Intel stock extends gains after report of possible U.S. government stake
Investing.com - The run-up to the formation of new government in Germany could feature increased political uncertainty and market volatility, according to analysts at Deutsche Bank (ETR:DBKGn).
Members of chancellor-in-waiting Friedrich Merz’s conservatives, its Bavarian sister party and the left-leaning Social Democrats (SPD) wrapped up preliminary discussions over a deal to forge a coalition government this past weekend.
The parties agreed on goals to boost the country’s ailing economy and support domestic industry, while also cracking down on illegal immigration. Merz is looking to form the coalition by April 20, arguing that Germany must act quickly to address worries over the reliability of U.S. defense aid and fears over potential Russian hostility.
Crucially for investors, Merz’s Christian Democrats and the SPD are moving to reach a deal in the coming days that would substantially loosen German borrowing limits.
Particularly with fears rising over the threat posed by a U.S. that is less engaged with European affairs under President Donald Trump, Merz has called for "enormous urgency" in passing the proposal, which would mark a landmark shift away from a post-financial crisis era of frugality in Europe’s biggest economy.
The changes to the so-called "debt brake," as well as a planned 500-billion-euro infrastructure and defense fund, are due to be voted on by the lower house of Germany’s parliament, the Bundestag, on March 18, prior to the formation of a new parliament on March 25. However, the Deutsche Bank analysts noted that the two-thirds majority needed to pass the measures is not yet guaranteed.
Markets reacted strongly to Germany’s fiscal about-face last week, with the country’s benchmark 10-year bonds logging a steep sell-off.
"[W]hile our base case remains for the reforms to pass, it is unlikely to be a smooth passage," the Deutsche Bank analysts led by Marion Muehlberger said in a note to clients.
"At this point, failure to pass the proposed debt brake reform would not just severely limit the scope of a fiscal expansion in the next four years. It would also undermine the next government’s credibility from the start and lay bare the structural implications of [Germany’s federal] election [in February]: political fragmentation."