Nordea with the note. The short answer is nope:
Germany will get a new Chancellor after the September elections and the course of German policies could change materially. The election result will have important consequences for financial markets as well.
- Germany has changed its stance on a number of important policy points amidst the Covid-19 crisis, and the future course will depend largely on the results of September parliamentary elections.
- After the 15-year Merkel era, Germany will get a new chancellor, while the composition of the government could change materially.
- The Greens are campaigning for an aggressive debt-financed public investment programme, relaxing Germany’s debt brake and further European integration. If materialized, such initiatives could send German bond yields and equity prices higher and support narrower intra-Euro-area spreads (see more details on likely market reactions in the table below).
- The CDU/CSU are currently leading in the polls, and while a lot could still change before September, if they retain the chancellorship, the course of German policies would likely change less.
- The debt brake is part of the German constitution, and bigger changes to German fiscal policies would require changing the constitution, a tall order.