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A firefighter raises flares as he protests in front of the parliament in Athens. Policemen, firefighters and coast guards protested on Tuesday against planned wage and pension cuts. (Kolesidis/Reuters)
A firefighter raises flares as he protests in front of the parliament in Athens. Policemen, firefighters and coast guards protested on Tuesday against planned wage and pension cuts. (Kolesidis/Reuters)

Top Business Stories

Greece to need more despite biggest ever 'bond ripoff' Add to ...

These are stories Report on Business is following Monday, March 12, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Why Greece will need more Greece may have just pulled off the biggest "bond ripoff" by any government in history, and it may it be in line for another €130-billion in bailout money, but its troubles are far from over.

Indeed, market players are already betting Athens will need a third rescue.

For those who can't keep track of two years of crisis, I'll recap. But I'll skip the first two years. Suffice it to say they were marked by ever deeper debt troubles, ever angrier citizens, ever greater promises, ever mounting bailouts and ever more summits held by leaders of a crippled monetary union.

Let's start at last Friday, when Greece won over enough private creditors for a €177.2-billion bond swap, which it deemed voluntary. The level of support for this private sector involvement, known as PSI, was enough to allow Greece to invoke what are known as collective action clauses, or CACs, that forced reluctant creditors into the exchange.

That, in turn, led an industry body known as the International Swaps and Derivatives Association to label it a "credit event," triggering billions involving insurance-like credit default swaps.

Officials in Greece and the 17-member euro zone heralded the events as putting the region on the path to stability.

But most agree they don't. Greece is mired in recession, which limits what its government can bring in, and it can't even devalue its currency as a spark because it doesn't have its own currency, having abandoned the drachma for the euro. And some wonder how committed its next government will be to the severe austerity measures that have led to strikes and protests across the country.

Greece's new bonds are trading at distressed levels, and, as Europe's finance ministers meet to approve the additional rescue funds, markets are already speculating that another bailout will yet be needed.

Calling it the "largest ever bond ripoff by a profligate sovereign," Derek Holt and Dov Zigler of Scotia Capital warned today that Athens is far from out of the fire. They cited comments by German Finance Minister Wolfgang Schaeuble, who didn't rule out the possibility of Greece requiring a third bailout.

"Of course not, as a still onerous 120-per-cent debt-to-GDP ratio in under a decade is left behind by the wealth confiscation from bondholders, assuming that Greece is able to grow its economy at assumed rates, which might be a trick for an economy that produces little of relevance to world markets," they said.

"Good money continues to be poured after bad, as one thing that makes Greece different from, say, Argentina is that it opted into a system from which it could extract ransom money as opposed to a voluntary currency peg."

Investors appear to agree, at least at this point.

"While the decision later today by euro group finance ministers to ratify the latest Greek bailout may go some way to assuaging short-term concerns about Greece's financial position, their new bonds - which started trading today - suggest that investors remain far from convinced that these new debt levels are any more sustainable than they were last week, before the PSI," said senior market analyst Michael Hewson of CMC Markets.

"Early indications show that the yields on the new bonds still remain well above equivalent levels of Portuguese bonds, suggesting that markets remain highly sceptical about the sustainability of the new program."

David Jones, the chief market strategist at IG Index in London, summed it up today when he suggested that "everyone in Europe wants to pretend the crisis is now solved. Of course, we all know better."

Greece is the focus of the euro crisis, but by no means is it alone. Final numbers today, for example, showed Italy's economy contracted in the third and fourth quarters of last year, marking the technical definition of a recession.

Enbridge eyes writedown Canada's Enbridge Inc. says it's looking at a writedown on a "significant portion" of the value of its $460-million investment in its New Brunswick gas distribution unit.

The move follows proposed new provincial regulations for setting gas distribution rates, Enbridge said today.

New Brunswick's proposal, put out for 30 days of comment, would limit the rates of the utility, Enbridge Gas New Brunswick. Those limits to individual classes of customers are "are substantially below current rates and below the level which would be required to recover Enbridge’s investment, or to support any further growth in the number of customers to be supplied with natural gas."

