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The Peace Tower on Parliament Hill is framed by blooming tulips (CHRIS WATTIE)
The Peace Tower on Parliament Hill is framed by blooming tulips (CHRIS WATTIE)

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'Honorary' Third World then: How WSJ describes Canada now Add to ...

These are stories Report on Business is following Wednesday, Feb. 8, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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So long ago It was in mid-January, 1995, that The Wall Street Journal dubbed Canada "an honorary member of the Third World" in an editorial that referred to the Canadian dollar as the "northern peso."

That was when Canada was in deep fiscal trouble. Here's what the newspaper says now, referring to a U.S.-dollar bond issue by the federal government:

"Canada has emerged as a favoured destination for investors seeking refuge from the turmoil sweeping the euro zone and the continuing uncertainty over the U.S. fiscal position. The country now is the world's third-biggest issuer of sovereign debt to be rated triple-A by all three major credit-ratings firms, after Germany and the U.K. Standard & Poor's Ratings Services downgraded the U.S. rating in August and France's in January.

"... Part of the allure is Canada's sterling fiscal position. The nation's Conservative Party won a majority mandate last year, campaigning in part on a pledge of fiscal prudence. It presides over one of the lowest percentages of debt as a share of gross domestic product in the developed world, 34.6 per cent for fiscal 2012, compared with just more than 100 per cent in the U.S. Still, the government has pledged to cut further in an effort to balance the budget by the 2015-16 fiscal year."

Talking about the same bond issue, here's what Fitch said today: “Canada’s ratings are supported by its institutional and structural strengths, underpinned by effective policy response and a history of macroeconomic and social stability. Canada’s macro prudential approach to policymaking has allowed years of economic growth and stable prices in Canada."

Too easy to kick CAW The decision by Caterpillar Inc. to shut down its locomotive plant in London, Ont., has sparked a lot of controversy.

It's a crucial debate because the issue of competitiveness is one that's going to dog Canada in this post-crisis era.

But it's far too easy to criticize the workers who said no to the multinational giant, leading to a lockout and then the loss of 700 jobs at the 62-year-old plant.

Caterpillar's subsidiary cited costs and the competitiveness of the London operation when it announced Friday that it's closing the Electro-Motive Canada plant and moving the work to other sites in North and South America.

It didn't say exactly where those jobs would go but expect at least some of the work to go to Indiana, where Caterpillar already has an operation and where it held a weekend job fair that attracted more people than it could handle. It came at the same time that Indiana became the 23rd state to bring in "right-to-work" legislation that says employees at a unionized shop need not pay union dues if they object to that.

Critics of the Canadian Auto Workers say the union is killing jobs by not agreeing to company demands for deep concessions, wage cuts of up to 50 per cent among them. The union, they argue, has to come into a 21st Century of globalization where jobs will go to low-cost producers. That the Canadian dollar is now far stronger than it once was. And that it's better to have half-pay than no pay, etc.

It's true that the job seekers in Indiana would be happy for that work, which is being offered, in some cases, at about half the equivalent pay in London. It's also true that many of Canada's 1.4 million unemployed would jump at the lower wages rejected by the CAW.

I've heard some arguments that are valid, and I do understand that, as the company says, the plant must be competitive. But how are we measuring this? The workers weren't being asked to just hold the line, or take even small cutbacks. They were being asked for much, much more. For those among us with jobs, imagine if that were you.

Workers in general assembly jobs, for example, were asked to cut their hourly base rate to $18 from $35.90, the union says. Others were asked to take lesser cuts, but still in the range of 45 per cent, and for skilled trades 20 per cent. On a weighted average basis, according to the CAW, it works out to 45 per cent, as well as concessions in other areas.

There have been wage freezes and cuts in Canada, of course, but Caterpillar is the extreme. For the last two years, annual wage increases won by unions have averaged 1.8 per cent, according to Human Resources and Skills Development Canada data.

That's well down from the 3.2 per cent of 2008, the year the crisis was setting in, and below the pace of inflation. Which means wages are losing ground, but there are base increases nonetheless.

There's a troubling, if only indirectly related, issue, as well. Because some of the London work appears headed for Indiana, there's a natural inclination to point to the fact that it just became the first state to bring in right-to-work legislation in about 10 years. It becomes the 23rd state to do so.

Look at some of the data from the U.S. Census Bureau, whose latest numbers measure median household income averaged over three years, from 2008 to 2010, in 2010 inflation-adjusted dollars.

Of the previous 22 right-to-work states, not including Indiana, 16 ranked in the bottom half. And seven of them were the bottom 10.

(I'll caution that the numbers include rural regions of many southern states, and thus tend to bring down the measure, but the trend is clear.)

This is not to suggest that the union should not have given some ground, but that we have to balance this push for lower costs with other issues.

When you're ready to cut your pay in half, and decide how you're going to keep up mortgage payments and feed your family, then, and only then, are you in a position to critizice the workers in London.

No deal in Greece There's still no deal in Athens, but there is something of note: Some euro zone officials are now talking openly about Greece leaving the 17-member monetary union.

Greece continues to fight on two fronts, one in negotiations with private bondholders over the size of the hit they'll take in a debt restructuring, the other aimed at reaching a political deal on more austerity measures that would secure more bailout money from its international lenders.

The latter involves the International Monetary Fund, the European Union and the European Central Bank, a group known as the Troika. Greece's politicians are reported to be close to agreeing on further cuts.

Investors continue to hold out that Greece will reach agreement and avoid a messy default, and Athens is under intense pressure from its euro colleagues.

"We are not quite there yet but plans are moving in the right direction," said currency strategist Elsa Lignos of RBC in London.

