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An Occupy Frankfurt bonfire near the city's euro sculpture. Italy is the latest euro zone country to face harsh austerity programs. (Michael Probst/AP/Michael Probst/AP)
An Occupy Frankfurt bonfire near the city's euro sculpture. Italy is the latest euro zone country to face harsh austerity programs. (Michael Probst/AP/Michael Probst/AP)

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Scotiabank on EU: 'Canada then was Europe today' Add to ...

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Britain isolated in euro deal The euro zone and most of the countries in the wider EU have struck their grand bargain, but Standard & Poor's will still probably downgrade the nations of the monetary union anyway.

At their summit in Brussels, the 17 countries that share the euro, and others who are not part of the zone, signed on to a new fiscal pact aimed at easing the region's two-year-old debt crisis. Britain remained outside, leaving a divided Europe.

As The Globe and Mail's Eric Reguly reports, they reached a deal aimed at ensuring fiscal discipline, but have made no ground on measures that would boost economic growth or bring down high unemployment levels.

And not part of the deal, of course, were measures Germany had already rejected, such as eurobonds and running two bailout funds at the same time.

Markets generally rallied, though bond yields in Italy and Spain spiked again, suggesting all is not well. The summit outcome comes on top of what were seen as disappointing comments yesterday from the new chief of the European Central Bank, Mario Draghi, who cut his key lending rate but scotched hopes that the ECB would bolster embattled governments with a big bond-buying program.

"The impact of the summit had in any case been diminished by the ECB press conference yesterday as the question of whether the measures were sufficient to prompt more aggressive ECB bond market intervention no longer needs answering," said RBC's foreign exchange strategy chief, Adam Cole, in London.

"The summit outcome, along with the ECB press conference yesterday, make it more likely than not that S&P will carry out its threat to downgrade most of [euro zone]member states in the coming days."

S&P has put 15 of the 17 members on creditwatch, and said it would make its decision on whether to downgrade after the summit.

As Derek Holt and Karen Cordes Woods put it today, Germany's case is "buttressed" by Canada's experience in the 1990s.

"Canada achieved fiscal repair under more arduous conditions than those that are facing the U.S. and Europe today - and did so without resorting to the printing press," they said in a lengthy examination that rebuts suggestion that Canada faced an easier time then than Europe does today.

"The night of the Quebec referendum on Oct. 30, 1995 portrayed Canada at its worst," they said.

"The palpable fear in the markets was keyed off deep intertwined concerns about the country's fiscal, economic and political circumstances. Recall this was a period when a respected U.S. financial daily slammed Canada as a ‘banana republic,’ yet curiously such references to its home country are absent today."

They noted that, at the time, Canadian leaders dismissed market critics as "armchair observers," and the "market-unfriendly backdrop understandably drew the ire of rating agencies through multiple downgrades, as well as bond markets as the country faced the threat of break up and dissolution of monetary union. Simply put, Canada then was Europe today."

Now, though, Canada is part of a "dying breed" of triple-A countries.

"Against the myth that this was easier for Canada to achieve during different times, what’s amazing about the Canadian experience is that it was achieved during at least as trying if not more troublesome times after taking account of the full global and domestic picture at the time. The country therefore offers an important lesson to nations like the United States and large parts of Europe that are delaying fiscal repair, and punting the problem down the road toward a more ruinous crisis later."

BCE, Rogers strike MLSE deal Canada's BCE Inc. is grabbing a stake in one of the National Hockey League's greatest rivalries.

BCE and Rogers Communications Inc. announced today they're buying a majority stake in Maple Leaf Sports and Entertainment, having reached a deal with the Ontario Teachers' Pension Plan for control of the group.

Under the agreement to take up the stake held by the Ontario Teachers’ Pension Plan, BCE and Rogers will together own 75 per cent of MLSE, the parent of the Toronto Maple Leafs, the Toronto Raptors, the Toronto FC soccer club and other assets.

