Update (0910ET): ECB chief Christine Lagarde welcomed reports of Germany’s plans to unleash badly needed fiscal stimulus on the European economy as most observers suspect that monetary policy has done all it can do for Europe.
According to Bloomberg, “news that Germany wants to temporarily suspend its constitutional debt brake to provide space for regions to spend more is ‘certainly very welcome,’ ECB President Christine Lagarde says in Wiesbaden.”
Surprise, surprise: This was her whole plan, wasn’t it? Pressure the Germans to boost spending until Berlin caves? Looks like the virus has saved Christine Lagarde a lot of unpleasant political maneuvering.
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The Germans may have opposed closing borders in response to the outbreak in Italy, but it appears Berlin is planning to do something about the outbreak.
According to reports, the Germans are stepping up to suspend Berlin’s longstanding constitutional “debt break” and deliver the fiscal stimulus for which economists have been begging. The news follows the reporting of more cases in Germany on Wednesday.
To try and prevent a full-blown recession as economists downgrade their projections for European economic performance, the German government is planning to temporarily suspend constitutional limits on public borrowing in order to offer debt relied to struggling municipalities.
- GERMANY PLANS TO TEMPORARILY SUSPEND LIMIT ON PUBLIC BORROWING
Futures jumped on the headline, as the Germans openly endorsed the prospect of a robust fiscal stimulus to buttress the global economy against any virus-related fallout.
The market should have been primed for reports of German stimulus, even if Berlin hasn’t always been thrilled with the idea: Remember back in September, when there was all that talk about a “shadow budget”?
Rumors about the plan to modify the debt brake appeared in a leaked report that hit a few hours before the official confirmation.
Finance Minister Olaf Scholz plans to modify the debt brake provision in the German constitution so that the federal government can assume some of the obligations of heavily indebted municipalities, Die Zeit newspaper reported.
The debt relief plan, proposed by the finance ministry some months ago, would see the federal government assume some of the debts already built up by the municipalities. Currently, however, the constitution sets strict limits on debt accumulation by the government.
Is this decision such a surprise from the notoriously tight-fisted Germans? It was only a matter of time before governments confronted the fact that there might be only way to deliver another jolt of life into Europe’s zombie economy before they’re swept aside by anti-EU populists.