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Worst-case scenario Greece's embattled government may have narrowly scraped by in a confidence vote last night, but, to borrow from Hunter S. Thompson, there's fear and loathing on the euro trail today.
Prime Minister George Papandreou's government survived - note how everyone uses the term "survive" - what had been billed as a crucial parliamentary vote, paving the way for Athens to push forward with a fresh round of cuts tied to the terms of its bailout.
It survived because the 155 politicians in his party voted to support him, against the 143 opponents who wanted him gone. That's in a parliament of 300 seats, and, really, that vote has changed little.
Mr. Papandreou still has to push through severe austerity measures that will slash the public sector and increase taxes. And while the politicians in his own party may have confidence in the Prime Minister, not so the Greek public, who continue to protest in the streets.
The vote went along party lines, and some observers still see debt default as a case of when, not if.
At stake are billions in rescue funds. Officials of the EU and the International Monetary Fund are refusing to give Athens €12-billion from their original bailout package until they're assured the austerity measures will be implemented. Then there's a second rescue package under discussion.
If it all works out, Greece should be able to cover almost €7-billion in July obligations, and about €10-billion in August. That gets Athens through the summer, but what happens beyond that?
What's happened here is that Mr. Papandreou has, as the saying goes, simply dodged a bullet. Greece and the wider euro zone still have many, many challenges ahead. Not the least of them is bickering between Germany and the European Central bank over how bondholders will share the pain. And the worst-case scenarios aren't pretty.
"Even if Germany and the ECB can reach some form of compromise on the issue of private sector involvement in the new bailout, we doubt that this will prevent Greece from eventually defaulting," said Ben May of Capital Economics.
"After all, the scale of Greece's problems means that markets may be reluctant to lend to Greece after the second bailout package expires. What's more, given the widespread opposition to the additional austerity measures, there remains a risk that the Greek government might eventually choose to default, regardless of whether a bailout package is in place."
Yesterday, Capital Economics warned that a Greek default would be "another step on the road to an eventual break-up of the euro zone," with the potential to become the Lehman Bros. of sovereign debt.
Indeed, Jean-Claude Juncker, the Prime Minister of Luxembourg who also heads up the euro zone's finance ministers, warned today that "if we make mistakes in the way we handle the Greece crisis, it will jump to other euro countries and will bit by bit turn the entire euro zone on its head."
The Bank of Canada also takes a close look today at how the spreading crisis could affect Canada's financial system. As Globe and Mail economics writer Jeremy Torobin reports, the central bank sees risks rising. It's not just Europe's debt troubles, but those of Japan and the United States as well.
The direct exposure of Canadian banks to Europe's periphery, basically Greece, Ireland, Portugal and Spain, is very small, but there's a tangled web that puts indirect exposure at a far greater level because of the exposure of U.S. and European banks.
Overall, through these direct and indirect routes, Canada's bank exposure to the crisis stands at about 18 per cent of their total assets, according to the Bank of Canada. There's more:
"Concerns over the quality of sovereign debt in countries experiencing severe fiscal strains could lead to heightened tensions in debt markets for other highly indebted countries," the central bank said in its Financial System Review.
"This could result in perceptions of heightened counterparty risk for banks, even those that have only indirect exposure to this debt through their connections with other institutions. As institutions become less willing to extend funding to each other, global bank funding markets could be severely disrupted. These problems could also escalate into a generalized retrenchment from risk in the global financial system, affecting a wide range of markets."
It's all interconnected, and what observers fear is another shock, which would ripple through not only the banking sector but also hit consumers who, as the Bank of Canada has oft warned, borrowed too much. Gorged is more like it.
"The vulnerability of Canadian households to adverse economic shocks has risen in recent years as their debt loads climbed steadily in relation to income,"
"The growing vulnerability of this sector increases the risk that a shock to economic conditions would be transmitted to the broader financial system via a deterioration in the credit quality of household loans."
- Risks rising, Bank of Canada warns
- Greece's next battle: austerity push
- Greece's Papandreou survives confidence vote
Fed holds the line The Federal Reserve is somewhat more tentative about the U.S. recovery, but, as expected, did little today other than signal that.
But, Globe and Mail Washington correspondent Kevin Carmichael reports, the U.S. central bank's policy committee says the U.S. economy is merely going through a rough patch, predicting the unemployment rate will resume its descent in the second half the year and that inflation will cool.
