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The last thing Italy needs is the Berlusconi sex scandal

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What Italy doesn't need The last thing Italy needs right now is to be sidelined by a sex scandal.

Its economy is stalled, and while not the focus of the European debt crisis, it's certainly in the crosshairs of the markets.

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Data released today by Europe's statistics agency showed Italy's economy eked out economic growth of just 0.1 per cent in the fourth quarter of last year, a weaker showing than expected.

And while its central bank chief, Mario Draghi, is well respected, he's now firmly in the running for the top job at the European Central Bank, and is considered a leading candidate.

The sex scandal is tying up Italian politics. What's needed, is a firm hand on the tiller of the economy. Already, Silvio Berlusconi's government has barely survived a non-confidence motion.

Unemployment in Italy is running at 8.6 per cent, and the sex scandal has already played into the bond market.

Today, Globe and Mail European correspondent Eric Reguly reports, Mr. Berlusconi was ordered to stand trial on allegations that he paid for sex with a Moroccan belly dancer, whose stage name is Ruby, when she was 17. He has denied the allegations, calling them a left-wing conspiracy.

Europe's disparity Europe's overall economy ended 2010 on softer-than-expected note, and individual readings of gross domestic product today continue to highlight the disparity in the region.

The euro zone economy expanded by 0.3 per cent in the fourth quarter of last year, while the full 27 members of the European Union posted growth of 0.2 per cent. The euro zone readings are for the 16 countries that were members of the monetary union last year, though there are now 17.

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GDP in the euro zone, according to Carl Weinberg, the chief economist at High Frequency Economies, remains 3 per cent below its pre-crisis levels.

"Anyone who tries to tell you that Euroland has recovered from the 2008-09 economic crash is just wrong," he said. "The economy is growing, but growth is grinding to a halt and output remains depressed."

Among the major economies, Germany posted growth of 0.4 per cent, France 0.3 per cent and, as already noted, Italy 0.1 per cent. Bad weather is believed to have played a role.

"Key is that the prints for Germany and France showed a greater than expected deceleration," said Scotia Capital economists Derek Holt and Gorica Djeric.

What's notable here is that the weak economies, those such as Greece and Portugal, continue to struggle, highlighting how the region has become a story of haves and have-nots. Greece's economy shrank by 1.4 per cent, for example, and Portugal's by 0.3 per cent.

That's not just a problem for individual governments, but also for the European Central Bank, whose one-size-fits-all monetary policy has much to encompass.

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"The real problem is the divergence across the economies, with the strength mainly coming from core Europe, with Germany leading," BNP Paribas economist Luigi Speranza told Reuters. "... In countries like Italy, Spain, Portugal you don't see a turnaround and domestic demand continues to be weak."

China inflation at 4.9% Skyrocketing food prices and drought have pushed China's inflation beyond official targets for the fourth time in as many months, increasing the likelihood of further tough measures by the country's central bank.

The 4.9-per-cent increase in consumer prices in January, compared to the same time last year, was slightly lower than economists' earlier forecasts and may ease some of the immediate pressure on government to toughen its monetary controls, Carolynne Wheeler reports today from Beijing. But it's still well above China's inflation target of 4 per cent this year, and some economists say it will be just a temporary reprieve.

"Inflation data released today show price pressures remain uncomfotably high and look set to pick up further over the next few months," said strategists at the emerging markets research group at RBC Dominion Securities.

They noted that Chinese authorities changed the weights in their consumer price basket, but that the impact was deemed negligible.

Inflation up in Britain Britain is also struggling with higher inflation, putting Bank of England Governor Mervyn King on something of a hot seat.

Inflation rose in January to 4 per cent, picking up from December's inflation rate of 3.7 per cent and well above the central bank's target.

Mr. King is required to give the reasons why in a note to the government.

"It might have been dated on Valentine's Day, but [Bank of England] Governor King's missive to the U.K. chancellor was no love letter," said David Watt, senior fixed income and currency strategist at RBC Dominion Securities in Toronto.

"It was though another in a lengthening series of statements on why inflation is well above target," he said. "There will be more. Many, many more ... However, the [Bank of England]still considers the price pressures as fading and for inflation as liikely to be above as below target in two to three years."

Retail sales disappoint BMO Nesbitt Burns wonders whether today's reading of U.S. retail sales in January marked a New Year's hangover.

Sales fell shy of expectations, rising just 0.3 per cent. Still, it's the seventh monthly increase in a row, and, noted BMO senior economist Jennifer Lee, "despite the disappointing headline, some reprieve is understandable given the strong holiday shopping spree over the prior two months.

Paul Dales, the senior U.S. economist at Capital Economics in Toronto, however, questions the longer-term trend.

"In the three months to January, retail sales have risen at an average monthly rate of 0.5 per cent, down from 1.1 per cent in the three months before that," he said. "This slowdown is more marked when we strip out the boost from gasoline and auto sales. The average monthly increase then falls to just 0.2 per cent from 0.8 per cent."

TransCanada profit dips TransCanada Corp. also posted lower fourth-quarter profit of $283-million, or 39 cents a share, down from $387-million or 56 cents a year earlier. Revenue, though, climbed to $2.06-billion from $1.99-billion. It also hiked its quarterly dividend.

TransCanada also delayed to later this year its projection for when it expects to get regulator approval for the American portion of its Keystone expansion.

"This is a departure from previous guidance of mid-2011," said UBS Securities Canada analyst Chad Friess.

"Accordingly, the in-service date of the expansion is now guided loosely as '2013,'" he said in a research note, adding the cost estimate has jumped to $13-billion (U.S.) from $12-billion.

"As a result of the delay in timing and increased cost estimates, we expect fiscal 2013 earnings estimates to fall ... Much is riding on gaining regulatory approval from the U.S. Department of State. In the interest of reducing U.S. energy dependence on the Mid-East and elsewhere we see minimal risk that approval for the expansion will not be achieved."

CREA warns Ottawa The Canadian Real Estate Association today cautioned Ottawa to stay out of the mortgage market until the effects of recent changes can be gauged, as it suggested buyers raced to secure 35-year mortgages in January before they are banned in late March, Globe and Mail real estate writer Steve Ladurantaye reports.

CREA also reported monthly statistics showing the national average price in January was $343,675, little changed from the previous three months. Listings more than doubled from December, however, and on a seasonally adjusted basis new listings rose 3.9 per cent for the largest monthly gain since March 2010.

Husky profit dips Husky Energy Inc. today posted a lower fourth-quarter profit of $305-million or 35 cents a share, compared to $320-million or 38 cents a year earlier.

"2010 was a transitional year as we undertook a comprehensive portfolio review," said chief executive officer Asim Ghosh. "From this, we developed and implemented a strategic plan setting out clear financial and operational milestones."

Boyd Erman's Morning Meeting Picture an exchange merger where the bigger partner is being forced to make even more concessions to get political approval to buy a smaller, resource-focused exchange in a deal that the parties have been calling a merger of equals. Sound familiar? It's not the TMX Group Inc. and London Stock Exchange PLC transaction -- it's the Singapore Exchange's attempt to combine with Australian exchange operator ASX Ltd., Streetwise columnist Boyd Erman reports today.

In Personal Finance today Some surprising retailers are entering the lucrative field of service plans.

It's easy to be misled by insurance that purports to protect you from credit-balance default.

Most advice fails to link actions with consequences, says the author of the new personal finance book Moolala: Why Smart People Do Dumb Things With Their Money (And What You Can Do About It).

From today's Report on Business

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