Go to the Globe and Mail homepage

Jump to main navigationJump to main content

The Week

If Greece were a company, 'it would have been wound up' Add to ...

These are stories Report on Business followed this week.

Follow Michael Babad and the Globe’s top business stories on Twitter.

Euro zone sinks deeper
One wonders how much more Europe can take.

The troubled euro zone is back in recession, social unrest is rising amid harsh cutbacks and high unemployment, and the latest issue in the Greek saga has yet to be resolved.

The week began with European finance ministers, meeting in Brussels, agreeing to give Greece an extra two years to meet deficit targets, which in turn will mean Athens will need some  €30-billion ($30-billion U.S.) more in financing over that period. On top of that, one of Greece's lenders, the International Monetary Fund, openly disagreed with the finance ministers on moving the goalposts.

They are yet to decide on another tranche of bailout money, but hope to do so next week. Or so they say. With this group, and this long-running saga, you never know.

"If Greece was a company, it would have been wound up months ago," said senior analyst Michael Hewson of CMC Markets in London.

(It took Nortel Networks nine years from its peak to finally throw in the towel. Just sayin'.)

"It feels like the Greek debt crisis is as old as the Acropolis," said market analyst David Madden of IG in London, citing next week's meeting.

"We all know how it is going to play out; the talks will go down to the wire, stocks will fall because of the 'what if' factor, but in the end Greece will be given the money and we might see a small bounce," he added in a research note.

"Even when Greece is given the kiss of life next week, another indebted nation will be in the  cross hairs, and it may well be Spain. The Iberian state has managed to keep borrowing costs below 6 per cent, but that could all change if a credit-rating agency or respected policy maker makes a perceived negative comment."

The uncertainty over Greece came as strikes spread across Europe to protest the region's austerity measures, hobbling transportation in some cities, closing schools and shops and hobbling businesses, our European correspondent Eric Reguly reports. Given the crippling levels of unemployment across the 17-member monetary union, this can only escalate.

"The likelihood is that this anger will continue to grow unless European leaders and policy makers start to act as if they have a clue as to how to resolve the crisis starting to unravel before their eyes," Mr. Hewson said.

Late in the week, Europe's statistics agency reported what just about everyone already knew, that the euro zone is back in recession, with the economy contracting by 0.1 per cent, on the heels of the 0.2-per-cent contraction in gross domestic product in the second quarter.

The European Commission now forecasts that the bigger, 27-member European Union will see economic growth of 0.5 per cent next year, while the smaller currency union will struggle with no growth. Greece's economy is projected to contract by a further 4.2 per cent, and Spain's by 1.9 per cent.

Investor goes to war with Rona
Rona Inc. may find it's not such a strategic asset after all.

As The Globe and Mail's Marina Strauss and Shirley Won report, Invesco Canada, a long-time (and arguably suffering) shareholder of the Canadian home improvement chain plans a proxy battle to oust Rona's board.

Invesco holds 10 per cent of the company's shares, and is one of the investment firms that supported a takeover approach by U.S. rival Lowe's Cos. in the summer.

That informal bid sparked controversy in Rona's home province of Quebec, particularly as the government somehow got it in its head that this hardware chain was a strategic asset that needed to be sheltered.

It's not clear where this goes from here, or whether Lowe's will come. And the provincial government, despite being new, would oppose such a takeover.

The company's last quarterly report was weak, and the chief executive officer left the company.

"Invesco's end game is still to try to get a deal done," said Norman Levine, managing director of Portfolio Management Corp., a small shareholder.

As for government opposition, added Mr. Levine, "if it's going to be a basket case, what's the point?"

Flaherty strikes the right mix
Canada’s Finance Minister has struck a balance between cutbacks and economic growth, allowing projected budget deficits to rise beyond the forecasts of his last budget.

Jim Flaherty unveiled new projections in Fredericton this week, citing a drag on government revenues from lower commodity prices and slower-than-expected growth, The Globe and Mail's Bill Curry and Jane Taber report.