The Fed left its key lending rate unchanged near zero, said its quantitative easing program, an asset-buying program dubbed QE2, would end this month on schedule, and gave no hint of a QE3.
"This fall, however, we expect economic growth to accelerate and the Fed to start positioning itself for a hike in the Fed Funds rate in [the first quarter of]2012," said economist Alistair bentley of Toronto-Dominion Bank.
"The first step towards this will come when the Fed stops reinvesting the proceeds of maturing securities, and then removes the 'extended period language from its communiqués."
LSE sweetens bid London Stock Exchange Group PLC sweetened its friendly bid for TMX Group Inc. to $49 a share, adding the promise of a $4 special dividend if the deal closes in an attempt to trump a rival offer from a group of Canadian financial institutions, The Globe and Mail's Boyd Erman reports.
The dividend comes on top of a stock-swap offer that LSE made in February that's currently worth about $45, based on the value of LSE shares. The rival Maple Group, made up of 13 Canadian banks, pension funds, and brokerages, has made an offer it values at $48.
LSE also promised to keep its regular dividend after the deal at least equivalent to the current TMX dividend.
TD cuts Encana TD Securities has cut its 12-month price target on shares of Encana Corp. after its proposed joint venture with PetroChina International Investment Co. died yesterday.
Analyst Menno Hulshof cut his target to $34 (U.S.) from $37, and kept his recommendation at "hold," citing the collapse of the deal involving its Cutbank Ridge shale gas project in northeastern British Columbia.
As The Globe and Mail's Nathan VanderKlippe and Carrie Tait report, the deal fell apart over issues of overseeing the joint venture.
"It is hard to argue that this news is anything but negative in the near term, but for those with a long-term view, the good news is that [Encana] will be retaining what we view as one of its best assets (contingent upon the outcome of its revised JV initiative for its Cutbank Ridge assets)," Mr. Hulshof said in a report.
"Our [Encana]production estimates increase, since production originally carved out for the JV has been reincorporated into our model. The impact to our financial statements, on the other hand, is far more pronounced since a reduction to its projected cash position (the $5.4-billion associated with the JV) causes its interest payments to increase."
Alberta a draw Job seekers are flooding back to Alberta after a two-year lull, lured by a resurgence in the oil patch and growing hiring demands, The Globe and Mail's Janet McFarland writes today.
Alberta saw a net inflow of 5,300 people from other provinces in the first quarter of 2011 - its highest rate of interprovincial migration since the first quarter of 2006, according to Statistics Canada preliminary population data reported today.
The province saw steady inflows of workers from other parts of Canada between 1995 and 2009, but saw outflows in 2010 for the first time in 15 years.
iCloud to be iPopping The new iCloud service from Apple Inc. is shaping up to be a huge hit. Or, as RBC Dominion Securities puts it, "iPopular."
"Proprietary RBC survey data shows 76 per cent of iPhone users intend to use Apple's iCloud service," said analysts Mike Abramsky and Mark Sue, whose price target on Apple shares is $450 (U.S.).
"This high response rate affirms the growing interest in storing, syncing and sharing music, photos, documents across multiple devices. Based off the survey data, Apple could sign up estimated 150 million iCloud users, moving into the scope of leading of online user bases."
The new iCloud service which allows users to access music or photos on various devices, was part of a broader sweep that also included iMessage, similar to the BBM function on the Research In Motion Ltd. BlackBerry.
The iCloud venture was unveiled earlier this month as the war heats up among the likes of Apple, RIM and Google Inc. , whose Android operating system is a big success.
"Thirty per cent of surveyed iPhone users are very/somewhat likely to spend $24.99 per year for iTunes Match to host their non-Apple music libraries in iCloud," the RBC analysts said in a research note.
"Seventy-three per cent of iPhone users intend to use iMessage, equating to up to 150 million iMessage users ... Because it stores user data, iCloud, along with iTunes is expected to enhance loyalty and stickiness of Apple's customers, helping defend against threats from Android."
In Economy Lab today The concept of "average debt" is worse than meaningless, Stephen Gordon writes.
In International Business today The question about the prospects for Greece is not whether the country will default. It's whether a default would be enough to return the economy to reasonable health. Martin Wolf of The Finance Times doubts that.
In today's Report on Business