Political Risk Looms for Merkel: Greece Aid Promise Spurs Grumbling Ahead of Key State Vote for Ruling Coalition
Jürgen Rüttgers, conservative premier of North Rhine-Westphalia, campaigns ahead of a vote that will test Germany's ruling center-right alliance. Photograph: The Wall Street Journal
THE WALL STREET JOURNAL: BERLIN—Europe's ever-louder promises of help for Greece may have calmed financial markets for now, but they pose a problem for German Chancellor Angela Merkel, who faces growing criticism at home as her resistance to a Greek bailout softens.

Ms. Merkel's center-right coalition will be tested in crucial regional elections on May 9 that could wipe out its thin majority in Germany's upper house of parliament, making it harder for the government to pass its major economic policies into law.

Loaning taxpayer money to Greece at a time when German authorities are strapped for cash to maintain schools and roads at home could potentially add to broader voter dissatisfaction with the performance of the ruling coalition, political analysts say.

So far the election campaign in North Rhine-Westphalia, Germany's most populous state, has centered on domestic issues including jobs, education and the appeal and flaws of local candidates. Opinion pollsters say Greece isn't playing a major role. But the center-right, which is lagging in polls, can't afford extra controversy, analysts say.

"If Greece is bailed out shortly before the election, it could lead to an awkward debate for Merkel, with voters questioning why there's money for Greece but not for them," says Gero Neugebauer, a political scientist at Berlin's Free University.

Ms. Merkel's conservative Christian Democrats and their junior coalition partners, the pro-business Free Democrats, who hold a governing majority in North Rhine-Westphalia, are lagging in opinion polls, which show them with about 45% of the vote. >>> Markus Walker | Wednesday, April 14, 2010

Euphoria Over Greek Rescue Fades As First Cracks Appear
THE TELEGRAPH: Euphoria over a joint EU-IMF rescue deal for Greece worth €45bn (£39.8bn) has given way to caution after angry reactions in Germany and continued concerns among bond investors that any bail-out merely delays the day of reckoning.

Euphoria over Greek rescue fades as first cracks appear. Photo collage: The Telegraph
Greek borrowing costs have fallen from post-EMU highs last week but still remain at stress levels. The yield spread on 10-year bonds over German Bunds dropped by 45 basis points to 6.75pc on Monday.

"This is a short-run fix, not a long-run solution," said David Owen at Jefferies Fixed Income. "At the end of the day, Greece has to carry out monumental fiscal tightening even as it slides deeper into recession. They risk chasing their tale. [sic]"

Mohamed El-Erian, head of the US bond fund Pimco, doused hopes that his firm would soon step in to buy Greek debt, saying the rescue package at rates near 5pc does not address the underlying "solvency challenges" facing the country.

The German taxpayers' union accused Chancellor Angela Merkel of caving into pressure, saying Germany would be left on the hook for huge liabilities.

Christoph Steegmans, spokesman for the finance ministry in Berlin, insisted that "nothing had changed" as a result of the weekend pledge by eurozone states for €30bn of loans. Help is "not automatic" and cannot be activated if any state objects. "The fact that the fire extinguisher has been primed says absolutely nothing about the probability of a fire," he said.

Frank Schäffler, a Free Democrat finance expert in Mrs Merkel's coalition, said the rescue deal is "clearly a subsidy" and violates the EU summit deal in March. "We're on very thin ice legally," he said, hinting at likely court challenges.

Professor Ekkehard Wenger from Würzburg University said the aid for Greece is "another step on the slippery slope downwards. All rational economic rules are being thrown out of the window. This is a bottomless pit."

"In the short-term this may calm things but within 10 years the eurozone is not going to exist any longer in its current form," he told Handelsblatt. >>> Ambrose Evans-Pritchard | Monday, April 12, 2010

Bundesbank Attacks Greek Rescue as a Threat to Stability
THE TELEGRAPH: Germany's Bundesbank has fired a warning shot at Chancellor Angela Merkel, attacking the joint EU-IMF rescue plan for Greece as a threat to economic stability and probably illegal.

Leaked extracts from an internal report appeared in the Frankfurter Rundschau and may have contributed to a fresh day of mayhem for Greek bonds. Investors were already digesting reports that Greek residents had shifted €10bn (£8.8bn) abroad over the first two months of the year.

The yield on two-year Greek bonds surged by 136 basis points in early trading to 8.3pc, up from 5.2pc last week. The market stabilised later as Athens announced a 40pc cut in the budget deficit over the first quarter, suggesting that austerity measures are bearing fruit.

The Bundesbank document offers a withering critique of the deal agreed by EU leaders two weeks ago, saying the plan had been cobbled together without consulting central banks and will lead to monetisation of debt. "It brings problems in respect to stability policy that should not be underestimated."

The joint rescue between the IMF and the EU would turn the Bundesbank into a "money-printing machine" for the purchase of Greek bonds, according to Rundschau. This would breach the EU's 'no-bail clause'.

Hans Redeker, currency chief at BNP Paribas, said the report greatly strengthens the hand of EMU critics in Germany. A group of professors is already itching to file a complaint at the constitutional court to block the Greek rescue. "This reduces Merkel's room for manoeuvre to zero," he said.

The Bundesbank, headed by ultra-hawk Axel Weber, said the decision to bring in the IMF makes matters worse, arguing that the EU would impose tougher budgetary discipline. >>> Ambrose Evans-Pritchard | Thursday, April 08, 2010

FTSE 100 Jumps after America Bails Out Fannie Mae and Freddie Mac
THE TELEGRAPH: The FTSE 100 jumped more than 100 points at the open this morning, following an earlier rally across Asia, on hopes that the nationalisation of America's two biggest mortgage lenders may help revive the troubled US housing market.

In an unprecedented move, the US Treasury yesterday took control of Freddie Mac and Fannie Mae in the largest financial bail out on record in a move designed to restore confidence in the $12 trillion (£5.8 trillion) US mortgage market.

The action, which comes at an unknown cost to the American taxpayer, prompted a bout of risk taking from investors across the globe.

Alongside the rally in the FTSE 100 and in stock markets in Germany, France, and Italy, prices for government bonds were hit and the dollar tumbled. FTSE 100 Jumps after America Bails Out Fannie Mae and Freddie Mac >>> By James Quinn, Wall Street Correspondent | September 8, 2008

THE TELEGRAPH:
Freddie Mac and Fannie Mae Rescue Sends Dollar Tumbling >>> By Jamie Dunkley | September 8, 2008

THE INDEPENDENT:
US Bail-Out Sends UK Shares Leaping >>> By Russell Lynch, PA | September 8, 2008

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