But rather than attempt to stick to the original forecasts via austerity measures, Mr. Flaherty chose instead to suck it up. The right move, in my view.

Indeed, it would have been unwise to institute a squeeze, given the current global climate and uncertainty One need only look to Europe as an example of how misguided measures can lead to further misery.

And he certainly has the wiggle room, given that his longer-term plan is not far off track, and may in fact end up just where he wants it when he wants it.

Mr. Flaherty still has much work to do to bring down unemployment, which his update projects will run at 7.2 per cent next year, and 6.5 per cent or greater through 2016.

Of course, Tuesday’s exercise was a fiscal update, and one hopes there will be job-creation measures among his next budget initiatives.

Mr. Flaherty had planned to wipe out the deficit by the 2015-16 fiscal year, but has now pushed that out by a year, with a planned return to a surplus of $1.7-billion in 2016-17.

He also projected a deficit for the current fiscal year of $26-billion, above the original forecast of $21.1-billion.

Next year's deficit is now forecast at $16.5-billion, up from the earlier projection of $10.2-billion, while the 2014-15 shortfall is now pegged at $8.6-billion, wider than the original $1.3-billion.

The 2015-16 fiscal year is now seen falling short by $1.8-billion, though the government builds in a $3-billion cushion.

Pressure mounts on Bank of Japan
The Bank of Japan's policy-setting meeting next week should be interesting, to say the least.

Not that the embattled central bank is expected to do all that much, but there's sure a lot to talk about.

Monetary policy makers have been under mounting pressure from politicians to do more as Japan struggles with a bout of deflation and an economy that contracted in the third quarter at an annual pace of 3.5 per cent, The Globe and Mail's Barrie McKenna writes. The country's exporters have been hit by a strong yen and global uncertainty.

Now, the country is heading into a mid-December election, and the man expected to become the next prime minister is calling for much more aggressive action.

Prime Minister Yoshihiko Noda dissolved the lower house of parliament Friday, and his challenger, the Liberal Democratic Party's Shinzo Abe, wants the Bank of Japan to look at interest rates at or below zero. He also wants an inflation target of up to 3 per cent.

"As has been the case for the last few days, political noise ahead of the election is likely to be deafening, with both of the main party leaders trying to talk up their deflation-fighting credibility," said strategist Adam Cole of Royal Bank of Canada in Europe.

"Ultimately, those looking for a 'seismic policy shift' in Japan are likely to be disappointed."

The week from Top Business Stories

11 things
1. "If the cost of getting out of this is a modest recession, I think that is a cheap price." Former Fed chairman Alan Greenspan wasn't displaying exuberance when he was talking U.S debt issues at a conference in Washington Friday and the possibility of even more grief to a nation with millions out of work. But irrational certainly comes to mind.

2. Comment of the week, from U.S. commentator Jeff Greenfield: "How can Twinkies go out of business days after two states legalize weed? Worst. Business. Timing. Ever."

3. Tweet of the week, from @mattsteinglass "WALL STREET GOT A BAILOUT, WHAT ABOUT TWINKIES"

4. "The Honourable Tony Clement, President of the Treasury Board and Minister responsible for FedNor, today announced that 10,980 public service jobs have been eliminated so far as part of Economic Action Plan 2012," his department boasted Friday. Yup, with a jobless rate of 7.4 per cent, that's an action plan with bragging rights.

5. Prince, Part 1: "Does The Prince of Wales have seven boiled eggs cooked for his breakfast but only eat one, as claimed in Jeremy Paxman's book 'On Monarchy'? No, he doesn't and never has done, at breakfast or any other time." This is from the FAQs section of Prince Charles' website. Seriously.

6. Prince, Part 2: "We swears to serve the master of the precious." One might be tempted to think that was Prince Charles making a promise to Camilla as he celebrated his 64 birthday in New Zealand with a tour of Peter Jackson’s studio, home to the latest Hobbit flick. But, no, it was Gollum in Mr. Jackson's earlier The Lord of the Rings: The Two Towers.

