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German cutbacks threaten euro, Soros warns Germany's cutbacks are threatening Europe's currency union, George Soros says, and he does not rule out a "collapse of the euro." The legendary investor told Germany's Die Zeit that if Angela Merkel's government does not change its policy, quitting the currency union could help the rest of the continent. Ms. Merkel plans to slash €80-billion from spending over four years, a move that, along with austerity measures unveiled by other European governments, promises to be an issue at the G20 summit in Toronto this year. The United States is urging world leaders to be extremely cautious in their cutbacks, fearing they could stall global growth, at the same time as sovereign debt is becoming such an issue for the markets.
"Right now the Germans are dragging their neighbours into deflation, which threatens a long phase of stagnation. And that leads to nationalism, social unrest and xenophobia," Mr. Soros said. "Democracy itself could be at risk."
Later, in a speech in Berlin, Mr. Soros said that Germany determines the financial and macroeconomic policies of the euro zone in general because it is the strongest and most creditworthy country, and "when all the member countries try to be like Germany they are bound to send the euro zone into a deflationary spiral." Read the story
Why Canada is deemed a 'bastion' Economist David Rosenberg describes Canada as the True North strong and "free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world." In a report today, the chief economist of Gluskin Sheff + Associates cites seven reasons behind the fact that Canada "has basically been re-rated coming out of the credit crisis as a bastion of stability in an increasingly unstable world."
- The federal government "actually deserves" its Triple-A credit rating.
- No Canadian bank failed.
- Canadian banks did not cut dividends, and as a group have a dividend yield just shy of 4 per cent, compared to less than 1 per cent in the U.S.
- The Bank of Canada is raising interest rates given the stronger economy, while its U.S. counterpart is on hold, meaning a yield premium over U.S. alternatives for investors wanting to park funds in liquid short-term securities.
- Top marginal tax rates are already higher in New York City than in Toronto.
- Real estate in Toronto, Montreal and Vancouver is cheap on a global comparison.
- It's not just about oil anymore, but also natural gas, where prices have hit bottom, and precious metals that account for 13 per cent of the TSX market capitalization.
"It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety," Mr. Rosenberg said. "That is a far cry from the correction down to 78 cents following the Lehman aftershock."
Fed strikes cautious tone The U.S. Federal Reserve held its benchmark Federal funds rate steady, as expected, today, and sounded a cautious note on Europe's debt crisis, though it believes the economic recovery will remain on track. The central bank did not name Europe but noted troubled financial conditions "largely reflecting developments abroad."
"The statement made clear that the Fed is in no hurry to raise rates," said Toronto-Dominion Bank deputy chief economist Beata Caranci. "... We don't anticipate the Fed will raise rates until the first quarter of 2011 and even when it does finally get the ball rolling, cautiousness and restraint will continue to be exerted with a fed funds rate ending the year at just 1.5 per cent." Read the story
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