoring the spread between Italian government bonds and German bunds, which is currently about 1.5 percentage points. An increase in this spread would signal growing risk perception, a trend that can be traded using futures contracts on the respective government debt.
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by VT Markets
Jul 18, 2025
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