EU Ready To Trigger Constitutional ‘Crisis Clause’ Allowing Fiscal Stimulus

Update (0830ET): Since politics is always priority No. 1 in our contemporary society, no matter how much blood has just been, or will soon be, spilled, Scholz apparently couldn’t resist taking a shot at President Trump and Germany’s Afd, the far-right “Alternative for Germany” party.

• SCHOLZ SAYS GLOBAL VIRUS CRISIS SHOWS LIMITS OF NATIONALISM

It’s a pretty bold claim to make, especially as more health experts criticize the EU’s blind commitment to maintaining ‘open borders’ during the outbreak, allowing sick travelers from Italy to spread the virus all across the continent.

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Update (0810ET): In case you couldn’t put 2 and 2 together, Scholz has clarified that it’s “possible” Germany will need to take on “added debt” to finance this stimulus effort.

As Merkel explained yesterday, Germany’s constitutional debt brake allows for excess spending in the event of an emergency, according to Reuters.

Germany’s debt brake rule allows for exceptions in extraordinary situations and the coronavirus crisis is such a case, Chancellor Angela Merkel explained on Thursday. Under the rule, the federal government can take on new debt of up to 0.35% of GDP.

“The debt brake…provides for exceptions in extraordinary situations – and that is, as I said yesterday, really not our topic as to how the budget balance will look in the end,” Merkel told a news conference. “We are in a situation that is unusual in every respect and I would say more unusual than at the time of the banking crisis.”

After all, this is “the crisis of the decade”, right?

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One day after the biggest drop in European stocks since the financial crisis, German stocks have come roaring back and bond yields have plunged after Finance Minister Olaf Scholz said Friday that Germany would abandon the ‘debt break’ and whip out the government credit card to help shelter its economy from the vicissitudes of the global coronavirus outbreak.

One day after Chancellor Merkel voiced support for the idea, Scholz said Germany will spend “billions” to cushion the economy

BREAKING: Germany will provide unlimited liquidity.

Finance Minister Olaf Scholz says Germany will spend billions to cushion the economy. #coronavirus pic.twitter.com/ZVUlhMHDyn

— annmarie hordern (@annmarie) March 13, 2020

Of course, Germany’s notorious fiscal prudence means that some members of Merkel’s center-right CDU will likely oppose the move, as some have already expressed opposition to suspending the constitutional debt limits.

Stocks across the developed world rebounded on Friday, soaring into the green in what appears to be a coordinated dip-buying exercise. The STOXX Europe 600 was up 7.3% in recent trade, leaving it on track for its largest daily gain since 2008.

Bond yields, meanwhile, plunged on the news.

• GERMAN 10-YEAR BONDS EXTEND DECLINE,  YIELD UP 14BPS
• GERMAN 30-YEAR BONDS EXTEND DECLINE,  YIELD UP 15BPS

Scholz added that Germany could adopt a more formalized fiscal stimulus program if needed.