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Amid Spain crisis, Greek woes, can the euro be saved? Add to ...

These are stories Report on Business is following Monday, July 23, 2012.

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Eye of the storm
This question has, of course, been asked many times before in the past two years, but it's worth asking again today: Can Europe's monetary union be saved?

Markets plunged today, as did the euro, on concerns over Spain, in particular. A bailout has already been struck for its ailing banks, but the focus has now shifted to its individual regions after Valencia sought an emergency rescue.

There are suggestions other regions may need to be bailed out, as well, and some observers worry about how much the bailout funds of the 17-member euro zone can handle.

"With voters pushing back on the government’s austerity plans, the room for manoeuvre of the Spanish government is diminishing by the day as the economy continues to deteriorate under a combination of rising unemployment and rising bad loans," said senior analyst Michael Hewson of CMC Markets.

"The fear now is that Valencia’s aid request is more than likely to open the floodgates for similar requests from the other 17 heavily indebted Spanish regions. Already speculation is increasing that Catalonia, or any one of a number of regions will be next. When that happens it will be pretty much nailed on that the Spanish government will then eventually need a bailout itself, stretching the funds of the [bailout fund] to its limits."

Spanish bond yields spiked, with the 10-year benchmark well above 7 per cent, while the Bank of Spain unveiled new data showing another economic contraction of 0.4 per cent in the second quarter of the year.

Unemployment is at crippling levels - almost one in four adults are without work, and almost half the youth work force is unemployed.

Greece has also returned to the spotlight, with its international lenders, a group known as the troika that includes the EU, European Central Bank and International Monetary Fund, poised to return to Athens tomorrow for a check-up on the pledges tied to its bailouts.

"With the troika set to return to Greece tomorrow, there are reports that patience within Europe and the IMF is starting to wear thin and these reports suggest that unless the Greek government is able to deliver on its budget pledges and finalize its 2013 and 2014 austerity plans, then no further aid would be forthcoming, in which case Greece could default and leave the euro," said Mr. Hewson.

"There appears to be a growing mood, unthinkable a year ago, that a Greece exit could well be managed, though given the problems in Spain right now a Greek exit is more than likely to start a slippery slope, towards fragmentation."

Spain said again that it would not require a full bailout, but, of course, others have made the same declaration, and look where they ended up. This came amid targeted bans on short-selling in Spain and Italy.

"Short-selling bans on banking and insurance stocks by financial authorities in Rome and Madrid are a sure sign that all is not well, although I fear that these restrictions will only offer the most temporary of respites," said analyst Chris Beauchamp of IG Index in London.

"We may rapidly be approaching a decisive moment for the euro zone; previous bailouts were of smaller countries that were of manageable size," he added.

"Spain is a different order of magnitude entirely, and it may not be possible to rescue this economy in the same way that Greece, Ireland and Portugal were bailed out. Euro zone leaders will likely hold yet another summit, but they will need more than fine words if they are to truly save the single currency."

CNOOC gets Canadian
China's CNOOC Ltd. is flying a distinctly Canadian flag as it moves for government approval for today's $15.1-billion (U.S.) bid for Nexen Inc.

The deal for the Canadian energy giant is the biggest step China has taken yet into Canada's oil patch, and both companies are bending over backwards to show the benefits for the target country, while much of Nexen's production is outside Canada anyway.

As The Globe and Mail's Nathan VanderKlippe reports, CNOOC and Nexen today unveiled a blockbuster deal that would pay shareholders $27.50 a share, more than 60 per cent above Friday's closing price on the New York Stock Exchange.

CNOOC pledged today to make Calgary the headquarters of its North American and Central American businesses if it succeeds in its quest. That headquarters, in turn, would continue to manage Nexen's global operations, and CNOOC's business in the oil patch, already at some $8-billion.

Current management and employees would stay with the company, spending would be increased, and the Chinese company would be listed on the Toronto Stock Exchange.

"We believe the transaction provides a number of significant benefits to Canada and to Nexen," said CNOOC's chief executive officer Li Fanrong.

"CNOOC Ltd. looks forward to welcoming all of Nexen’s employees to its worldwide team, and we will clearly benefit from having Nexen employees play an important part in our international business growth platform. In addition, the transaction is a reflection of our disciplined M&A strategy which is focused on resources, risk and return."

CNOOC noted it has already invested some $2.8-billion (Canadian) in Canada since 2005, including interests in MEG Energy Inc. and OPTI Canada Inc.

Talisman sells British stake
Canada's Talisman Energy Inc. is selling a 49-per-cent stake in its British North Sea operations to Sinopec International Petroleum Exploration and Production Co. for $1.5-billion.

As Monday's two Chinese deals illustrate, Beijing continues to move forcefully into natural resources.

"We are very pleased to reach this agreement with Sinopec for the next phase of development of our UK North Sea assets," said John A. Manzoni, President and CEO. "This will provide additional resources and energy to the talented team on the ground, creating an exciting future for this portfolio," said Talisman's chief executive officer John Manzoni.

"Collectively, we will invest more in the U.K. than Talisman would have on its own, leading to a stronger, more sustainable business."

This follows Talisman's pledge to cut its interest and spending on the British operations by about half. "This brings our total divestment proceeds to approximately $2.5-billion so far this year," Mr. Manzoni said. "We plan to utilize approximately $500-million of the proceeds from this sale to repurchase shares."

Watsa boosts RIM stake
Here's a little something for all the naysayers: Someone loves Research In Motion Ltd.

That would be Prem Watsa, whose Fairfax Financial Holdings Ltd. has just about doubled its stake in the BlackBerry maker to almost 10 per cent.

As The Globe and Mail's Tara Perkins reports today, Fairfax now becomes RIM's biggest shareholder.

"We’ve averaged down our cost," Mr. Watsa, Fairfax's CEO, told Ms. Perkins.

"As [famed investor] John Templeton said: ‘The best investments are made at the point of maximum pessimism. We don’t know if RIM has reached that point, but we figure it’s pretty close."

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