DFA Going Ahead W Issuance Plans; JPM "Can Imagine" 2024 Debt Brake

A few insights from the past 24 hours on the ongoing German fiscal uncertainty and its implications:

MNI: The German debt agency (Deutsche Finanzagentur, DFA) told MNI that the 2024 issuance plans will be released on schedule - based on a preliminary draft budget. More details in our MNI Brief.

• On economic impact - Markus Demary, senior economist at the German Economic Institute (IWH), told MNI that the pullback in fiscal scope will reduce GDP growth by around 0.5% next year. See our Policy exclusive here.

JPMorgan: JPM notes that the government's likely lifting of the debt brake for 2023 in next week's supplementary budget is "only a first step" in dealing with the fallout from the last week's court ruling against the fiscal usage of the KTF climate fund.

• Noting that the supplementary budget may have a volume of E45bln (1% of GDP) as the KTF funding is replaced, the government is likely to need a simple majority in the Bundestag to declare an energy emergency to be declared retrospectively which should be achievable - providing the pretext for lifting the debt brake. For 2024, JPM "can imagine that an emergency will be declared as well for a later stage", but there will be difficult debates ahead between the parties with little clarity on whether there will be spending cuts, tax hikes, and/or debt brake reform.
• "In terms of timetable, the supplementary budget will have to go through all stages of the parliamentary process and it is likely that a 2024 will only be passed next year. This means that new spending commitments may not be possible, which raises the risk of some fiscal drag in the near-term. The scale of this is hard to gauge at this point."

ING: ING writes that "there is increasing uncertainty surrounding the outlook for issuance of German Bunds after the constitutional court derailed the government’s budget plans. The downside risks are obvious, but we still have to get a clearer picture of what the ultimate impact is – not just in terms of supply but also for fiscal stance and the macro outlook as a whole."