Markets have shown signs of euphoria over the prospect of a historic fiscal boost in Europe’s largest economy.
But, as Deutsche Bank cautions, the debt brake reform planned by Germany’s prospective government is far from a done deal and there are “considerable” execution risks.
Although its base case is for the reform to pass, DB warns that the process is unlikely to be a smooth one, and market volatility may rise as the March 24 hard deadline approaches.
To move forward, two-thirds majorities in both the Bundestag and Bundesrat are needed to clear constitutional amendments before the new parliament convenes on March 25.
“These majorities are not guaranteed,” it says.
“A number of other parties, including the Greens, have political incentives to push these votes to the brink. These political risks also translate into legal risk,” it adds.
And here we come to an extreme scenario, in which the constitutional court halts the vote before the end of March, citing insufficient time for deliberation.
“This would effectively scupper a debt brake reform in the outgoing parliament,” DB writes.
Source: Reuters (Danilo Masoni)
