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Euro crisis deepens as debt hits 90% of GDP

These are stories Report on Business is following Wednesday, Oct. 24, 2012.

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Euro woes mount
The embattled euro zone is sinking ever deeper into crisis, as new reports highlight the debt and broader economic troubles plaguing the 17-member monetary union.

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According to fresh data released today by Eurostat, government debt as a percentage of gross domestic product continues to climb, in some countries to extreme levels.

The key debt-to-GDP measure for the euro zone as a whole rose in the second quarter to 90 per cent, from 88.2 per cent in the first three months of the year, the statistics agency said.

For the full 27 countries of the European Union, it rose to 84.9 per cent from 83.5 per cent.

Compared to a year earlier, the ratio climbed from 87.1 per cent in the euro zone and 81.4 per cent in the EU.

But it is the currency union in particular where the troubles lie, and notably its most troubled members.

Greece, for example, posted the highest ratio, at 150.3 per cent, followed by Italy at 126.1 per cent, Portugal at 117.5 per cent and Ireland at 111.5 per cent.

Compared to the first quarter, Greece also had the dubious distinction of posting the highest increase despite its massive cutbacks as the measure climbed 13.4 percentage points.

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The lowest levels, by the way, were in Estonia, at 7.3 per cent, Bulgaria at 16.5 per cent and Luxembourg at 20.9 per cent.

Today's Eurostat report came amid new, disappointing economic readings, in the form of Markit's purchasing managers' index for the euro zone, which slipped in October

"Advance readings on the European PMIs were weaker than expected with the euro zone's manufacturing PMI unexpectedly falling 0.8 points to 45.3 in October, while the services PMI ticked only a shade higher to a reading of 46.2, adding to concerns that the region's economic slump could be deepening with both measures remaining clearly in contraction territory to start the quarter," said Carl Campus of BMO Nesbitt Burns.

The 50 mark in a PMI separates contraction from expansion, so what today's reading shows is that in what is already an environment of contraction, it's getting worse.

It's also the worst showing in years. And it's not just in the troubled nations, but in Germany as well, for example, whose latest reading on business confidence also slumped. Germany is Europe's economic engine, and deeper troubles there are a particular concern.

"After Germany's PMI signalled rising optimism by climbing to the highest reading since March it fell back down again in the October print against expectations for an improvement," said Derek Holt and Dov Zigler of Bank of Nova Scotia.

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"This shifts the picture away from perhaps signalling a more optimistic turning point back to renewed concerns over accelerated economic weakness," they said in a research note.

"This was reinforced by a deterioration in German business confidence. The reading weakened because of reduced confidence in near-term conditions while longer-run expectations remained unchanged at the weakest level since May 2009. If Europe is settling its affairs, then either Germans don't believe it or they are increasingly of the view that they'll take their lumps for the sake of bailing out more ineptly managed neighbours at the expense of their own competitiveness."

Markets rise
Global markets are on the rise so far this morning, buoyed by new economic numbers from China. Investors, though, are still keeping a wary eye on quarterly reports from major U.S. companies, which have largely been disappointing.

Japan's Nikkei slipped 0.7 per cent, though Hong Kong's Hang Seng managed to eke out a gain of 0.3 per cent.

In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.2 per cent and 0.4 per cent by about 7:45 a.m. ET.

Dow Jones industrial average and S&P 500 futures also rose.

Teck profit slumps
Canada's largest diversified miner is feeling the pinch of the global economic slowdown, The Globe and Mail's Pav Jordan reports.

Teck Resources Ltd., one of the world's largest exporters of coking coal used in steel production and a key supplier to China, pledged on Wednesday to defer some $1.5-billion in capital it had expected to spend this year and next year, and said its third quarter profit was slashed by more than half.

Teck reported third quarter profit of $349-million, or 60 cents a share, compared with $742-million, or $1.26 a share in the same quarter a year ago.

Markets await Fed
The Federal Reserve is scheduled to make its pronouncement this afternoon, though observers expect Ben Bernanke and his colleagues to stand pat after the big announcements of the last meeting in September.

That was when the U.S. central bank unveiled another asset-buying program - known as QE3 because it marked the third round of quantitative easing - and pledged to hold its benchmark Fed funds rate near zero through to mid-2015.

Little change is expected today.

"After pressing harder on the monetary gas pedal in September, the Fed will likely stay in cruise control for a few months to monitor the effectiveness of recent policies," senior economist Sal Guatieri of BMO Nesbitt Burns.

"With the unemployment rate trending lower and the expansion picking up some, there is little urgency for additional monetary fuel."

Square heads for Canada
Square, the mobile technology that shook up the payment industry and attracted big-name customers such as Starbucks Corp., is coming to Canada, The Globe and Mail's Omar El Akkad writes.

The company, founded by Twitter founder Jack Dorsey, said today its first expansion outside the United States will be north of the border.

Less than three years old, Square builds a small piece of hardware that connects to a headphone jack and allows a smartphone or tablet to collect and process credit card data. Using the hardware, customers can easily set up a credit card payment system without purchasing any additional devices.

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