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The Week

Why Ottawa won't let Air Canada 'shut itself down' Add to ...

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How Lisa Raitt saved March break Does Lisa Raitt find the idea of being stuck at home with your kids over March break as a threat to the "health and safety of Canadians?"

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You'd be tempted to think so after she used the line as she intervened to ensure Canada's biggest airline wouldn't be grounded next week, when many Canadian children are off school and airline traffic picks up.

To recap, the International Association of Machinists and Aerospace Workers set next week as a strike deadline in a contract dispute with Air Canada . The airline then ramped up the March break angst by threatening to lock out its pilots in a separate labour tussle.

Ms. Raitt, Canada's Labour Minister, stepped in and sent both disputes to the Canada Industrial Relations Board. She cited a "fragile economy," which is true, but also asked the CIRB to determine "the activities that Air Canada may be required to maintain as relates to the health and safety of Canadians."

A supporter might argue that Ms. Raitt, who, to be fair, had urged the parties to get back to bargaining, is simply forcing them to come to an agreement. But an opponent might suggest that the Labour Minister, who has a nasty habit of meddling in collective bargaining, took away the one chip both unions and management have as the clock ticks down.

Having said that of course, Air Canada knew full well when it threatened the lockout that there was virtually no chance of Ms. Raitt allowing it to happen.

"If you are negotiating a difficult labour contract, the process is being taken out of your hands and the government will do it for you," says George Smith, who's now a fellow at the Queen's University School of Policy Studies but once negotiated these very contracts as Air Canada's director of employee relations. "The ‘showdown’ element which hurts in the short run but results in a fair settlement is gone. The net result will be labour agreements that are uncompetitive."

Prime Minister Stephen Harper defended the move on Friday, as The Globe and Mail's Kelly Grant reported.

"Air Canada came to us during the economic crisis, during the global crisis and asked specifically for government assistance in a number of areas because of the dangers shutting down the airline would represent to the Canadian economy," he said.

"I'll be darned if we will now sit by and let the airline shut itself down. This is not what the economy needs and it is certainly not what the travelling public needs at this time of year. So as much as there's a side of me that doesn't like to do this, I think these actions are essential to keep the airline flying, to make sure ... the two parties find some way through mediation, arbitration of resolving these disputes without having impacts on the Canadian public."

Still, we have a legal process in Canada that Ms. Raitt should honour by allowing collective bargaining to run its course. When the country's doctors walk out, I'll be the first to agree that health and safety are at stake. But until then, both Air Canada and its unions have a legal right to strikes and lockouts, March break notwithstanding.

Why governments should act It's budget season, an opportunity for me to remind our governments of Canada's promise to its youth just a few months ago.

The country's labour market has stalled, and no one is hurting more than our young people, The Globe and Mail's Tavia Grant writes.

"The economic recovery has been almost non-existent for younger Canadians (those aged 15-24 years)," said Toronto-Dominion Bank economist Francis Fong.

"They accounted for more than half of all net job losses during the recession and employment still stands some 250,000 below its pre-recession peak," Mr. Fong said this week in a new report that examines the plight of young people.

"In contrast, jobs held by those over the age of 25 years are more than 400,000 above its level prior to the downturn. Compared with previous generations of younger workers or those elsewhere in the world, things might not look so grim. However, today’s youth face some significant challenges. The fact of the matter is that new Canadian graduates will face challenging labour market conditions for several more years – as is always the case for those most vulnerable in the labour market."

As Statistics Canada reported Friday, jobs among young people fell in February for the fifth month in a row, and are now down by 69,000 from a year ago. Their rate of unemployment is now 14.7 per cent and, among those who want jobs, more than 400,000 can't find work.

Mr. Fong has some recommendations for Canada's governments, noting that, of course, unemployment will ease just by boosting the economy.

Lowering business taxes is one way, he said, as is a reduction in payroll levies, such as Employment Insurance premiums. Finance Minister Jim Flaherty has already pulled back on what was to have been an increase.

There are now measures in place that are more targeted, but governments could go further still

"Support for apprenticeships/internships/co-op placements are already there, but are a fantastic way of helping young workers to get some experience under their belt and governments could consider providing additional funds into such programs," Mr. Fong told me. "The same goes for subsidies to businesses that specifically hire students (again, something that’s already in place, but additional support would be good for youth employment)."

There's yet another way to fight the problem, one that hadn't occurred to me, but is intriguing: If you can't lower youth unemployment through jobs growth, bring it down by slowing the entry of young people into the work force, through education.

