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How the euro zone may be 'accelerating its own demise'

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Believe it when you see it Has the bar been set too high for this weekend's EU summit?

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Probably. But what's more important is that markets are being fed rumour and speculation, with vague reports about what to expect. All of which could lead to a fairly big disappointment when markets open Monday after the meeting in Brussels.

Even the chief of the European Commission, Jose Manuel Barroso, seemed to manage expectations today, though he did suggest something meaningful would come out of the meeting.

"Even if we do arrive at a political decision on everything that's on the table, which I hope we will, that doesn't necessarily mean that there will not then have to be an implementing phase," he told reporters.

Notable here is that this has happened time and time again since the debt crisis in the euro zone began about two years ago. There's no question the leaders of the monetary union are working toward something, and some details are likely to emerge Sunday because they know they have to do something, probably along the lines of bank recapitalizations, a bigger haircut for Greek bondholders, and more money for the rescue fund known as the EFSF.

But with 17 governments involved and a history of letdowns, one should take everything with a grain of salt.

Derek Holt of Scotia Capital takes an in-depth look today, citing reasons why he doesn't trust the market reaction.

First, he notes, the EFSF is just one piece of the reform needed to keep the markets happy. And, he said in his research reports, investors need to see the details behind the proposals to recapitalize the banks, whether it be forced or voluntary, and whether shoring up the institutions will come via private means or from the EFSF.

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Also key is how the banks respond to beef up capital levels faster.

"Of course, if the higher capital ratio is being expedited to make way for a Greek default, then still further capital raising and/or deleveraging and asset sales would ensue in order to consistently attain newly mandated capital ratios," Mr. Holt and his colleague Karen Cordes Woods said in the report.

"Europe, it seems, is accelerating its own demise with the hope of taking a giant bath sooner without even getting into the contagion risk that could be posed by the market moving on to betting whom else within the European brotherhood may be abandoned next. While restoring Greece's debt levels toward a more sustainable path through stiff hair cuts makes sense to me, the path toward this is being viewed too simplistically in some more bullish corners."

Also troubling is the lack of "encouragement" in the talk heading into the summit, and the divisions that exist between the main players.

"The tensions within Europe are clearer behind the most played up headlines and continue to point toward disagreement on fundamental issues such as whether or not to pursue Greek hair cuts (Germany yes, France no) that would crystallize balance sheet markdowns and have Greek debt labeled in default by rating agencies," he said.

France's Nicolas Sarkozy and Germany's Angela Merkel were scheduled to speak today in advance of the summit.

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Greece shuts down The backdrop to all of this is a massive two-day general strike that began today in Greece, where unions and others are protesting the government's austerity measures, set to be voted on tomorrow. Athens has been wracked by violance.

Public transport, hospitals, schools and other services have been crippled, and tear gas can be seen in the streets of Athens, The Globe and Mail's Eric Reguly reports from Greece.

Prime Minister George Papandreou has appealed for Greeks to get onside with fighting the fiscal crisis, but, as today's strike shows, that's not going to happen. Unemployment in Greece is 16.5 per cent, and many say they're having trouble making ends meet.

Early estimates put the number of protesters in the tens of thousands. One police officer said he expected 50,000 to take part in the Athens demonstrations and some protesters said the number could rise in the afternoon. The shopping streets around Syntagma Square were packed with protesters. All stores were closed, their facades protected by metal shutters.

Rio Tinto in deal for Hathor Mining giant Rio Tinto Ltd. has struck a white-knight deal for Canada's Hathor Exploration Ltd. , and outbidding hostile suitorCameco Corp. for the junior uranium miner.

Rio valued the deal at $578-million, a cash offer of $4.15 a share. Cameco's bid stands at $3.75 a share.

Hathor explores for uranium in northern Saskatchewan's Athabasca Basin, largely in the region's "eastern corridor" that is home to Canada's producing mines. It describes its Roughrider deposit as a "significant high-grade" project.

"The strategic context of the Rio Tinto offer underscores the 'best of breed' global stature of the Roughrider uranium deposit relative to its peers of undeveloped uranium deposits around the world," Hathor CEO Michael Gunning said in a statement.

The companies said directors and senior executives of Hathor, who own about 4.6 per cent of the company, have agreed to the Rio Tinto deal.

Wi-LAN stalks Mosaid Wi-Lan Inc. really wants to get its hands on Mosaid Technologies Inc. , boosting its bid for the company to $42 cash from $38.

"The Revised Offer is higher than Mosaid shares have traded in more than 10 years prior to the announcement of Wi-LAN's intention to make the offer," the Ottawa-based company said.

Wi-Lan added that has "no intention" to further revise its bid. I really don't know why companies say this.

Morgan Stanley beats Morgan Stanley beat analysts' estimates today with a hefty accounting gain and more money from trading leading to a rebound in third-quarter profit.

Morgan Stanley earned $2.2-billion (U.S.) or $1.15 a share, compared to a loss of $91-million or 7 cents a year earlier.

"Morgan Stanley effectively navigated turbulent markets while consolidating our market share gains with Institutional clients," said chief executive officer James Gorman.

U.S. consumer prices climb Energy and food prices continue to push up inflation in the United States but core prices remain tame.

Prices rose in September by 0.3 per cent from a month earlier, the U.S. Labor Department said today, though so-called core inflation, which excludes volatile items, inched up just 0.1 per cent.

The overall annual rate now sits at 3.9 per cent, the highest in about three years. The annual core rate is at 2 per cent.

"Overall, headline inflation should now have peaked and will drop below the core rate in the second half of next year," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Youth unemployment troubling The International Labour Organization paints a troubling picture of the world's youth today, warning of a "scarred generation" amid high unemployment.

"In the current context of economic instability, young men and women face increasing uncertainty in their hopes of finding a decent job," the group said in a new report. "There is no doubt that the global economic crisis has further exposed the fragility of youth in the labour market. At the end of 2010, there were an estimated 75.1 million young people in the world struggling to find work – 4.6 million more than in 2007."

The report said an actual drop in the number of unemployed youth was because of young people dropping out of the search for a job.

"For many youth who did manage to find work, the job found is less than ideal," the report added. "... By the end of 2010, as much as half of working youth were in part-time employment in Canada, Denmark, the Netherlands and Norway, while in Australia, Iceland, Ireland, Slovenia, Sweden and the United Kingdom, the share was 1 in 3."

In Economy Lab Federal Reserve Chairman Ben Bernanke has been keeping an eye on how Bank of Canada Governor Mark Carney has been fighting the financial crisis, The Globe and Mail's Kevin Carmichael writes from Washington.

Ben Bernanke starting read Bank of Canada's playbook

In International Business It is conceivable - if unlikely - that the euro zone will find ways to manage its emergency. It is inconceivable that it will cure the illness, partly because members are in denial about its nature and partly because it is a chronic condition. Martin Wolf of The Financial Times examines the issue.

There is no sunlit future for the euro

In Globe Careers After months in which part-time jobs and self employment represented the bulk of job creation, a new survey points to a welcome trend toward increased professional hiring in Canada, The Globe and Mail's Wallace Immen reports.

Employers laying out welcome mat

In Personal Finance Merchants use a variety of tricks to make us buy stuff we don't need. Here's how to recognize a few of them.

How to avoid overspending

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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