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Greek math: Targets + vows still = 9.5% deficit-to-GDP Add to ...

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Modern Greek math Unlike the celebrated scholars of ancient Greece, its modern-era rulers appear to need some lessons in basic math. The bottom line is that you can't keep borrowing money forever and keep the goodwill of the people supporting you if you can't meet targets.

Greece is now projected to come in with a 2011 budget deficit of 9.5 per cent of gross domestic product, the European Commission said today, according to Bloomberg News. That's well above the target of 7.4 per cent that was part of the joint EU-IMF bailout last year. The debt-to-GDP ratio is now pegged at 158 per cent.

Ewald Nowotny, an official at the European Central Bank, drove home the point in an interview with an Austrian newspaper, saying that "Greece has apparently insufficiently fulfilled the conditions of late." And Olli Rehn, the EU's economic and monetary affairs commissioner, called again for Greece to take added measures.

Debt in Portugal and Ireland, two of the other embattled countries, is projected at 101.7 per cent and 112 per cent, respectively.

Greece said again today that it believed it will not be forced to restructure its debts, though markets don't believe that.

Separately today, fresh data from the 17-member euro zone continued to show a two-speed recovery, Globe and Mail European correspondent Eric Reguly reports from Rome.

Germany and France, for example, the two biggest economies, posted first-quarter economic growth of 1.5 per cent and 1 per cent, respectively, well above what had been expected.

Even Greece posted surprise growth of 0.8 per cent, though a contraction is expected this year. Italy's economy stalled, however, and Portugal dipped into the red. Spain's economy expanded at a pace of 0.3 per cent.

"As has been the case since the recovery started, Germany led the way, expanding 1.5 per cent in the quarter (that's 6.1 per cent annualized ... Wow!)," said BMO Nesbitt Burns economist Benjamin Reitzes.

"That lifted the yearly increase to 5.2 per cent, the fastest pace since reunification. France recorded a solid gain as well, with GDP up 1 per cent, its best quarter since 2006Q2 (though the prior quarter was revised down a tick). Even Greece got in on the good news for a change, with the economy growing for the first time in seven quarters."

The outlook, though, remains mixed.

"Unfortunately, the European Commission doesn't release the details behind the Q1 GDP numbers in this initial flash estimate but given the recent data reports, economic growth, especially in Germany and France seems to be largely attributable to strong export growth with consumer demand showing signs of slowing," said economists Karen Cordes Woods and Derek Holt.

"Indeed, German retail sales declined in both February and March while French consumption was down in January and March."

Fuel, food push up U.S. prices Consumer prices in the United States rose 0.4 per cent in April, bringing the country's annual inflation rate to 3.2 per cent, driven by fuel and food prices. The annual rate is up from 2.7 per cent in March, and marks the fastest pace in 2 1/2 years.

The so-called core rate, which excludes volatile items, was 0.2 per cent on a monthly basis, and a slightly higher 1.3 per cent on an annual basis.

Federal Reserve Chairman Ben Bernanke has said the commodities-driven increases are transitory, though, noted CIBC World Markets economist Krishen Rangasamy, today's report will lend "some encouragement" to the hawks on the central bank's rate-setting panel.

"Bernanke is more concerned about inflationary expectations which he views as stable. The well anchored inflation expectations are partly why we do not anticipate a Fed rate hike until 2013."

Senior economist Sal Guatieri of BMO Nesbitt Burns also doesn't see the U.S. central bank rushing to raise rates, though he didn't put a date on that today.

"While the waning threat of deflation suggests an end to monetary easing, the expected subdued trend in core inflation should limit the risk of an early tightening," Mr. Guatieri said. "Bottom Line: Commodity-driven inflation is on the rise, and it appears to be sapping some of the U.S. economy's strength. However, it should subside next year provided that resource prices level out, and possibly sooner if the recent pullback continues."

Paul Ashworth, the chief U.S. economist at Capital Economics in Toronto, agreed: "While housing costs are no longer a disinflationary force in the core, we aren't seeing any worrying acceleration in the rate of cost increases either. Overall, there's nothing here to alarm the Fed, particularly not when commodity prices are now falling.

Economist Martin Schwerdtfeger of Toronto-Dominion Bank, though, wonders whether the Fed might move far earlier.

"The more moderate uptake in core inflation continues to tell a story of underlying demand weakness in many sectors, which limits the pass through of higher energy costs," he said.

"Nonetheless, if core inflation keeps climbing at the current speed, it will be stepping over the 2-per-cent mark by October," he added in a research note.

"If the improvement in job creation observed over the last three months proves to be a persistent trend until then, it is possible that the Fed might be pushed into action before year's end. It is hard to imagine that if these two events materialize, medium-term inflation expectations would not show an increase difficult to ignore."

