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The Globe and Mail

European economies crumble as leaders dither

These are stories Report on Business is following Wednesday, Aug. 7, 2012.

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When will Europe act?
How long will it take before European policy makers and politicians, divided on courses of action and unable to stem their crises, move forcefully as their economies crumble about them?

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As The Globe and Mail's Brian Milner writes in today's Report on Business, pressure is building on the European Central Bank and its chief Mario Draghi to act as the debt crisis in the 17-member euro zone deepens.

The group is divided - with Germany's Bundesbank opposing a bond-buying scheme - and to date has offered little more than promises. At the same time, Europe's leaders are hell bent on austerity, rather than growth, measures.

Yet day after day, the evidence of a deepening crisis emerge. Not only are Spanish and Italian bond yields, for example, near crisis levels, but the economies of Europe are fast eroding further.

Today alone, the Bank of England slashed its projections for economic growth, yet the central bank appears in no rush to act. At the same time, the Banque de France forecast the country will sink into recession in the third quarter. Germany's industrial output is also falling.

And those are just the latest readings.

"The good vibrations felt over the past few trading sessions are fizzling this morning, with European markets down 0.6%, on average (the selloff seemed to intensify after some weaker data were released) and U.S. equity futures pointing to a similarly negative open," said senior economist Jennifer Lee of BMO Nesbitt Burns.

"The pressure on ECB President Draghi continues to grow," she added.

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It's not that central banks haven't acted, it's that there's more to do.

"Four years after the start of the global financial crisis, the world economy is struggling," said Andrew Kenningham of Capital Economics in London.

"In the past few months, the recovery has faltered in the U.S. and Japan while GDP is likely to fall in both the euro zone and U.K. this year. In early July, the ECB responded by cutting its key interest rate and the

[Bank of England] extended its asset purchase program. However, central banks are under pressure to do more."

Mr. Kenningham does expect more, disagreeing with some observers who believe there's little left that central banks can do.

He believes the Bank of England will cut its benchmark rate again, by a quarter of a percentage point, and that the ECB may take similar action in time.

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BCE boosts dividend
Shareholders of BCE Inc. started the day off in fine fashion as the Canadian telecommunications giant hiked its dividend, posted a jump in second-quarter profit and boosted its outlook for the year.

BCE earned $773-million in the quarter, or $1 a share, up from $590-million or 76 cents a year earlier.

As The Globe and Mail's Steve Ladurantaye reports, the only soft spot was a drop of almost 4 per cent in home phone revenue, though overall revenue climbed 6.7 per cent.

BCE hiked its annual dividend by 10 cents to $2.27.

It also forecast adjusted earnings per share of $3.15 to $3.20 for the year, up from an earlier projection of $3.13 to $3.18.

Air Canada loss deepens
I wonder what might have happened had Labour Minister Lisa Raitt not intervened in a contract dispute at Air Canada.

The airline today cited the labour strife as it posted a deeper second-quarter loss of $96-million or 35 cents a share, compared to a loss of $46-million or 17 cents a year earlier.

The airline is returning to more normal levels, however, it said.

"As previously reported, Air Canada's operations were adversely impacted by labour disruptions in March and April of 2012 which resulted in a decline in bookings for travel originating in Canada in the immediate aftermath," said chief executive officer Calin Rovinescu.

"Our brand is resilient and we were encouraged to see booking trends return to normal levels by the end of the second quarter of 2012."

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