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Markus Söder (LR), president of the CSU and Minister President of Baviera, Friedrich Merz, candidate for the Chancellor of the CDU/CSU, president of the Parliamentary Group of CDU/CSU and federal president of the CDU, Lars Klingbeil, president of the SPD Parliamentary Group and the federal president of the SPD, and Saskia Saskia, the party of the party of the SPD party The SPD match, the SPD SPD match, and the game of the match, of the SPD party, the SPD match, and the SPD match match, and the SPD match, and the SPD match, and the SPD match match, and the SPD match, and the SPD match, and the SPD match, and the Party SPD, held a press conference on the talk Exploratory between the CDU/CSU and the SPD.
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The possible change of fiscal sense of Germany could be transformer for the economy with difficulties of the country and for European defense, but Berlin legislators do not have much time to make historical change happen.
Fiscal and economic policies were seen as very controversial during the previous ruling coalition of Germany and contributed to their eventual rupture At the end of last year. In the midst of continuous negotiations for a new government alliance, the Christian Democratic Union and its affiliate of the Christian Social Union, which led in the February surveys, and the Social Democratic party seems to have achieved great progress.
Tuesday, probably to be chancellor Friedrich Merz And other political leaders announced plans to reform the long -standing fiscal pillar known as Germany Debt brake, specifically to allow a higher defense expense. They also revealed a new special fund of 500 billion euros ($ 535 billion) for infrastructure.
Materialize these plans will mean changes in the German Constitution, which requires the support of a two -thirds majority in Parliament. This would probably work today, but it would be very difficult to achieve once the representatives of the newly elected Parliament join for the first time at the end of this month.
Therefore, a vote on constitutional adjustments could be promoted within the week.
‘Big, bold, unexpected – a game change’
“Big, bold, unexpected: a game change for The Outlook,” said Bank of America’s global research on Wednesday, adding that the package “significantly” changed the perspective of Germany’s economy.
For a couple of years, the economy of Germany has been slowly staggering on the verge of a technical recession, defined as two consecutive quarters of the decrease in gross domestic product. National GDP has alternated between expansion and contraction in each quarter throughout 2023 and 2024.
The country faces a wide range of problems, including infrastructure problems, a housing construction sector in difficulties and pressure on some of the industries that have historically contributed strongly to their growth, such as cars.
Now there is hope of change. Experts believe that the special specialized investment vehicle could benefit the country’s economy.
Markets can expect an economic impulse and growth estimates from Germany can probably be increased, Florian Schuster-Johnson, a senior economist of Dezernat Zukunft, said Wednesday “Street Sigs Europe” of CNBC.
“I think that in the short term this will only increase domestic demand because there will be a lot of demand of people who build these new infrastructures and companies that are receiving new government orders now,” he said.
The highest defense expense could also have a long-term effect on the economy, which leads to an increase in production capacities that could also enter into civil use, added Schuster-Johnson.
It could push Germany above the current NATO target to spend 2% of GDP in defense, Banco Deutsche’s research economists said Tuesday.
“Tonight’s robust rhetoric implies that the debt defense indebtedness room will be used at a rate that could carry German defense spending at least 3% maybe as soon as next year,” they said.
Merz suggested that geopolitical developments showed that important measures should be taken to strengthen the security and defense capacities of Germany and Europe.
“In the light of threats to our freedom and peace in our continent, ‘what is necessary’ now also needs to apply to our defense,” he added, according to a translation of CNBC.
Although policy ads would be largely beneficial, other tax and budgetary plans of the probable new coalition are still coming and could have their own impact on the economy of Germany, said the global chief of Macro Carsten Brzeski of ING.
“We would not rule out that the official coalition conversations will still bring some expenses of expenses, which would reduce the positive impact of the tax stimulus announced,” he said.
In other places, legislator Bernd Baumann, who is part of the German alternative on the right side of the extreme right, Fuy Deutschland, told Reuters that the party was making an initial legal review of the announcement and reserved the right to take measures.
Policy details
Reviewing the details, the special investment fund of 500 billion euros will not be part of the federal budget, but will be financed through credit without contributing to the new debt. The funds will be used for 10 years, focusing on transport, energy, education, civil protection and other infrastructure. Federal states will also be assigned some of the funds to support their finances.
To prevent the cash being subject to the debt brake, the fund will be rooted in the Constitution and exempt from the fiscal rule.
As is, the debt brake limits how much debt the government can assume and dictates that the size of the structural budget deficit of the federal government should not exceed 0.35% of the country’s annual GDP.
A key change under the new plan is that the defense expense that goes beyond 1% of Germany’s GDP will not be counted for the debt brake lid, which means that these expenses will no longer be limited.
The states of Germany may also assume more debt than before, and the long -term proposals to modernize the debt brake and strengthen investments will also be carried out.
The proposed debt brake review also marks an important change of the CDU-CSU electoral campaign, during which the parties were repeatedly positioned as wanting to continue with the Angela Merkel era rule. Merz finally suggested that he could be open to some reform.
Market reaction
The plans have caused a generalized market reactionWith the German Dax Jumping 3.4% at 12:51 pm London time, since German companies led Stoxx 600 higher paneuropeus. The construction and manufacturing companies obtained significant profits, as did the German lenders.
The costs of German loans fired. German performance 10 -year bondsThey are seen as the reference point of the euro zone, were labeled by more than 25 basic points, and the 2 years increased yield by more than 16 basic points.
Schuster-Johnson of Dezernat Zukunft told CNBC that the market reaction suggested surprise to the rhythm and magnitude of the proposed changes.
“The conclusion is that Germany is back and Germany is financed,” he said. “This movement that we have seen last night is really remarkable. You know that the Germans sometimes move late and sometimes they are delayed when great steps are needed, however, this is a great step and when they take it they make it very radically.”