Larry Tanenbaum will boost his ownership in MLSE to 25 per cent from his current 20.5 per cent, the companies said, and will remain chairman of the sports empire.

BCE said its cash commitment is $398-million, for 28 per cent of MLSE. A BCE trust for pension fund investments will kick in $135-million, giving the two 37.5 per cent. Rogers also ends up with 37.5 per cent, with a cash commitment of about $533-million.

The deal needs regulatory approval, as well as approval from the National Hockey League.

As The Globe and Mail's Grant Robertson and Tara Perkins write in today's Globe and Mail, the two telecommunications concerns will own the parent of the Toronto Maple Leafs, the Toronto Raptors, the Toronto FC soccer team and broadcast assets.

BCE already holds a stake in the Montreal Canadiens, which would mean the company owns a piece of the great Leafs-Habs rivalry.

"There may be an issue with BCE owning a stake in both the Canadiens and MLSE, which owns the Toronto Maple Leafs, the Toronto Raptors, the Toronto Marlies, the Toronto Football Club and the Air Canada Centre," said analyst Dvai Ghose of Canaccord Genuity. "... However, others have told us that BCE would not have to sell its Canadiens stake as it would not control either hockey franchise under the scenario that has been put forward."

The impact of the deal is neutral for both companies, said analyst Maher Yaghi of Desjardins.

"We believe it is strategically positive to control content-producing assets like MLSE," he said in a research note today.

"Controlling this coveted sports content will block it from going to over-the-top TV, hence protecting both the media component (BCE’s TSN and Rogers’ Sportsnet) and, more importantly, the telco component (TV services). Splitting the cost between these two large enterprises is also positive, as it lowers the risk profile of the acquisition. On the other hand, it is negative that cash flows will not be distributed to investors in the form of dividends or share buybacks. We note that owning content has not historically resulted in synergies for telco providers; moreover, the content itself (i.e. Maple Leaf games) will likely not be exclusive, and other bidders could still acquire it (i.e. CBC).

Mr. Ghose described it as a "small bet" for BCE and Rogers, though questioned whether it's the right one.

"While the deal ensures vital sports content for both parties on a longer term basis and negates the risk of MLSE going directly to fans through OTT video streaming, we 1) have never seen a cableco or telco show discernible value from sports franchise ownership and note that Comcast recently sold the Philadelphia 76ers and Cablevision spun out its holding in The New York Knicks, Rangers and MSG; 2) in our view customers want best in class connectivity from their carriers at low prices and with good customer service. We have never heard a consumer tell us that they chase an access provider based on content. We continue to like Telus' strategy of focusing management’s time and the company’s capital on access and backhaul rather than content."

Canada slips back to trade deficit Canada's trade balance has fallen back into a deficit, with exports slipping and imports rising in October.

Exports slipped 3 per cent, while imports climbed 1.9 per cent, Statistics Canada said today, leading to a deficit of $885-million, compared to September's surplus of $1-billion.

Both prices and volumes of exports fell, a disappointing sign after three months of rising, led by industrial goods and energy. Imorts of machinery and equipment led the rise in imports, which hit a record high.

"Today’s data suggest that the export boom seen in Q3 did not carry in to Q4, suggesting the pace of growth in Q4 is on track to slow from the heady pace of the prior quarter," said Emanuella Enenajor of CIBC World Markets.

"One encouraging sign, however, was the pick-up in machinery and equipment imports, suggesting that Canadian capital expenditures likely rose to start Q4, reversing the prior quarter’s fall."

China inflation slips China is winning its war against inflation.

The annual increase in consumer prices fell in November to 4.2 per cent, down from October's 5.5 per cent as inflation continues to ease.

China had been tightening policy through higher interest rates and reserve requirements among its banks, but has recently eased off, trying to engineer a soft landing, which it now looks set to do.

"Falling inflation is creating room for further policy easing in China, enhancing prospects of a soft landing in the world’s largest consumer of many non-energy commodities," said Peter Buchanan of CIBC World Markets.

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