CPP bets on malls The Canada Pension Plan Investment Board is making a couple of major bets on shopping malls, announcing today that it's investing more than $700-million in deals in New England and Germany, The Globe and Mail's Tara Perkins writes.

It's spending $350-million (U.S.) for a 36.9-per-cent stake in a group that owns 13 regional malls largely in the New England area. It's is also spending €270- million on a 50-per-cent interest in CentrO Oberhausen, a super-regional shopping and leisure centre in Germany.

Yunus leaves post Mohammed Yunus has stepped down from his post as managing director of the Grameen Bank, The Globe and Mail's Stephanie Nolen reports from New Delhi.

Professor Yunus, who won the 2006 Nobel Peace Prize for his work fighting poverty, has been embroiled in a months-long battle with government for control of the pioneering microfinance institution.

Markets on rise Europe's growth figures, coupled with rebounding commodities prices, are buoying global markets this morning.

Though Tokyo's benchmark Nikkei lost 0.7 per cent, Hong Kong's Hang Seng climbed 0.9 per cent, while European stocks gained. London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.2 per cent and 0.7 per cent by about 7:30 a.m. ET.

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

Commodities such as oil and silver , which have been exceptionally volatile of late, also gained.

"Looking ahead to the U.S. open at the moment we are forecasting the Dow to start off around 20 points higher than yesterday's close," said David Jones, chief market strategist at IG Index. "With markets like the FTSE, S&P, oil and gold staging strong recoveries in the second half of yesterday, today may end up being one of consolidation as traders catch their breath after a volatile week."

TMX, LSE post profit gains The owners of the Toronto and London Stock Exchange both posted higher profits today as they make their way to the altar.

TMX Group Inc. earned $64.3-million or 85 cents a share, basic, in the first quarter, up from $56.7-million or 77 cents a year earlier, as revenue climbed 17 per cent to $174.7-million.

As for its proposed merger with London Stock Exchange Group LSE, TMX chief executive officer Thomas Kloet said in the earnings statement that the marriage partners recently launched the related approval process.

"We believe that it is in Canada's best interest to have a globally competitive yet domestically focused capital marketplace and that our customers, shareholders and the markets we serve will directly benefit from this strong partnership," said Mr. Kloet, echoing his comments of late despite the opposition of some banks.

LSE posted a jump in 2010 profit to £341-million from £280-million a year earlier.

Analysts upbeat on BCE Analysts are boosting their price targets on shares of BCE Inc. after the telecommunications giant's solid earnings report and dividend increase yesterday.

Analyst Phillip Huang took his target to $41 from $31 and held his rating at "buy."

"Our thesis is unchanged - we believe BCE provides an attractive yield and represents a relatively low risk investment in a sector that is facing increasing competition," he said.

As Globe and Mail telecom writer Iain Marlow reports, BCE posted results that were in line or ahead of analysts expectations. Profit was down by about 29 per cent to $503-million or 67 cents a share in the first quarter, from $706-million or 92 cents per share in the same quarter last year. But adjusted for a sale of non-core assets last year, earnings per share jumped 18 per cent.

TD Newcrest analyst Vince Valentini upped his target to $37 from $36, but kept his 'hold' recommendation.

"Given that results have held up well to date in the face of our fears about wireless competition and wireline substitution, and given that the board had enough confidence in the outlook to raise the dividend yet again, we have decided to be more generous with our target price by looking out to 2012 versus 2011 forecasts," he said.

Desjardins analyst Maher Yaghi similarly increased his 12-month target, to $41.50 from $40.25, saying that "overall, we view the results and dividend increase as a sign of management's confidence in the company's operations for the rest of the year."

In International Business today

Birtain performed a minor miracle today by sparing the official wine cellar from becoming an accounting adjustment on the national balance sheet. Globe and Mail European correspondent Eric Reguly toasts the decision.

The market for newspapers is on fire in India, where household spending and government investment fuelled the second-fastest economic growth among advanced countries last year, behind only China, Globe and Mail correspondent Stephanie Nolen reports from New Delhi.

More than ever, guns have become status symbols in Pakistan's dangerous borderlands, Globe and Mail correspondent Graeme Smith writes from Quetta.

In Economy Lab today

The uproar over higher gas prices appears to be much more about the effect on household budgets than the hardships of taking transit or fewer lower-priority car rides. If that is the case, then there is an income problem here to be solved. Kevin Milligan examines the issue.

In Personal Finance today

Before you buy a house, know the advantages and the disadvantages, says the author of Financial Hacks.

People with their eye on early retirement need to take a careful look at changes to the Canada Pension Plan brought in earlier this year.

Make your gift grow with a life insurance policy that names a charity as the beneficiary. Ted Rechtshaffen explains how it's done.

From today's Report on Business

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