"Specifically, you could do this by improving access to post-secondary education," Mr. Fong said. "Improving access to things like [the Ontario Student Assistance Program] more needs-based funding such as grants and bursaries, improving RESPs and the Canada learning bond – basically make it feasible for as many young Canadians as possible to get their college/university diplomas. The reason I make this last recommendation is because we are in a fiscally restrained environment – if we’re going to spend money on something, why not make it a long-term investment into the training of our future labour force?"

Federal and provincial finance minister should remember, and no doubt do, that at a summit in Cannes late last year, G20 leaders put a particular focus on helping young people find work.

There's certainly leeway at the federal level, where Mr. Flaherty has some added flexibility as a better-than-expected economic outlook eases the strain on Ottawa's finances. Indeed, this year's deficit is believed to be running about $6-billion better than projected, and he could easily put some money toward job creation and still meet his targets.

Peak oil debate dead? An "unexpected boom" in oil supplies ends the debate on "peak oil," Bank of Montreal's chief economist believes.

Sherry Cooper took a look this week on the surge in production in the United States and Canada. And ironically, she says, many are looking at the negative hit to the economy from high prices while it's oil production that has been the biggest boon to economic growth and jobs.

"Two years ago it was believed that oil molecules were too large to extract from shale," she said. "But now, new fracking technologies and horizontal drilling has led to the biggest oil boom in many years."

There are bottlenecks in pipeline capacity, of course, which is why Canada needs to export beyond the United States.

"The boom in shale oil drilling is just what the struggling U.S. economy needed," Ms. Cooper said.

"This, along with cheap shale gas, is providing enormous stimulus to many sectors and regions. The Canadian oil and gas industry must export oil to China and the rest of Asia to offset the negative impact of reduced U.S. oil demand going forward. Canadian pipeline companies and oil service companies will continue to benefit from the U.S. boom, and so will other Canadian exporters to the U.S. market. This energy boom is creating jobs and boosting income, assuring the U.S. economy continues to recover."

After Russia, Ms. Cooper said, the United States is now the biggest non-OPEC oil country in the world. Canada comes next. And, she added, that's hurting Canadian companies somewhat because they "carry the burden" of the high-cost oil sands.

When all is said and done, though, "this unexpected boom in oil supply puts to rest the so-called 'peak oil' debate, where adherents to this theory argued that the supply of oil is fixed and dwindling as traditional oil wells dry up. They argue that this would lead to much higher oil prices and reduced travel and transport. Some even suggested it would spell the end to globalization."

The Globe and Mail's Carrie Tait and Shawn McCarthy take an in-depth look at fracking in Saturday's edition.

Intermission The curtain is closing on Act III (or is it Act IV?) of the Greek Tragedy. But the show's not over.

Greece announced Friday that it enough private bondholders had agreed to a debt swap, taking a big hit as part of a broader plan to ease the two-year-old debt crisis.

As The Globe and Mail's Eric Reguly reported, the move, expected to shave more than €100-billion from Greece's debt, averted a disorderly default that would have rocked the embattled euro zone. Instead, it triggered a "credit event" that means billions of dollars in insurance payouts.

The strong agreement - submission? - of the bondholders was enough to put Athens in a position to invoke what are known as collective action clauses, or CACs, that force the holdouts into the swap.

Hours after Greece's announcement, an industry body known as the International Swaps and Derivatives Association determined that use of the CACs represented a "credit event" that triggers billions in payouts for those that hold insurance-like credit default swaps.

Those payments are deemed not to be that big a deal, and, in the end, the angst in Greece and the 17-nation euro zone should ease.

"The CDS market is in any case concentrated amongst a very small amount of banks. Volatility should rise and profit-taking increase after the recent rally," said Sebastien Galy, senior currency strategist at Société Générale. "Once we clear out through this event, the risk of contagion will be lower as investors realize that the risk was overpriced for a long time, hopefully."

Many issues remain, and we haven't heard the last of Greece and its troubles. As senior TD economist Martin Schwerdtfeger put it, it's an important first step, but not the end of Europe's debt crisis by any stretch.

"Greek elections will likely be held in late April and the most likely outcome is a weak coalition government," he said in a report.

"In the end, this would make implementation of fiscal austerity and structural reforms as challenging as it has been thus far. This, in combination with the dire current conditions of the Greek economy, will translate into program underperformance by Greece. In other words, a few months from now, Greece and its official creditors will be once again having detailed discussions regarding program implementation and loan disbursements. At the end of the day, this is very likely going to be just the first Greek debt restructuring."

Then there are other weak nations, such as Portugal and Ireland, he added.

"Both countries are expected to be able to raise money in capital markets by the end of next year. The tough conditions imposed on Greek private bondholders will make it very difficult for them to issue debt at reasonable interest rates, despite the progress they have made thus far with their structural reforms and fiscal consolidation efforts."