7. My, but the French are très en colère over the front cover of The Economist, which warns that France is a time bomb for Europe. The cover shows baguette loaves wrapped together, with a fuse. "I can tell you that France is not at all impressed,” said Prime Minister Jean-Marc Ayrault.

8. Colour commentary of the week, from analyst Chris Beauchamp at IG in London: "It appears we have a new tale to add to the great canon of Greek myth and legend. Despite all its problems and the bleak future that awaits, it seems Greece has managed to find some demand for its short-term debt. An auction today managed to raise €4-billion, more than expected, although it fell short of the €5-billion Athens needs to make itself fully secure for the time being. Even Hercules might have found this to be a trying task."

9. Damn those taxes. From an Automobili Lamborghini news release, posted on autoblog.com: "“The new Lamborghini Aventador LP 700-4 Roadster is a dream that can be realized and ordered at any Lamborghini dealer in the world for the price of €300,000, excluding taxes.”

10. "On that point, permit me to get a bit technical. Lower current and projected world commodity prices have reduced the outlook for what we refer to as GDP inflation in 2012 — the prices of goods and services produced by Canadian businesses and workers — and this, in turn, has reduced the expected level of nominal GDP in 2012 and over the next five years. As nominal GDP is the broadest single indicator of the tax base, this development is dampening government revenue here at home. In other words, world prices have fallen for the commodities we produce, which reduces profits and incomes and, ultimately, revenues for the government." No, Jim Flaherty was not speaking to a high school or Economics 101 class when he unveiled his fiscal update this week. He was speaking to business folks in Fredericton for whom, I suspect, nominal GDP may not be that "technical."

11. Runner-up tweet of the week, from @matwilcox: "There sure are a lot of women in their bra's that keep following me on twitter. I wonder if they think Mat is a man? Well I am not."

Required reading
In Sweden, as in Canada, the household-debt-to-disposable-income ratio has soared to historic highs, prompting fierce debate in Stockholm over what threat it poses to the overall economy, Naomi Powell reports from Stockholm.

Food is just one of the ways Google aims to influence the way employees work and relate to each other in its new downtown Toronto space, which marked its grand opening this week. Jacqueline Nelson takes readers on a tour.

Iain Marlow takes a look at the BlackBerry 10, the soon-to-be-released Research In Motion device is designed to stabilize the stunning loss of market share that the company has suffered over the past few years, particularly in the United States.

The trend to longer car loans is starting to ring alarm bells in Canada’s auto industry, Greg Keenan reports.

BP PLC agreed to pay a massive fine and plead guilty to criminal charges in a settlement with U.S. authorities over the 2010 Deepwater Horizon accident in the Gulf of Mexico, Paul Waldie reports.

What to watch for next week
We'll get a sense of how Canadian consumers are feeling heading into the key holiday shopping season when Statistics Canada reports on how retailers fared in September. Or, more likely, how we're paying more for gas.

Economists expect the report Thursday to show a gain of about 0.5 per cent in retail sales, but some of that is the result of higher pump prices, said Benjamin Reitzes of BMO Nesbitt Burns.

"High debt levels likely continued to act as a restraint, keeping the underlying gain in activity to 0.3 per cent, and the yearly increase around a modest 1.5 per cent," Mr. Reitzes said. "Compared with 4 per cent plus annual gains in the U.S., it’s clear Canadian consumers have little pent-up demand. The allure of cross-border shopping isn’t helping either."

Later in the week, there won't be anything to trouble Bank of Canada Governor Mark Carney when Statistics Canada releases its October report on consumer prices. The report is expected to show inflation still tame, with the annual rate at about 1.2 per cent.

For investors, earnings reports are slowing, but there are still some left, including results from Lowe's Cos. Inc., Best Buy Co., Campbell Soup Co., George Weston Ltd., Hewlett-Packard Co. and Deere & Co., among others.

 

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular