From the Bond Vigilantes at M&G, September 13:
Auf Wiedersehen, “black zero”?
Summary: After 16 – yes, sixteen! – years, Chancellor Merkel’s term in office is eventually drawing to a close. Market participants seem to be paying surprisingly little attention to the upcoming federal elections taking place in Europe’s biggest economy in less than two weeks though. This could however backfire as, judging by the latest opinion polls, a change in German politics is looming ahead.
The days of the famous – or infamous, depending on who you ask – “Schwarze Null” (black zero, Germany’s commitment to balance its budget) might be numbered, just like those of Angela Merkel’s chancellorship. If Olaf Scholz, the Social Democratic Party’s candidate for Chancellor of Germany and current front-runner in opinion polls, replaces Angela Merkel after the elections, this would have a meaningful impact on Germany’s fiscal policy stance. The election manifesto of the Social Democrats leaves little doubt that Scholz’s party considers fiscal austerity entirely the wrong approach in the post-Covid environment. But would a Scholz government immediately end Germany’s love affair with austerity and bring the country’s public debt level of around 70% closer to the Euro area average of nearly 100%?....
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