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Police stand guard in front of Greece's parliament during a rally against austerity measures in Athens April 27 (YIORGOS KARAHALIS)
Police stand guard in front of Greece's parliament during a rally against austerity measures in Athens April 27 (YIORGOS KARAHALIS)

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Europe's weaklings: Too big to fail or too big to save? Add to ...

Stories Report on Business is following today:

Too big to fail, or too big to save?

As Greece's debt crisis continues to shake financial markets this morning, analysts are weighing the wider threat to Europe and its common currency union. It's no longer just about Greece and the potential €45-billion bailout from the EU and the International Monetary Fund. Having spread yesterday to other weak countries such as Portugal, Spain, Ireland and Italy, undermining investor confidence, economists are now looking ahead to the ramifications.

Europe's weaker, debt-burdened economies had already been under pressure when Standard & Poor's dropped its bombshell yesterday morning, cutting Greece to 'junk' status and downgrading Portugal's debt. Until then, it had been a question of the details and timing of a bailout for Greece, and whether the government could raise €9-billion to pay back a 10-year bond that matures May 19. Investors are also keenly aware that sentiment in Germany, which would shoulder a hefty portion of the bailout, is running strongly against a rescue.

Today, S&P also lowered Spain's credit rating as European authorities tried their best to calm markets.

In Berlin today, Chancellor Angela Merkel was meeting with IMF chief Dominique Strauss Kahn and European Central Bank president Jean-Claude Trichet. Greek politicians who also meet with the two men said the current proposed bailout is only enough for one year, and that the country will need aid of up to €120-billion over three years.

Again this morning, Greek bond yields spiked to levels that make it prohibitive for the government to raise money.

"It has also thrown into doubt the ability of Greece to even fund its day-to-day funding operations with the European Central Bank," Michael Hewson of CMC Markets said in a research note. "... It has also served to make the market realize that because of the fear of creating a precedent, even if Greece is bailed out, due to the uncertainty over the final price tag, neither Germany nor the IMF would have deep enough pockets to bail out Portugal, Spain and other European countries with large deficit problems."

Mr. Hewson added that the crisis has become "an issue of credibility with the euro itself, and the likelihood is that some form of debt restructuring may now be the only option for Greece, despite the IMF and EU Commission insisting that this is out of the question."

TD Waterhouse also warned in a report that as the crisis spreads to other countries "reality is beginning to set in that it is not that they are too big to fail, but that they are too big to save," Report on Business columnist Andrew Willis writes in Streetwise.

"As a result of the downgrades, Greek debt is on the threshold of losing the credentials needed for use as collateral in European Central Bank funding operations," Waterhouse said. "This could pose further systemic risks to the European banking system, as Greek banks are probably getting most of their short-term funding from the ECB, using mainly Greek sovereign debt as collateral."

As the crisis went beyond government paper to hit Greek and Portuguese bonds today, OECD Secretary General Angel Gurria likened the troubles to the Ebola virus. "It's not a question of the danger of contagion," he told Bloomberg Television. "Contagion has already happened. This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.


S&P cuts Spain rating, crisis widens

Greece needs up to €120-billion

Crisis shakes confidence in Europe

Is Greek aid only forestalling an inevitable reckoning?


Sovereign debt: The contagion spreads

Rogers posts strong quarter

Rogers Communications Inc. topped analysts' estimates this morning with a 23-per-cent jump in first-quarter profit to $380-million or 64 cents a share from $309-million or 49 cents a year earlier. But the telecommunications giant still continued to suffer a drop in the number of wireless subscribers added to the network - just 47,000 - given heightened competition from rivals BCE Inc. and Telus Corp.

The gradual erosion of Rogers' huge market share in the Canadian wireless market's net subscriber additions remains a concern for analysts, Report on Business telecom reporter Iain Marlow writes. Read the story

TMX profits rise

TMX Group Inc. profits are rising, but so is its competition. The stock exchange group said this morning first-quarter profit jumped 14 per cent to $49.1-million or 66 cents a share from $42.9-million or 58 cents a year earlier. Revenue climbed 2 per cent to $139.7-million.

Chief executive officer Thomas Kloet cited a "rebound" in confidence among investors and issuers, noting a marked increase in initial public offerings and financings, and higher volumes on the Montreal Exchange.

Bloomberg News noted that TMX held 73 per cent of the trading market last month, well down from 92 per cent a year earlier as it faces competition from rivals such as Alpha Group. Report on Business writer Boyd Erman reported last week that Alpha is now seeking regulatory approval to become a full-fledged exchange.

Read: IPOs boost TMX Group profit

Related: Alpha Group aims for full stock exchange status

Barrick sees record quarter

Higher gold prices and increased production drove Barrick Gold Corp. to a record quarter. Barrick posted first-quarter profit of $758-million (U.S.) or 76 cents a share, double the $371-million or 42 cents a year earlier, the world's biggest gold producer said this morning.

"We had a good start to the year with our operations performing well, and when combined with higher metal prices, the result was record earnings and operating cash flow for the quarter," said chief executive officer Aaron Regent.

"We are particularly pleased with the performance of our Cortez property. The Cortez Hills project was completed on time and budget, and the recent decision of the District Court in Nevada will allow it to continue operating. Cortez Hills is an impressive deposit and in 2010 the Cortez property will produce about 1.1 million ounces of gold at total cash costs of about $300 per ounce. We are also on track with the development of the other projects in our pipeline."

John Stephenson of First Asset Investment Management Inc. lauded the results in a note to Bloomberg News: "Barrick earnings were very strong and highlight a string of quarter beats versus us that sets the company apart from other gold miners."

Coutu boosts dividend

Quebec's Jean Coutu Group Inc. rebounded to a first-quarter profit of $42.8-million or 18 cents a share from a loss of $733.6-million or $3.11 a year earlier, just above estimates, though revenue of $637-million was just shy of what analysts had forecast. Same-store sales, a key measure, rose 3.8 per cent, the drug store chain reported this morning.

All eyes on Fed

Markets are awaiting today's decision from the Federal Reserve at 2:15 p.m. ET, though no change in interest rates is expected. Economists believe, however, the U.S. central bank's Federal Open Market Committee will again signal the economy is strengthening.

"Today's FOMC statement is likely to retain key buzzwords like exceptional and extended, but watch the number of dissenters," Scotia Capital economists said in a note this morning. "Kansas City Fed President Hoenig was the only dissenter last time, but Bullard would be the risk to watch in our view. There is a small chance of softening the exceptional and extended references, but with a hike not looking likely to the markets until [the fourth quarter] it may be too early to drop wording that would effectively lead to market tightening well in advance of an actual Fed move."


From today's Report on Business

Pipeline fees revolt widens

Profits hitched to China's economy

Goldman Sachs faces new heat

RIM sets sights on 100 million users

Report Typo/Error

Follow on Twitter: @michaelbabad


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