Eight things 1. I love the term "credit event." It sounds like an ad for Leon's.

2. I marvel at the repeated use of "co-operation" and "voluntary" when officials are talking about the Greek bond swap. IMF chief Christine Lagarde did it Friday when she said "we welcome the co-operation of the private sector in participating in the debt exchange offer by the Greek authorities." What she really meant was: Greece would have knee-capped you if you didn't.

3. You might not want to use the bathroom at the Trenton, N.J., city hall. The city council of the New Jersey capital is squabbling over the contract for toilet paper and other paper products at city facilities, Bloomberg News reports, and could run out by mid-month. One of the city's reps, George Muschal, told the news agency council won't approve a $42,000 proposal for paper products because the mayor wanted to include thousands in paper cups. "We’re the checks and balances over the administration, and we’re not going to send out any blank cheques," Mr. Muschal told Bloomberg. Good point, and maybe he can use blank cheques in the bathroom.

4. Greece is looking to make nice with the Germans, who have cut back on their visits, presumably because of all the squabbling during the debt crisis. Greeks have made their feelings clear, to the point of burning flags, but the country's Tourism and Culture Minister, Pavlos Yeroulanos, wants German tourist euros back. "The tensions you’ve seen on TV screens are isolated and we’re trying to make that clear," he told Bloomberg News. "The U.K. economy is keeping away the middle classes -- with Germans it’s apprehensiveness over how they will be received."

5. A Michigan woman who continued to collect welfare after winning $1-million (U.S.) in a lottery is feeling some heat since the media tracked her down. Get this: "I thought that they would cut me off, but since they didn't, I thought maybe it was okay because I'm not working," Amanda Clayton told the Detroit Local 4 reporter who spoke to her. "I feel that it's okay because, I mean, I have no income, and I have bills to pay. I have two houses."

6. I like how Fender Musical Instruments Corp. described itself in the documents it filed with regulators this week for an initial public offering: "We believe that the Fender brand in particular is closely associated with the birth of rock ‘n roll and has a strong legacy in music and in popular culture."

7. Bild, the German tabloid that defines the idea of the old boys club, has given a nod to International Women's Day and decided to stop running pictures of naked women on its cover. "It's perhaps a small step for women but a big step for Bild and for men," the newspaper said, having decided on Thursday, International Women's Day, to make the move. Note that the final picture - she's Eva from Poland, according to the BBC, was published on Friday, a day after the "big step."

8. "People affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions," says a 2003 paper published by the Federal Reserve Bank of Atlanta. Thank God this week's solar storm wasn't worse.

Required reading this week The most recent C-Suite survey of Canadian corporate executives shows that despite the high level of unemployment, companies just can’t get all the people they need to fill the skilled positions that are available. Richard Blackwell reports.

They think big in Nisku, Alta., a sprawling industrial complex just south of Edmonton. And they think a lot about pipes, Gordon Pitts writes.

Fears of another global downturn have eased enough for the Bank of Canada to at least start thinking about raising interest rates after 18 months on hold, Jeremy Torobin writes.

With every new product announcement, Apple Inc. appears less concerned with changing the game than with simply winning it, Omar El Akkad reports.

A new study shows women make up 14.5 per cent of corporate directors in Canada, up from 14 per cent two years ago. A push is on to have a basic floor for female inclusion, Janet McFarland reports.

What to watch for next week The Federal Reserve meets next week, following on the heels of several central banks this week, including the Bank of Canada and European Central Bank. Don't expect much Tuesday from chairman Ben Bernanke and his colleagues on the Federal Open Market Committee.

"Following January’s historic meeting (which disclosed the FOMC’s rate forecast and inflation target), the March gathering is likely to be uneventful," said senior economist Sal Guatieri of BMO Nesbitt Burns.

"The press statement should affirm that economic conditions are likely to warrant exceptionally low rates (read: sub-1-per-cent) 'at least through late 2014' and the continuation of current mortgage reinvestment and maturity extension programs. With the economy growing moderately, labour markets improving and global financial strains easing, the FOMC is unlikely to hint at additional easing moves. However, given Bernanke’s view that labour markets are 'far from normal,' the statement should note the Fed’s dissatisfaction with still-high unemployment."

Canada's factory sector will be back in the spotlight Friday when Statistics Canada reports on how manufacturing sales fared in January.

"Contingent on trade data released March 9, we are looking for growth in manufacturing sales of 1.5 per cent for January," said economists at RBC Dominion Securities. "A combination of strengthening auto production and rising energy prices are projected to underwrite the nominal monthly gain. However, sales are expected to slow in volume terms to a 0.6-per-cent monthly pace."

 
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