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Elections will determine Germany’s fiscal direction

Thursday, August 26, 2021

Significance

The debt brake, which places a strict limit on the issuance of public debt and reflects Germany's innate fiscal conservatism, is being challenged given COVID-19 disruption, a housing crisis and the commitment to transition to a net-zero emissions economy.

Impacts

  • The chances of a coalition excluding the CDU/CSU have increased in recent weeks following the CDU’s decline in the polls.
  • The European Commission will be sympathetic to the demands of southern European countries when considering fiscal reforms.
  • A substantial reduction in German debt issuance could see the ECB exceed its debt limits.
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