German Chancellor Angela Merkel, left, speaks with the President of the European Central Bank, Mario Draghi, before the start of the second day of the G20 Summit in November 2011. (POOL/REUTERS)

That's David Wessel summarizing some research from JPMorgan. The main channel of contagion is financial. Exports to Europe are 1.2 percent of GDP. That's not nothing, but it's not that much. The bigger problem is that "European banks have lent more than $6 trillion to the rest of the world, twice as much as U.S. banks." Indeed, "European loans to the U.S. amount to about 10% of U.S. GDP."

I used to say that Germany's Angela Merkel and the European Central Bank's Mario Draghi were going to decide who America's next president was. If they saved the euro zone, it would be Barack Obama. If they let it fail, it would be Mitt Romney. Then Europe stabilized and I stopped saying it.

Looks like it's time to start again. Though I would amend the remark to say that Merkel and Draghi aren't on their own. John Boehner will have a role, too, as, come the end of the year, markets will be reacting to what they think will happen when we reach the fiscal cliff and and the debt ceiling. Most forecasters agree that a few wrong moves could put us back into recession, and if businesses and investors think that's the likeliest outcome -- or even a likely outcome -- they're going to cut their spending and their hiring in the last quarter of 2012. Boehner is in an excellent position to persuade markets that we're likely to make the wrong moves --or that we're not.

As for Obama and Romney, well, there's little either of them can do at this point to dramatically change the trajectory of the economy. Romney has no power and Obama can't pass the American Jobs Act -- or anything else -- without cooperation from House Republicans. The only empowered actor who is not named here, and who could have a real effect on economic expectations, is Ben Bernanke. The Obama campaign had better hope he's up for a challenge.

So perhaps my old line was a bit too simplistic. What I should be saying is that Angela Merkel, Mario Draghi, John Boehner, and Ben Bernanke are likely to decide our next president.

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Top stories

1) European officials are stepping up planning for a Greek exit. "Finance ministers from the 17 countries that use the euro agreed earlier this week on the need to develop national contingency plans in case Greece drops out of the common currency, officials said. Those plans aim to address what would be an unprecedented event in the modern financial system: how to buffer government bond markets, the banking sector and other financial markets in the event of a Greek exit. The euro dropped below $1.26 Wednesday, hitting its lowest level against the dollar since July 2010." William Boston, Brian Blackstone, and Matthew Dalton in The Wall Street Journal.

@BCAppelbaum: Seems like all of this Grexit contingency planning should dispel any illusion that a currency union is forever.

2) Congressional Democrats are standing firm on the sequester. "It is really Senate Democrats who are next in line to wield the power of 'no.' In November and December, they’ll be in position to block Republican-backed legislation to stop an automatic 10 percent sequester of Pentagon funds and to extend high-end tax breaks for the wealthy. Indeed, the new kid on the block is this tougher Democratic mind-set embodied by Reid. And the former Vegas gaming commissioner is ready to risk tens of billions in automatic spending cuts in January rather than give in any longer to Republican demands that all deficit reduction come from domestic savings -- with no revenues. In an interview with POLITICO, Reid said he was open to a compromise that would salvage about four-fifths of the Bush-era tax cuts. But absent some concession on revenues, the $110 billion in spending cuts ordered by the debt agreement last August would go into effect." David Rogers in Politico.

3) Romney said unemployment would be below six percent by the end of his first term. "'I can tell you that over a period of four years, by virtue of the policies that we’d put in place, we’d get the unemployment rate down to 6 percent, and perhaps a little lower,' Romney says in a Time magazine interview...The Congressional Budget Office projects that the unemployment rate will drop to 5.3 percent by the end of 2016." Jonathan Easley in The Hill.

@brianbeutler: Romney's accepted that a goal of 4% unemployment is absurd, now says he'll get it down to 6% by 2016...which is what CBO says it'll be anyhow.

