Germany’s MEGA Day
Sometimes you can feel the global economy’s tectonic plates move under your feet.
This is one of those times.
Germany’s traditional two dominant parties, the Social Democrats and Christian Democrats, announced their intention to borrow €900 billion, to be spent on two funds covering defense and infrastructure.
To do this, they will amend the constitution in the two weeks before the next legislature is convened.
What an asteroid collision this is from the market reaction. The most consequential was in the 10-year bund yield, which rose 30 basis points for its biggest one-day rise since Germany reunified in 1990
The country’s frugal monetary and fiscal policies are born of folk memories of the Weimar Republic’s hyperinflation a century ago, and this is a decisive turn away from that.
Everybody in the Frankfurt financial center seems elated. You would think that Germany had just won the World Cup.
There is deep disquiet over the way this is being done.
Longer term, the biggest risk might lie in the reaction function of the ECB. The ECB is a different institution, but gets a lot of its genes from the Bundesbank.
Its predecessor, the Bundesbank, responded to the massive fiscal expansion of reunification by hiking its deposit rate from 5% when the Berlin Wall came down 1989 to 8.75% by the summer of 1992, a move that broke the EU’s exchange rate mechanism
John Authers Bloomberg 6 mars 2025
Varför kollapsade Weimarrepubliken?
Popular mythology in Germany has it that the Weimar hyperinflation of 1922-23 led directly to the rise of Hitler. This is not true.
The Nazis only won 32 Reichstag seats in the election of May 1924, and just 12 in 1928. The Nazi party did not become a popular political force until long after the hyperinflation period ended.
https://englundmacro.blogspot.com/2024/11/varfor-kollapsade-weimarrepubliken.html
What Germans Think They Know About Inflation Is Wrong - Brüning
https://englundmacro.blogspot.com/2023/04/what-germans-think-they-know-about.html
Den absoluta lejonparten av de totala kostnaderna för Riksbanken åsamkades under den sista veckan före kronans fall, när Riksbanken frångick sin tidigare strategi att försvara kronan genom räntehöjningar för att i stället övergå till direkta interventioner på valutamarknaden.
- Detta strategibyte gav privata aktörer som litat på Riksbankens utfästelser om fast kronkurs möjlighet att gå ur sina valutalån, men öppnade samtidigt möjlighet för utländska och inhemska spekulanter att ta position mot kronan.
Hans Tson Söderströms och Nils Lundgrens bok "Ekonomisk Politik. En vänbok till Assar Lindbeck"
https://englundmacro.blogspot.com/2024/08/enligt-hans-tson-soderstroms-och-nils.html
Tillbaka till Rolfs länktips 6 mars 2025
https://englundmacro.blogspot.com/2025/03/rolfs-lanktips-6-mars-2025.html
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