One week after the Spiegel floated a media trial balloon, attempting to spark a change in Germany’s approach toward deficit spending, reporting that the government was proposing a €500 MM debt deal to fund climate protection, news which was promptly denied by the government, Spiegel has done it again, reporting moments ago that Angela Merkel and Finance Minister Olaf Scholz are ready to run a budget deficit… if Europe’s largest economy goes into recession.
According to the report, the shortfall in tax revenue from economic slump could be offset by new debt, Spiegel – which desperately wants to get the government and public on the side of deficit spending – reports, citing the usual anonymous “sources” in the chancellery and the finance ministry. As a reminder, under the German constitution, net federal debt can increase by only 0.35% of output if there is GDP growth, but since the rules can be relaxed during recession, it is not clear how the Spiegel report is actually news.
None of this was a consideration to algos, which saw “Germany” and “deficit spending” in the same headline, and sent the Emini surging…
… and the 10Y bund yield spiking to session highs.
Again, as a reminder, last Thursday, the Spiegel reported that a senior government official stated that Germany considering issuance of new debt to finance climate plans, implying a revisit to its current balanced federal budget and the “black zero” principle, (i.e. the principle that avoids creating new debt for more climate protection measure), essentially a “debt brake.” That report was promptly denied by the government.
And now we await for the usual government channels to deny that the Spiegel report represents any change to current German fiscal policy.