4) The Senate reached a deal on the FDA bill. "Senate Majority Leader Harry Reid (D-Nev.) announced an agreement on amendments Wednesday that will finally allow a Food and Drug Administration bill to move forward. The deal should lead to passage of the bill on Thursday, ending several days of uncertainty. Under the agreement, the Senate will consider 17 amendments to the bill, the Food and Drug Administration Safety and Innovation Act (S. 3187), which reauthorizes a user-fee program for drug companies seeking FDA approval. The Senate will debate amendments until Thursday at 2 p.m. After votes on the amendments, the Senate will vote on the bill itself...Under the agreement, four of the 17 amendments will require 60 votes for passage. One of these, from Sen. John McCain (R-Ariz.), would require Health and Human Services Secretary Kathleen Sebelius to issue regulations allowing the importation of prescription drugs from Canada, within six months after the language becomes law." Daniel Strauss in The Hill.

@sarahkliff: I've always pictured PDUFA and MDUFA as a quirky pair of cartoon characters. That's, uh, normal, right?

5) Good new-house sales numbers added to housing optimism. "Sales of newly built homes continued to pick up momentum, another sign that the long-beleaguered housing market is in recovery mode. New-home sales for April rose 3.3% from March and were up 9.9% from a year earlier to a seasonally adjusted annual rate of 343,000, the Commerce Department said Wednesday. While new homes account for about 10% of the housing stock sold each year, sales of previously owned homes have also shown strong gains recently, suggesting the industry's improvements are widespread. The National Association of Realtors said Tuesday that sales of previously owned homes, which make up the bulk of the housing market, rose 3.4% in April from the previous month. The Commerce Department figures reflect sales of only single-family homes, while the Realtor data include sales within multifamily dwellings, such as condominiums." Dawn Wotapka and Eric Morath in The Wall Street Journal.

@DLeonhardt: Another strong housing report today, this one from federal government. Prices up slightly vs year ago.

6) Most individual health policies don't meet ACA standards. "More than half of all medical insurance policies sold to individuals now fail to meet the standards of coverage set by the federal health care law under review by the Supreme Court, a new study says. Even if the law is upheld, employer-provided insurance plans are likely to continue to be more generous, but the law would significantly improve the quality of coverage for individuals in several ways, the researchers concluded. Insurers would be required, for example, to limit how much people pay toward their own medical bills, even if they have a chronic and expensive condition. Insurers would also have to provide a comprehensive set of benefits, like maternity coverage that is now excluded by some policies, and cover pre-existing medical conditions, which may be excluded under certain policies. The study was published online Wednesday in Health Affairs, an academic journal." Reed Abelson in The New York Times.

Top op-eds

1) KLEIN: We should be talking about what Romney will do as President, not what he did at Bain. "The budget prepared by Paul Ryan, the House Budget Committee chairman, and the Romney campaign’s general-election platform look quite similar. Both would cut taxes while flattening the tax code. Their Medicare-reform plans look similar...Because it’s difficult to imagine a scenario in which Romney is elected and Republicans don’t hold the House and win control of the Senate, Republicans wouldn’t be stymied by Democratic opposition. They would have the votes to pass their agenda. True, they won’t get a filibuster-proof majority of 60 in the upper chamber, but Ryan’s budget is, well, a budget, which means it could be passed through the budget reconciliation process -- and couldn’t be filibustered. To enact a radical change of direction, Republicans need only a simple majority of votes...Why are we spending so much time discussing what Romney did at Bain ... instead of what he will do as president?" Ezra Klein in Bloomberg.

2) COHN: Romney's healthcare plan would cause serious hardship. "Mitt Romney’s big campaign moment on health care came a little over a year ago, when he gave a speech at the University of Michigan in Ann Arbor...Of course, Romney’s plan on that day was not terribly specific...Providing details about his policy proposals would mean owning up to difficult, but inevitable trade-offs--for example, the trade-off government spending and health insurance coverage. Reduce the first, as Romney proposes, and you’ll inevitably end up reducing the second. But, as with the economic plan, it’s possible to perceive Romney’s general approach to health care: He wants to scale back health insurance, so that it provides less protection from medical bills. In theory, this transformation will unleash market forces that restrain the cost of medical care. In practice, it will cause serious hardship, by exposing tens of millions of Americans to crushing medical bills or forcing some of them to go without necessary, even life-saving care." Jonathan Cohn in The New Republic.

