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A Greek flag flies as thick smoke from a forest fire rises a few miles east of Athens August 25, 2007. (REUTERS/YIORGOS KARAHALIS/REUTERS/YIORGOS KARAHALIS)
A Greek flag flies as thick smoke from a forest fire rises a few miles east of Athens August 25, 2007. (REUTERS/YIORGOS KARAHALIS/REUTERS/YIORGOS KARAHALIS)

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Greek turmoil sinks markets: 'In the grip of another crisis' Add to ...

These are stories Report on Business is following Monday, May 14, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Markets ponder Greek exit The recently coined term Grexit - Greece + exit - is being thrown around openly today as the country goes into a second week with no government and fears mount over what Athens quitting the fragile euro zone would mean.

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Politicians and policy makers in the 17-member monetary union are now voicing the possibility of Greece leaving as its troubles deepen. Talks to build a coaltion government have failed following last week's election, though talks continued today, and the country seems headed for a second vote in June.

"Comments from several ECB officials over the weekend ... again seemed to suggest that Greece abandoning the euro is no longer an unthinkable scenario," said Adam Cole of RBC in Europe.

This comes as European finance ministers met for the first of two days, with Greece yet again high on the agenda.

"Time is running out very quickly for the creation of any kind of coalition government in Greece," said Kit Juckes, chief of foreign exchange at Société Générale.

"A caretaker administration to tide the country over to new elections in June seems increasingly likely and opinion polls make ugly reading for europhiles," he said in a research note.

"Officials are finally talking openly of Greece leaving the euro zone, though no one is yet saying out loud whether that means they will leave the European Union, too. The potential economic cost to Greece, with a primary budget deficit, is cataclysmic (a 25 per cent to 50 per cent fall in GDP is our best guess). The knock-on in terms of confidence around the region cannot be overstated, either."

It's that contagion aspect that's worrying investors.

Tokyo's Nikkei gained 0.2 per cent, but Hong Kong's Hang Seng slipped 1.2 per cent. European and North American stocks also sank.

London's FTSE 100, Germany's DAX and the Paris CAC 40 fell by about 2 per cent or more. The S&P 500 , the Dow Jones industrial average and Toronto's S&P/TSX composite were also hit.

"The announcement of a meeting of euro zone finance ministers, planned for this afternoon, is a clear sign that we are in the grip of another crisis, although don’t expect anything earth-shattering to emerge from their discussions," said David Jones, chief market strategist at IG Index in London.

Euro zone officials have been unable to put the debt crisis behind them for two years now, despite repeated attempts. Amid crippling levels of unemployment, higher taxes and cutbacks in several countries, there have been widespread protests and, in some areas, riots.

Greece's President Karolos Papoulias worked through the weekend trying to push talks toward a coalition government, but that appears doomed today amid widely diverse views. The first-place finisher in the election wants to push ahead with the harsh austerity measures tied to the bailout of Greece, while the second-place party wants to rewrite the terms, having won something of an anti-austerity mandate.

Greece faces a €436-million redemption this week. There is a 30-day grace period, which would mean a climax just days ahead of an expected mid-June election.

This is rippling not only through stock markets, but currency, bond and commodities markets as well. In Greece and Spain, bond yields are spiking.

"It has been a day of relatively little news but that has not stopped a widespread rout on indices, as traders abandon markets for the safety of the U.S. dollar and government bonds," said analyst Chris Beauchamp of CMC Markets in London.

"Uncertainty is driving markets at present, with the main fear being that Greece will leave the euro zone," he said in a research note.

"Comments from Angela Merkel this afternoon didn't help matters, as the German Chancellor expressed full support for Greece staying in the EU - but significantly failed to mention its remaining in the euro zone. The pain is widespread, with Spanish and Italian bond yields on the rise once again as investors attempt to determine the potential impact of a Greek departure on other struggling euro zone members. Most Greeks might want to stay in the euro, but voting for anti-bailout parties seems a strange way to go about it."

