FAST FIVE: Germany Prepares Stimulus In Case Of "Deep Recession"
Nearly two weeks after Der Spiegel sent its first trial balloon about the prospects that the German government might crank up its fiscal stimulus if Europe's largest economy slides into recession (which, as we explained last week, is already on the cusp of doing), the trial balloons have crossed the Atlantic. Bloomberg reported on Monday that the German government is preparing to embrace new fiscal stimulus measures should its economy stumble into a deep recession, “citing two people with direct knowledge of the matter.” Last time around, when the German economy succumbed to the global financial panic during the great financial crisis, the German government similarly doled out bonuses to prod Germans to buy new cars.
Berlin could inject 50 billion euros ($55 billion) of extra spending, Finance Minister Olaf Scholz said on Sunday, adding that Germany has the fiscal strength to counter any future economic crisis “with full force.” Strategists at Mizuho have pointed out that these reports are probably over-hyped, and that the ECB would likely re-launch QE before Germany turns on the fiscal taps.
As the Bund swap spread is now tighter than it was in the QE regime, this seems to be once again inconsistent with market expectations of an ECB monetary easing “package.” One strategist for CMC markets questioned whether this jawboning will continue to have an impact.
The big question is whether it can last,” said Michael Hewson, chief market strategist at CMC Markets.
But the news sent the 30-year bund yield higher, at a time when the entire German yield curve remains below zero, a sign that the market is begging the government to borrow.