3) WESSEL: European woes could hit the U.S. "A messy Greek exit from the euro would make an already inevitable recession in Europe worse. But how will this cross the Atlantic? Overall, euro-zone imports amount to 5% of the rest of the world's gross domestic product, more for some (the U.K., Eastern Europe), but only 1.2% of U.S. GDP...Even if U.S. exports to Europe fell by 20%, that's not a huge hit to the U.S. economy. Still, there will be other real-economy effects. Doubts about the euro's survival could send money fleeing to the safety of the U.S. dollar, pushing up its value and making U.S. exports costlier around the world. Offsetting that, a severe European recession would reduce demand for commodities and their prices, helping commodity importers...That all adds up. For every one-percentage-point decline in euro-area growth, history suggests growth in the rest of the world will take a 0.7% hit, 'with the U.S. seeing a somewhat smaller decline than other parts of the world,' say J.P. Morgan economists." David Wessel in The Wall Street Journal.

4) WALLISON: Dodd-Frank will expand too big to fail to the entire financial industry. "With the recent publication of its final rule, the federal government's Financial Stability Oversight Council is now in position to designate certain nonbank firms as 'systemically important financial institutions' (SIFIs). Under the Dodd-Frank Act, that label can be attached to nonbank financial institutions--insurers, financial holding companies, hedge funds, finance companies, securities firms, perhaps even money-market mutual funds and private-equity firms--that will 'pose a threat to the financial stability of the United States' if they fail. This process has received relatively little attention in the media, but there is probably no aspect of the Dodd-Frank Act that will have more damaging effects on competition in the U.S. financial system...Few seem to recognize that the Oversight Council's designations will spread the too-big-to fail problem beyond banking to every other financial industry." Peter Wallison in The Wall Street Journal.

Top long reads

John Broder and Clifford Krauss on Shell's offshore drilling plans in the Arctic: "The president’s preoccupation with the Arctic proposal, even as the nation was still reeling from the BP spill, was the first hint that Shell’s audacious plan to drill in waters previously considered untouchable had gone from improbable to inevitable. Barring a successful last-minute legal challenge by environmental groups, Shell will begin drilling test wells off the coast of northern Alaska in July, opening a new frontier in domestic oil exploration and accelerating a global rush to tap the untold resources beneath the frozen ocean. It is a moment of major promise and considerable danger. Industry experts and national security officials view the Alaskan Arctic as the last great domestic oil prospect, one that over time could bring the country a giant step closer to cutting its dependence on foreign oil. But many Alaska Natives and environmental advocates say drilling threatens wildlife and pristine shorelines, and perpetuates the nation’s reliance on dirty fossil fuels."

@AndrewRestuccia: “We can’t stop it. We can only make it less bad"

Noam Scheiber profiles Romney confidant Bob White: "Personal friends with such outsize influence are actually quite rare in presidential politics. Within recent administrations, only Valerie Jarrett really fits the profile. But, as it happens, Jarrett won’t be the only Valerie Jarrett-figure advising a presidential candidate this year. Mitt Romney has his own longtime-pal-cum-alter-ego, a 56-year-old ex-Bain Capital partner named Bob White. White, who is trim with graying brown hair, was one of Romney’s original hires when launching the private-equity firm back in the 1980s. He has been at Romney’s side in every major endeavor he’s undertaken since, from the Olympics to the campaign trail. Over the course of Romney’s career, White has served as debate prepper, personnel vetter, designated gut-checker, in-house historian, and diplomatic envoy. It was White who found Romney a campaign manager for his run for governor, White who headed his transition to the Massachusetts statehouse, White who has chaired his campaigns for president."

New Jersey rock interlude: Yo La Tengo plays "Today is the Day" live on McEnroe.