Generally across Europe, voters are increasingly saying no to the austerity measures that have marked the post-crisis era, and several governments have fallen. Socialist leader François Hollande toppled France's president Nicolas Sarkozy last week, and just this weekend Ms. Merkel's party lost a state election in the country's most populous region.

The troubles in Greece and other euro nations come amid a deteriorating economic outlook. Just today, fresh numbers showed industrial output shrinking in March.

Thus, all eyes will be on tomorrow's report on how the economies of the euro zone fared in the first quarter of the year.

RBC Dominion Securities projects the data will show that gross domestic product contracted by 0.2 per cent, quarter over quarter, which would mean the currency union meet the technical definition of a new recession.

Mystery at Yahoo The mystery deepens at Yahoo Inc.

Scott Thompson resigned as chief executive officer over the weekend amid a controversy over his résumé - it said incorrectly that he had a degree in computer science - and several new board members were named.

But today, The Wall Street Journal reports that Mr. Thompson told the board and some friends that he is suffering from thyroid cancer, and this played into his decision to step down.

Yahoo itself did not mention this. Amid a fight with a U.S. hedge fund that owns almost 8 per cent of Yahoo, it said only that it had named Ross Levinsohn interim CEO and that Mr. Thomson "has left the company."

As Omar El Akkad writes in today's Report on Business, it's yet another setback for the struggling company.

Golf Town to acquire Golfsmith OMERS officials will soon have some new golfing buddies in the United States.

Golf Town, which is owned by the OMERS private equity group and boasts 54 golf retail outlets across Canada and seven in the Boston area, is bidding $6.10 (U.S.) a share for Golfsmith International Holdings Inc.

Based on about 16 million shares, the deal would be worth just shy of $100-million.

Golfsmith is in the same business - both sell equipment, clothing and acccessories - but is much older and has 85 outlets in the U.S.

"This transaction will give us a formidable footprint in North America and will also provide a strong platform for future growth,” Don Morrison, an official at OMERS, said in a statement.

In Economy Lab When it comes to the BRICs, The Globe and Mail's Kevin Carmichael writes, Canada kind of missed the boat.

According to calculations by Peter Hall, the chief economist at Export Development Canada, Canada’s share of Brazilian imports was 2.1 per cent in 1990, 1.9 per cent in 2000 and 1.5 per cent in 2010.

That pattern is the same in the other big emerging markets, including the others in the BRIC group, Russia, India and China.

In Streetwise Though many parts of the capital markets are very slow, Streetwise columnist Boyd Erman reports today, a consistent theme from Canadian investment bankers is that the pipeline of pending mergers here is pretty full.

Truth be told, bankers almost always say that. But the numbers back it up at the moment.

What to watch for this week Besides what is certain to be a week of Greece-related developments, there will be many other bits for markets to digest, as well.

On Wednesday, Statistics Canada releases its monthly report on how the country's manufacturers fared. Economists believe the report will show shipments from Canada's factories rebounded, by about 0.3 per cent, from February's dip.

"Canada’s manufacturing sector was a star in the latter half of 2011, although signs of slowing in January/February have raised some doubts about the pace of the industrial sector’s recent revival," said Emanuella Enenajor of CIBC World Markets.

"We are expecting to see a healthy gain in factory shipment volumes in March, enough to suggest that Canada’s factory renaissance, largely helped by resurgent U.S. auto demand, is still alive."

On the corporate front, the fight for control of Canadian Pacific Railway Ltd. comes to a head on Thursday, at a shareholder meeting in Calgary.

Activist investor Bill Ackman of Pershing Square Capital Management, now the railway's biggest shareholder, has been waging a fight, proposing a dissident slate of seven directors, and wants to replace chief executive officer Fred Green with Hunter Harrison, the former CEO of rival Canadian National.

Anything can happen, of course, but Mr. Ackman has been winning support for his team.

Several major companies are also scheduled to release quarterly results, including Onex Corp., Home Depot Inc., Power Corp. of Canada, Deere & Co., Sears Canada Inc., Target Corp., Gap Inc. and Wal-Mart Stores Inc.

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