New Brunswick amended the laws governing gas distribution in January, saying lower rates would help attract business. This is not the first time Enbridge has spoken out.

Enbridge said it's talking to the province, but a writedown can be expected if the regulations go into effect. It did not disclose just how big that could be.

"We are extremely disappointed with the regulations as currently drafted," said Guy Jarvis, Enbrdige's chief of gas distribution.

"Enbridge has made a substantial investment in bringing natural gas to New Brunswick businesses and residents, including reinvesting the money we have earned in the province to further develop our system, and we have adhered to our side of the franchise agreement with the government," Mr. Jarvis said in a statement.

"For several reasons it is more expensive to distribute natural gas in the Province of New Brunswick than it is in larger markets such as Ontario, but gas is still the lowest cost source of energy available in New Brunswick. The regulations, as drafted, would severely limit our ability to extend the benefits of natural gas to additional businesses and residents in New Brunswick."

Glencore, Cargill said to eye Viterra At least two multinationals are reportedly eyeing Viterra Inc. , the Canadian agribusiness and grain handling company that surprised markets last week by saying it had received "expressions of interest."

Among the potential suitors, according to The Wall Street Journal, are Glencore International AG and Cargill Inc.

Viterra's shares surged on Friday after the company said it had been approached, and gave no further details.

Glencore, of course, is in the midst of digesting its merger with Xstrata PLC, so a deal of this size might be difficult at this point.

UBS Securities Canada analyst Hilda Maraachlian, noting Viterra's "extensive network" of silos and export operations, said the company does draw much attention from global players.

It holds 45 per cent of Canada's grain handling market and is expected to be one of the companies that benefits from the end of the Canadian Wheat Board monopoly, she said.

Assuming a boost in margins and market share gain of up to 2.5 per cent, she added, Viterra's EBITDA can be expected to climb by $40-million to $50-million a year, Ms. Maraachlian added.

Iceland to choose new currency I’m honestly not on a one-man campaign to have Iceland adopt the Canadian dollar. I just find the whole thing intriguing. And a bit funny.

And I still want to know why Canada’s ambassador to Iceland says Ottawa is ready to talk about it.

Those who have followed this story will remember that Canada’s ambassador, Alan Bones, told an Icelandic broadcaster just over a week ago that his government was prepared to discuss the idea of Iceland adopting the Canadian dollar, known here as the loonie because of the bird on its dollar coin, and ditching its krona if it decides to go that route.

There have been such suggestions among some in Iceland, though its official stance is to join the EU, a move that does not have broad support among the people.

Mr. Bones was going to take the same message to an opposition conference on the currency, but Ottawa said no to that.

That’s where the story of Iceland and the Canadian dollar left off.

This weekend, Iceland’s Prime Minister Jóhanna Sigurðardóttir said in a speech that the country will opt for the euro or another currency, though it was clear which way she’s leaning.

“The choice is between surrendering the sovereignty of Iceland in monetary policy unilaterally adopting the currency of another country or become a member of the EU,” she said.

She added, according to Bloomberg News, that joining the EU would allow her country to “co-operate with EU countries as a sovereign nation, which has a say in the decision and policy-making in all fields of co-operation.”

I'm not saying Iceland should adopt the Canadian dollar, or any currency other than the euro, for that matter. And she's right when she says her country would lose sovereignty over monetary policy. Adopting the loonie or another single-country currency would be just that, not a monetary union.

I would point out, though, that the European Central Bank under its previous chief had no qualms about raising interest rates amid the troubles of the weaker euro states such as Greece, Ireland and Spain, deciding instead that it was acting for the broader good.

In my mind, it’s as much a loss of sovereignty when you’re ignored as it is when you’re not included.

What to watch for this week The Federal Reserve meets this week, following on the heels of several central banks last week, including the Bank of Canada and European Central Bank. But 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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