Got tips, additions, or comments? E-mail me.

Still to come: Some progress in trade talks; stakeholders are starting to get serious about cost control; paycheck fairness will hit the Senate floor again; shale drove a drop in emissions; and the most gripping video of a slinky you will see today.


Facebook's IPO has sparked a flurry of congressional inquiries. "It has taken just six days for the razzle-dazzle of Facebook’s $104 billion market debut to turn into a nightmare of congressional inquiries. Republican and Democratic lawmakers on Wednesday began to look into the debacle of what was supposed to be the social networking company’s crowning achievement. Lawmakers want to know whether institutional investors got a sneak peek at an updated analysis, written just before the initial public offering, that gave a more pessimistic assessment of Facebook’s future revenues. It’s that analysis that might have caused the hotly anticipated stock to tumble out of the gate, losing more than a quarter of its value in its first two days on the open market...Both the House Financial Services Committee and Senate Banking Committee say they will look into the issue, with lawmakers in both parties raising questions about what happened." Peter Schroeder in The Hill.

Informal trade talks yielded some progress. "More than 20 countries made progress in informal trade talks Wednesday, as ministers try to salvage some parts of the stalled Doha round of trade negotiations, officials said. Wednesday's discussions, held as part of an annual meeting among members of the Organization for Economic Cooperation and Development, could lead to an agreement on a process to add less-developed countries to the World Trade Organization 'before the summer break,' said Craig Emerson, Australia's trade minister at a news conference. Wednesday's meeting also yielded 'a high level of agreement' on a trade-facilitation agreement that aims to simplify customs procedures at ports, Mr. Emerson said. He, along with counterparts from the U.S. and Canada, said there also was discussion of other issues, including advancing an information-technology trade agreement." Sam Schechner in The Wall Street Journal.

Pelosi wants a vote soon on extending middle class tax cuts. "Rep. Nancy Pelosi (D-Calif.) on Wednesday urged Republicans to stage an immediate vote on extending the Bush-era tax rates for the middle class and making those rates permanent. In a letter to Speaker John Boehner (R-Ohio), the House Democratic leader said the issue should be resolved 'as early as next week' both to lend confidence to consumers and to ensure the issue isn't lost amid the chaos that's expected to mark this year's lame-duck session...President Obama and Republican leaders agreed in December 2010 to extend the Bush-era tax rates for all taxpayers, meaning the cuts will expire in January without congressional action. Boehner has said he'll bring a vote on extending all of the tax rates before November's elections. Republicans want to extend the Bush tax rates for all taxpayers. . Democrats want to extend the tax cuts for those earning less than $1 million per year, but allow the cuts for wealthier folks to expire." Mike Lillis in The Hill.

Freddie Mac forced Bank of America to buy back loans. "Freddie Mac forced Bank of America Corp. to buy back $330 million of mortgages originated over the past two years after the government-controlled mortgage-finance company challenged the lender over technical issues with how the loans were manufactured. The vast majority of the loans at issue are current, performing mortgages, said Bank of America spokesman Dan Frahm. Freddie said the loans were originated in 2010 and 2011. Freddie Mac and its larger sibling, Fannie Mae, have stepped up efforts in the aftermath of the housing bust to force banks to buy back defaulted mortgages. But repurchases of performing loans in large quantities have been rare. It is also unusual for the firms to kick back large buckets of loans originated after 2008, when Fannie and Freddie tightened lending standards dramatically." Nick Timiraos in The Wall Street Journal.

@justinwolfers: Next week's going to be huge: Case-Shiller, first print of GDI, 2nd print of GDP, non-farm payrolls & unemployment. #HurryUp?

Tumblr interlude: Movie Simpsons.

