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

Don't Bet On A Hung U.K. Parliament

Interest Rates Hijacked by Politics
THE TELEGRAPH: The Bank of England faces another tough decision on Thursday. Having cut interest rates to 5.5 per cent in December, the Monetary Policy Committee is this month expected to keep borrowing costs on hold.

In last week's Reuters survey, 51 of 63 "leading economists" said the MPC should wait until February, or even longer, before lowering rates again.

Economists can be fickle, though, coming under all kinds of pressure to fit their predictions to their paymasters' views. The weekend before the December rate cut, like now, various economists' polls showed that few wanted lower rates, given the dangers of rising inflation.

But then, in the final few days before last month's MPC meeting, almost all those refusniks buckled - as City and industry bosses piled in, predicting economic meltdown unless borrowing costs were slashed. 

Within 72 hours, most "independent experts" had shifted their position from one where the Bank shouldn't risk cutting rates, to one where it would be "irresponsible" - an emotive, threatening word - for the MPC not to act.

Given that climate of fear, it was perhaps unsurprising that the committee voted 9-0 in favour of lower rates - despite CPI inflation of 2.1 per cent, the far more reliable RPI measure at 4.3 per cent, crazy oil prices and inflationary expectations at an eight-year high.

Over the next three days, I suspect last month's pattern will repeat itself. Our most prominent economic analysts will, once again, trim their views to coincide with the short-term interests of the investment banks, retailers and ministers - all of whom desperately want lower rates to put a gloss, respectively, on their sub-prime exposure, share prices and standing in opinion polls.

And this, despite the fact inflation will get a lot worse before it gets better and repeated rate cuts risk doing serious damage to the Bank's credibility and, in turn, to the UK's long-term prospects. Interest rates have been hijacked by politics >>> By Liam Halligan

Mark Alexander (Paperback)
Mark Alexander (Hardback)