"We remain cautiously optimistic, as we have been since the start of the week, that this will be the week for the second memorandum, but we would prefer not to go long [euro]at these levels – the coalition party leaders may opt for one last round of posturing on what is going to be a deeply unpopular set of new austerity measures, and another delay should see a short-term [euro]retracement ... We believe we'll get there in the end but the storyline resembles a long-running daytime soap."

Helping to push a deal, according to The Wall Street Journal, is a decision by the ECB to make what it called key concessions on its holdings of Greek debt. It's an interesting scenario given that most observers expect a Greek bankruptcy at some point.

Greece faces a March 20 bond repayment, though there is said to be a seven-day grace period, which could drag the process out even longer.

It's clear that Europe's leaders have had enough of this, and it appears they've discussed a scenario of pushing Greece out of the union.

"As the debt talks in Greece grind relentlessly on and deadline after deadline is missed, words that would never have been uttered six months ago are beginning to gain currency in mainstream EU political circles," said CMC Markets analyst Michael Hewson, referring to a newspaper interview with European Commissioner Neelie Kroes published yesterday.

"The admission by European Commissioner Neelie Kroes, as well as the Dutch PM Mark Rutte, that the euro zone would survive if Greece was forced out, let the cat out of the bag that just such a scenario had been discussed, despite President Barroso’s attempts to put the cat back in, by saying that 'we want Greece in the euro,'" Mr. Hewson said.

"The Greek Prime Minister Papademos continues to fight a thankless task in the face of strikes and protests as he tries to align the demands of the troika of lenders, his governmental political partners, and the Greek people," Mr. Hewson added. "A meeting with his fellow political leaders, originally planned for last night, has been postponed until later today after the prime minister met once again with EU officials to attempt to put the finishing touches on a new bailout plan."

Some observers no longer believe the exit of Greece from the euro zone would be the disaster many thought earlier in the two-year-old debt crisis, and Citigroup analysts just this week raised the likelihood of that happening to 50 per cent.

CP fires back The chief executive officer of Canadian Pacific Railway Ltd. fired back today at attacks levelled this week by Pershing Square Capital Management LP, defending a major U.S. railway division and standing up for CP directors, The Globe and Mail's Brent Jang reports.

On Monday, Pershing Square chief executive officer Bill Ackman described CP’s 2008 acquisition of Dakota Minnesota & Eastern Railroad Corp. as a mistake, charging that CP “irresponsibly financed” the $1.48-billion (U.S.) takeover of DM&E.

Agrium profit climbs Canada's Agrium Inc. posted a gain in fourth-quarter profit today, along with a hefty jump in sales.

The agricultural products giant earned $193-million (U.S.) or $1.20 a share, diluted, compared to $135-million or 86 cents in the same quarter a year earlier. Revenue climbed 32 per cent to $3.2-billion.

Its earnings from continuing operations, which exclude a hit from its investment in Hanfeng Evergroup Inc., came in at $374-million or $2.35 a share.

"We believe that the underlying fundamentals for the agriculture sector remain strong as crop inventory levels for most crops remain well below normal levels and in some cases are critically low," said chief executive officer Mike Wilson.

"As the spring planting season approaches, farmers have a strong incentive to plant record acreage and optimize the use of Agrium’s full array of crop input products and services to maximize crop production."

TMX profit slips A slowdown in trading helped push down fourth-quarter profit at Canada's TMX Group Inc. , the operator of the Toronto Stock Exchange.

TMX, which, if all goes according to plan, will be acquired by a group of banks and pension funds, earned $52.7-million or 70 cents a share in the quarter, compared to $67-million or 90 cents a year earlier. Revenue slipped 4 per cent to $161.7-million.

"Reflecting the slowdown in listing and equity trading markets during the fourth quarter, net income attributable to TMX Group shareholders was down 21 per cent compared to the same period last year," said chief financial officer Michael Ptasznik.

Still, chief executive officer Thomas Kloet said he was pleased with last year's results given the climate.

"Despite uncertainty in the global economy, we attracted an increased number of new issuers to our equity markets compared to 2010 and continue to provide an attractive venue for raising capital," he said.

WestJet boosts dividend WestJet Airlines Ltd. today hiked its quarterly dividend to 6 cents from 5 cents, as it posted a dip in fourth-quarter profit and a gain in revenue.

WestJet profit slipped to $35.6-million or 26 cents a share from $37.2-million or 26 cents a year earlier, The Globe and Mail's Brent Jang reports, as revenue climbed to $781.5-million from $692.2-million.

WestJet also said its employees have backed its plans to launch a new regional unit that would launch next year.

"We are very pleased with our strong fourth quarter and full-year results for 2011," said chief executive officer Gregg Saretsky. "We managed to cover the elevated fuel costs with our revenue growth and improve our profit margin on a full-year basis."

Housing starts dip A drop in Quebec and the Atlantic provinces pushed down overall construction starts in Canada in January, but it was a tiny dip overall.

Housing starts slipped to 197,900, annualized, from 199,900 in December, Canada Mortgage and Housing Corp. said today.

Construction of single homes in urban areas fell by 7.8 per cent, while starts of multiple units, such as condos, rose 0.4 per cent.

"Housing starts now appear to be moving along a sideways trend since mid-2011, failing to continue the upward momentum seen in the first half of 2011," said economist Emanuella Enenajor of CIBC World Markets.

"While yesterday’s surprisingly strong permits numbers for December paint a more bullish picture of homebuilding in Canada, those data tend to be much more volatile that the starts figures. We continue to expect housing starts to soften mildly in the months ahead, tracking the 180,000 to 190,000 range in the coming year."

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