Health Care

Hospitals and insurers are trying to get healthcare costs under control. "After years of self-acknowledged profligacy, hospitals, doctors and health insurers say there is a strong effort under way to bring medical costs under control. Their goal is to slash the rate of growth in the nation’s $2.7 trillion health care bill by roughly half to keep it more in line with overall inflation. Private insurers, employers and government officials are providing urgency to these efforts, and the federal health care law passed two years ago helped accelerate them. Even if the Supreme Court decides next month to declare the entire law unconstitutional, many experts in the field say the momentum is likely to continue...Despite the flurry of activity, many caution that these efforts may not succeed in saving money. Many previous programs failed in the end to reduce costs or improve care. And many people within the industry are still wedded to the status quo, said Dr. Michael W. Cropp, the chief executive of Independent Health, an insurer in Buffalo." Reed Abelson in The New York Times.

Obamacare could make it harder to care for undocumented immigrants. "The health law, if upheld by the Supreme Court, will help up to 33 million Americans get coverage over the next decade. Around 26 million to 27 million will remain uncovered. And roughly one in four of the uninsured will be illegal immigrants, the Urban Institute has estimated. And as more tax dollars go toward subsidizing low- and middle-income Americans so they can get health coverage, advocates for immigrants say it may be increasingly difficult to care for the undocumented, who are excluded from the law’s coverage expansion and the new insurance exchanges...A few communities are testing solutions. In Los Angeles, a nonprofit clinic and a restaurant workers’ group this month announced a cooperative to provide low-cost primary and preventive care. Washington officials this month voted to spare a health insurance pool for illegal immigrants from the budget chopping block." Kyle Cheney in Politico.

Domestic Policy

Senate Democrats are pushing the Paycheck Fairness Act. "Five female Democratic senators pressed for legislation Wednesday aimed at closing the wage gap between men and women. The Paycheck Fairness Act would bring up to date the Equal Pay Act, which was signed into law by President Lyndon Johnson nearly 50 years ago. Democrats cited statistics showing that women today are still paid 77 cents for every dollar earned by men, or $10,784 less a year on average. That’s the equivalent of 183 tanks of gas or 92 bags of groceries...Majority Leader Harry Reid (D-Nev.) has promised a cloture vote on the pay bill the week of June 4, after the Senate returns from its week-long Memorial Day recess. Republicans, however, have dismissed the effort as political pandering, and the bill is unlikely to pass without GOP support. In January 2009, when Democrats controlled both chambers, the bill cleared the House but fell two votes shy of the 60 needed to move forward in the Senate." Scott Wong in Politico.

The life of a toy interlude: The epic adventures of a slinky on a treadmill.


The shale boom has led to a drop in U.S. carbon emissions. "The shale gas boom in the US has led to a big drop in its carbon emissions, as power generators switch from coal to cheap gas. According to the International Energy Agency, US energy-related emissions of carbon dioxide, the main greenhouse gas, fell by 450m tonnes over the past five years - the largest drop among all countries surveyed. Fatih Birol, IEA chief economist, attributed the fall to improvements in fuel efficiency in the transport sector and a 'major shift' from coal to gas in the power sector. 'This is a success story based on a combination of policy and technology - policy driving greater efficiency and technology making shale gas production viable,' Mr Birol told the Financial Times...Gas is fast becoming the new fuel of choice for the US power sector: in the past 12 months, coal generation has slumped by 19 per cent while gas generation has increased by 38 per cent." Guy Chazan in The Financial Times.

The natural gas boom is hitting transportation. "The shale gas revolution, which cut the price of natural gas by about 45% over the past year, already has triggered a shift by the utility industry to natural gas from coal. Vast amounts of natural gas in shale rock formations have been unlocked by improved drilling techniques, making the fuel cheap and plentiful across the U.S. Now the shale-gas boom is rippling through transportation. Never before has the price gap between natural gas and diesel been so large, suddenly making natural-gas-powered trucks an alluring option for company fleets, rather than an impractical idea pushed mainly by natural-gas boosters like T. Boone Pickens, the Texas oilman. Railroad operators also are being affected as coal shipments decline. Many fleet operators, particularly long-haul truckers, remain concerned about a scarcity of refueling stations. Other challenges include the bulky tanks for compressed gas and the hazards of handling liquefied gas." Rebecca Smith in The Wall Street Journal.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.