Euro Jumps As Germany Hints At Fiscal Stimulus

The euro and bund yields are rising this morning following Reuters headlines suggesting Germany is considering a “shadow budget” with the aim to increase public investments beyond restrictions of national debt rules.

Government officials are flirting with the idea of setting up independent public entities that would seize the historic opportunity of zero borrowing costs and take on new debt to increase investment in infrastructure and climate protection, said the officials, who all spoke on condition of anonymity.

The debt-financed spending of those independent public bodies would not be accounted for under the strict fiscal rules of Germany's constitutionally enshrined debt brake, but only under the more lenient rules of the European Union's Stability and Growth Pact, the sources said.

Which raised more than a few eyebrows (as @ljzaz summed up perfectly):

"What's to stop Italy from creating their own 'shadow budget' then? (said everyone with half a brain)"

Additionally, as Bloomberg reports, deputy finance minister, Bettina Hagedorn, confirmed that the German government’s 2020 budget and financial planning through 2023 foresees balanced budgets with no new debt:

“Should there be a need for adjustment because of overall economic developments or external factors, it will be decided in the context of the budget planning and taking the coalition agreement into account.”

Perhaps it is this official statement (that merely echoes the same rhetoric Germany has used for years) that explains the market's lack of enthusiasm...

Bund yields briefly rose...

Source: Bloomberg

But Euro is up 20-30 pips and fading back...

Source: Bloomberg

Notably, these headlines come ahead of the German lower house of parliament debating the 2020 budget and finance plan through 2023 on Tuesday.