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Lenin’s belief in capitalism’s inevitable downfall may be mistaken, but the tumultuous events of the past few days emphatically confirm his understanding of history’s basic rhythm: there are weeks where decades happen.

On Tuesday, Germany decisively shed its deep-rooted aversion to fiscal deficits by announcing spending plans that could see it invest up to €1 trillion in defence and infrastructure over the next decade.

Berlin’s announcement, which came just hours after the European Commission said it would offer member states €150 billion in loans to finance additional military spending, triggered a surge in German stock prices and government borrowing costs – the latter experiencing its biggest rise since the fall of the Berlin Wall.

The rise in German equities came as the US stock market, which had hit record highs following Donald Trump’s return to the presidency this year, tanked as investors feared the ‘Tariff Man’ might actually be serious about imposing 25% duties on Mexico and Canada.

US market sentiment continued to slide even after Trump temporarily suspended tariffs on many Mexican and Canadian goods, with the S&P 500 down 1.8% as of Friday afternoon CET.

Capping a chaotic week, EU leaders last night unanimously endorsed the Commission’s plans to ramp up defence spending – and almost unanimously agreed to continue supporting Ukraine in its war against Russia despite waning US support for Kyiv.

How can one make sense of such cacophony and confusion? Indeed, can any sense be made of it? And what impact will this week’s events have on Europe’s economic outlook?

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European Commission to propose “efficient and harmonised” supervision of capital markets in its forthcoming communication on capital markets integration. The language – which stops short of calling for “centralised supervision” long urged by France – represents a concession to smaller member states that are staunchly opposed to integrating their supervisory authorities. Read more.

The European Central Bank lowers eurozone growth forecast for fourth consecutive quarter. Weak consumption, global trade tensions, and geopolitical uncertainty means the ECB now expects the single currency area to grow by just 0.9% this year and 1.2% in 2026 – 0.2 percentage points lower than previously projected. The revised estimate came as the ECB also cut its benchmark deposit rate from 2.75% to 2.5% – its sixth rate cut since June last year. Read more.

German borrowing costs and stocks surge after Berlin’s announcement of an historic increase in spending on defence and infrastructure. “The markets are still digesting a seismic shift in Germany fiscal policy,” said Sander Tordoir, chief economist at the Centre for European Reform, adding that investors “seem to be pricing in” some relief from Donald Trump’s tariffs as well as upwardly revised growth projections. The market swing came after leading German political parties’ announcement on Tuesday of budget changes unprecedented in the country’s postwar history. The bill is expected to be presented to the Bundestag next week. Read more.

The European Commission condemns the US' imposition of tariffs on Mexico and Canada – but not on China. The tariffs on Mexico and Canada “threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic,” European Commission spokesperson Olof Gill said in a statement on Tuesday. Gill, however, declined to comment on the new US duties on Beijing. Trump suspended most of the tariffs on Mexico and Canada later in the week. Read more.

The US should wait for “concrete steps” from Russia before lifting sanctions, says Ukraine. “The right approach would be to first see concrete steps from the aggressor,” Vladyslav Vlasiuk, an adviser on sanctions policy to Ukrainian President Volodymyr Zelenskyy, told Euractiv. Vlasiuk’s comments follow a Reuters report on Monday that the White House had tasked State and Treasury Department officials with drawing up plans to lift sanctions on Russia, the majority of which were imposed following the full-scale invasion of Ukraine in February 2022. Read more.