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As Germany stumbles, fears of euro's 'cataclysmic' death

These are stories Report on Business is following Wednesday, Jan. 11, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Fitch urges ECB to act The Fitch ratings agency warned today that the European Central Bank must act to stave off a disastrous end to the euro amid the debt crisis that refuses to end in the 17-member monetary union.

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"The end of the euro would be cataclysmic," David Riley, the agency's chief of sovereign ratings, said in Frankfurt today, according to reports.

"The euro is a reserve currency," Mr. Riley said. "What would that do in terms of financial and political stability."

Many have called on the ECB to step up to the plate, by buying more European debt or through other means But the central bank has refused to do so. The Fitch warning came just one day before the central bank's next meeting.

"Now, all eyes turn towards the ECB interest rate meeting tomorrow, though ... we continue to believe that 50 basis points of cuts will be coming down the pipeline, with the first such move likely to take place in February rather than tomorrow," said Mark Chandler and Ian Pollick of RBC Dominion Securities.

Mr. Riley warned that the euro zone could not survive if Italy fails. The agency warned just yesterday that it could downgrade Rome.

"Can the euro be saved without more active engagement from the ECB?" he said. "Quite frankly we think no."

Mr. Riley's warning came as fresh data showed the region stumbling toward recession. Particularly troubling are indications that while Germany had a strong 2011 over all, with growth of 3 per cent, its economy contracted slightly in the final quarter of the year by about 0.25 per cent.

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"While the headline on Germany's quarterly GDP update read 'German economy in a very robust condition in 2011,' financial markets have justifiably been paying more attention to a statement made by the Federal Statistics Office to the effect that on a quarterly basis the German economy contracted by roughly 0.25 per cent," said Derek Holt and Dov Zigler of Scotia Capital.

"Note that the bulk of Germany's export trade is intra-European and ... China has been an important contributor to marginal German export demand," they added. "Despite the lowest unemployment rate since reunification, German consumers were a cautious lot last year as German consumer spending only rose by only 1.5 per cent year over year and that was actually an acceleration from a moribund 0.6-per-cent year-over-year pace the prior year."

East-West divide Saskatoon is projected to lead the country's economic growth this year, along with the other resource-rich cities of Calgary, Edmonton and Regina, The Globe and Mail's Tavia Grant reports.

The Conference Board of Canada's annual metropolitan outlook of 27 cities also sees a deepening economic divide between the West and the rest. Growth in factory-heavy central Canada will be tepid and St. John's, which had led the country's growth in the prior two years, will tumble to the bottom of its economic growth ranking.

BlackRock strikes Claymore deal BlackRock Inc. , the world's biggest asset manager, is buying Toronto-based Claymore Investments Inc. as it seeks to push further up the ranks of investment firms in Canada, The Globe and Mail's Tara Perkins and Shirley Won report.

The deal will create a powerhouse in exchange-traded funds. As of the end of last year, BlackRock's ETF business, known as iShares, had $29-billion in assets under management, while Claymore's ETFs and closed-end funds had about $7-billion.

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Ackman won't seek majority on board Activist shareholder Bill Ackman plans to propose a minority slate of alternate directors for Canadian Pacific Railway Ltd. to campaign for investor support by calling for the ouster of chief executive officer Fred Green, The Globe and Mail's Jacquie McNish reports.

"We don't intend to replace a majority of directors, but we want shareholders to give our nominees a mandate to replace Fred Green," Mr. Ackman said.

Magna sees higher sales Magna International Inc. sees higher sales for this year, citing gains in new markets.

The Canadian auto parts giant today projected sales of between $27.8-billion (U.S.) and $29.3-billion, up from the forecast for 2011.

"Our outlook demonstrates the traction we are gaining in executing our plan to expand our business outside of our traditional markets," chief executive officer Don Walker said in a statement.

" We are taking advantage of the growth opportunities in new markets and positioning Magna to further serve our customers on global platforms. The combination of our strong position in North America , action plans that are improving results in Europe , and our considerable growth in other regions leaves us confident about Magna's future."

UBS Securities Canada analyst Hilda Maraachlian called the revenue projection "a little light" but its projection for operating margins of 5 per cent better than expected.

Viterra projects better times Viterra Inc. says the end of the Canadian Wheat Board monopoly will boost its earnings going forward, with "modest benefits" beginning in the fourth quarter of this year.

"With the ability to purchase all grades of wheat, barley and durum directly from growers, the company expects to increase its earnings by attracting additional volumes and optimizing its operational efficiencies," the agricultural company said in a statement today.

"Viterra anticipates the additional volumes at primary grain elevators and port terminals will generate higher revenue from the fixed cost facilities and earn additional merchandising margins."

Until now, Viterra could market oilseeds, oaths and other grains, while the Wheat Board held the monopoly on wheat, barley and durum in western Canada. The Tories have now killed that, though the move is being challenged.

Viterra said the end of the monopoly will bring a "more significant" impact next year, and will mean $40-million to $50-million a year more to earnings before interest, taxes, depreciation and amortization, or EBITDA.

Business Ticker

In Economy Lab Policy makers must recognize that not all industries are recovering at the same pace, Tammy Schirle writes.

In International Business Emerging countries are not immune to low-probability, high-impact disasters - internal, external or, more likely, some combination of the two, Martin Wolf of The Financial Times writes.

In Globe Careers There won't be big staff cutbacks this year, but it's also unlikely that there will be strong growth in hiring at any level of organizations, according to two new surveys of hiring managers. Wallace Immen reports.

In Personal Finance Cash-strapped older Canadians are flocking to reverse home mortgages, new data show.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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