PREVIEW: Greece bailout casts shadow over key German election

By Helen Maguire May 6, 2010, 3:06 GMT

Berlin - Chancellor Angela Merkel faces a tough test on Sunday, when almost a quarter of Germans go to the polls after this week's decision to bail Greece out with billions of euros of government-backed loans.

On May 9, voters in North Rhine-Westphalia, Germany's most populous state, will be asking how to fill the gaping holes in city budgets as they elect a new regional parliament - while Greece stands to benefit from Germany's perceived generosity.

The majority of Germans oppose the Greek bailout, of which Merkel has pledged the lion's share, fuelled by a media campaign portraying Greeks as corrupt, lazy and undeserving of German aid.

Eight months into Merkel's second term, the vote is also a key hurdle for the coalition between her Christian Democrats (CDU) and the Free Democrats (FDP), whose popularity has plummeted during their time in office.

North Rhine-Westphalia's 13.5 million voters have frequently set the future course for German federal politics.

If the state's current CDU-FDP government is ousted on Sunday, it would cost Merkel her slender coalition majority in the Bundesrat, Germany's upper house of parliament representing the federal states, making it tougher to push through promised economic liberalization.

Opinion polls show no clear favourites in North Rhine-Westphalia, traditionally a Social Democrat (SPD) stronghold, after an election campaign dominated by such issues as school reform and financial shortages.

The reputation of state premier Juergen Ruettgers, of Merkel's CDU, was tarnished by a funding scandal when it emerged earlier this year that a party official was offering private meetings with him in return for cash.

His main challenger, the SPD's Hannelore Kraft, is little-known beyond North Rhine-Westphalia, where the 48-year-old hopes to become the state's first female premier after a rapid rise within her party.

Greece's request last month for a eurozone and International Monetary Fund bailout could not have come at a worse time for Merkel, who has been widely accused of trying to put off the unpopular decision until after the North Rhine-Westphalia election.

The chancellor has since been at pains to convince voters that a Greek bailout was the best move for Germany. After cabinet gave the go-ahead on Monday, Merkel hurriedly convened a press conference and gave a series of television interviews.

'A stable European currency has an incredibly high value,' the chancellor said, justifying the rescue package with the 'emergency situation' that Greece found itself in.

Asked on television whether she feared a voter backlash at the weekend, Merkel insisted the real question was whether the government had done everything to save the stability of the euro and protect German interests.

'I think this question can be answered with a clear 'yes' - and I think the people know that,' the chancellor added.

If Merkel does not receive the hoped-for backing at the polls, this could set a worrying signal, in a state seen as a bell-weather for German federal politics.

In 2005, Ruettgers led the CDU back to power for the first time there in 39 years, forming a coalition with the FDP which was a forerunner of the coalition at federal level last year.

According to opinion polls, the governing coalition is neck-and- neck with the alternative pairing of Social Democrats and Greens, who governed North Rhine-Westphalia until their national government fell out of favour with voters.

However, neither CDU-FDP nor SPD-Greens looks likely to win the necessary majority to govern. One alternative could be a CDU coalition with the Greens, testing the waters for a possible replication at federal level.

Alternatively, the SPD and Greens could bring the radical Left Party into the fold - a move seen by many as a political taboo, due to the Left's roots in the former East German communist state party.

The SPD's Kraft has repeatedly insisted that the Left Pary is 'neither able to form a coalition, nor to govern' - although they consistently poll above the 5-per-cent hurdle required for parliamentary representation.

Sunday will also be a vote of confidence for Merkel's coalition partner, FDP leader Guido Westerwelle. His popularity has plummeted since he came into power, and the tax cuts at the core of the party's manifesto are threatened by financial shortfalls.

The state premier, Ruettgers, was the first prominent member of the government coalition to suggest that the Greek bailout could have =an additional knock-on effect on proposed tax cuts in Germany.

On Thursday, the government publishes its detailed estimate of tax income, giving a clear picture of the country's financial health.

In North Rhine-Westphalia, where councils are struggling with huge debts, this is likely to fuel further questions ahead of Sunday's election about the billions flowing to Greece.