Will German elections swing Europe to fiscal?


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.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.