Budget Outlook Still Clouded As 2023 Debt Brake  Suspension Eyed

The German government will put forward a supplementary budget for 2023 next week, per various media outlets - with a finance ministry statement noting the 2024 budget can only be decided once the supplementary budget for this year is confirmed.

• Despite some confusion amid competing headlines and reports, it appears that the supplementary budget set for next week will indeed propose that the debt brake be lifted for 2023.
• In any case, the lack of significant market reaction to the competing headlines is indicative of the suspension of the debt brake for 2023 being the priced-in scenario (the earlier headline pointing to the brake suspension had a brief negative effect on Bund prices, as it was seen to imply higher issuance).
• The measure opens up the possibility for the government to increase borrowing considerably in the remaining weeks of 2023 (though BBG reported a finance ministry spokesperson saying the suspension "doesn't mean new debt"), but there remains considerable uncertainty over the fiscal outlook beyond that.
• It is still unclear if the 2024 budget will be passed by December, with local press reports name-checking January as a possibility. Until the budget is passed, the government can only approve administrative necessary expenditure and fulfilment of legal obligations.
• Another issue rests on a potential internal FDP vote on remaining a member of the traffic light coalition. Despite being non-binding, a vote against would increase pressure on party leadership, and in an extreme scenario lead to snap elections.
• A comprehensive reform of the debt brake is also being discussed, which would need a 2/3 majority in parliament. Opposition (CDU) leadership stated that this would not be approved as of now. Nonetheless, the Berlin state prime minister and CDU member supported debt brake reform in an interview published earlier today.