These are some of the major stories Report on Business followed this week. Get the top business stories on weekdays on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Follow Michael Babad and Globe top business news on Twitter
Europe in crisis The leaders of the euro zone are in crisis mode this weekend, scrambling to reach agreement and cobble together a plan to ease the debt troubles that have plagued the monetary union for two years.
While this has been a prolonged crisis that at times has buoyed or damaged global financial markets - fiddling as Athens burns - there's a sense that this time it's a case of make it or break it.
There were several meetings planned as the tension reached unbearable levels for those involved, and the euro zone leaders found themselves under mounting pressure from other governments to find a resolution. French President Nicolas Sarkozy and German Chancellor Angela Merkel were scheduled to meet Saturday in advance of an EU summit in Brussels Sunday.
That summit was supposed to be the Big One, but differences between Ms. Merkel and Mr. Sarkozy forced the scheduling of a second gathering, to be held by Wednesday. The idea is that grand plans will be debated over the weekend, and then adopted at the second summit.
Markets appeared buoyed on Friday that there is actually some action, though it's worth noting that investors have been let down many times during this saga. Euro zone finance ministers did approve paying Greece its next tranche of bailout money at a meeting Friday, but that was expected.
"Unless the governments demonstrate that they have found a clear path toward resolving the sovereign debt, banking sector and economic crises that confront the euro zone, markets will not wait until after Wednesday's Summit II to start trashing the euro and the stocks and bonds of the zone," Carl Weinberg, chief economist at High Frequency Economics, said in a report.
"We think markets need to see a clear path toward creating and funding a large pool of money - that is, hard cash and not just promises to raise cash if needed - and a clear vision of how the agony of Greece will be brought to an end."
Among the issues dividing France and Germany - though Ms. Merkel said the two countries were largely in agreement - were a push by the French over the powers of the bailout fund and whether it could get financing from the European Central Bank. Germany opposes that. The French finance minister backed away from that Friday, saying it was not "a definitive point of discussion for us," which lends some hope to the process although is somewhat vague.
Investors are looking for signs that the main package - shoring up the region's banks, determining the powers of the region's bailout fund, and the size of haircuts for Greek bondholders are under discussion - is taking shape. This has been a week of rumour and speculation, with various signals from various players. That's why, as Greece teeters on the brink and is shattered by widespread anti-austerity protests and strikes, the next several days are crucial to markets that need some certainty.
"The big Sunday summit is set to become a Sunday/Wednesday (add-days-as-appropriate-until-euro-zone-policy-makers-agree) summit," said Elsa Lignos, senior currency strategist at RBC in London.
"It is not a huge surprise that we won't get big decisions this weekend given the enormity of the task and the divisions amongst Germany and France but the longer this drags on, the more damaging it becomes. The now commonplace stream of comments, leaks and denials hitting wires from various EU quarters has most players sitting on the sidelines waiting for some clarity."
According to reports Friday, debt inspectors examining Greece's finances believe private Greek bondholders, who have agreed to take a hit of 21 per cent, would actually have to take a haircut of up to 60 per cent to bring debt to a sustainable level by 2020.
A 50-per-cent haircut for bondholders would result in only bringing down Greece's debt-to-GDP ratio to 120 per cent by 2020, said Stewart Hall, senior fixed income and currency strategist at RBC Dominion Securities. Sixty per cent would take it to 110 per cent.
"A lot of ifs and buts in terms of assumption around inflation and growth but regardless, the numbers are as astonishing as they are disheartening," Mr. Hall said.
Also under discussion, according to reports, is the possibility of combining two bailout funds, the original EFSF and a second permanent rescue mechanism scheduled for 2013. Together, they would, at this point, total in the range of €940-billion. But it's far from clear what that might achieve.
"That's without even chipping away at the total by acknowledging that around €200-billion is already committed, and the rest is likely to be set aside for combined purposes like bank recapitalization, direct country assistance and bond buying," said Derek Holt and Karen Cordes Woods of Scotia Capital.
"The remaining just over €700-billion is a drop in the bucket compared to the vast scale and scope of the challenge and a far cry from the generally acknowledged €2-trillion size that may be required."
As for shoring up the banks, reports on Sunday said EU finance chiefs were looking at demanding that the banks raise €108-billion.
Mr. Holt is particularly harsh in his take on the developments, saying in a report Friday that "it seems the inability to strive toward a meaningful agreement was replaced in the short-term by a cheap headline to extend the European game of trying to buy time with equities that have had at best a limited understanding of the crisis from day one."
Chief economist Sherry Cooper also took an in-depth look at the crisis in a report Friday, and found that what's under discussion simply won't be enough. That includes a 50-per-cent writedown of Greek debt, the amount of bank recapitalization under discussion, and the size of the EFSF.
"There is no way this Sunday's summit or the one after that will provide all that is needed to really deal with the European debt crisis," Ms. Cooper said.
"The true litmus test for credibility is a writedown of Greek debt of €200-billion, a recapitalization plan of €200-billion, and an increase in the effective capacity of the EFSF to €1-trillion. Anything short of this extends the crisis and suggests the Europeans still don't get it or at least not enough to accept the real price tag of the mess they are in."
To understand how high the stakes are, look at Greece, where police and protesters clashed this week as the world watched and the debt inspectors poring over the books warned earlier in the week that even a second bailout may not save Athens.
The leaders of the euro zone are, of course, trying hard to ease the burden, but are fast losing credibility.
"In almost two decades as a professional economist I cannot recall witnessing as much confusion and policy incompetence as this last week has shown," said global economist Paul Donovan of UBS. "Regardless, we must hope that the euro can be made to work. The alternative is too hideous to contemplate."
Mr. Donovan believes that today's crisis is "a visible manifestation of the complete failure of the euro to work as a monetary union." Put another way, Europe's leaders are flogging a dead horse, repeatedly.
(The EU's statistics arm, Eurostat, has released debt and deficit figures for 2010. While something of a rear-view mirror look, they're still worth a peek.)
- 'Fear of the unknown' strikes at heart of crippled Greece
- EU near agreement on forcing banks to raise $140-billion
- EU ponders 60% haircuts for Greek debt
- Germany-France feud stalls Greek rescue deal
- Troika recommends Greek loan payout
- Understanding the European debt crisis
- Germans demand austerity, Greeks go on the rampage
- Credit raters hit Spain, France
- Greeks strike as crisis enters decisive week
Central bank renewal The Bank of Canada is heading into its renewal period amid heightened global uncertainty, but all indications are that not much is going to change.
As The Globe and Mail's Jeremy Torobin and Bill Curry reported this week, the agreement between the central bank and the government, which calls for a target of 2 per cent for annual inflation, expires at the end of this year. There's no question Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty will renew it, but there are questions about what they might say.
Inflation isn't really an issue right now - Friday's report from Statistics Canada puts it at 3.2 per cent, more than expected and more than is wanted - but there are more important things on Mr. Carney's plate at this point.
There may be some tweaking to the language, however, as Mr. Flaherty hinted Friday, but it's not likely they're talking about changing it to include targets on other indicators, such as employment. What's more likely, the Globe's report suggests, is a nod to what Mr. Carney dubs "flexible inflation targeting," which basically means he can do what's needed to respond to shocks by waiting to bring the target in line.
"The governor and I have discussed this at some length and I think we are understanding each other," Mr. Flaherty said Friday.
"We are d'accord, we are in line with each other on this," he said. "So we're not talking about a new policy or a new mandate for the Bank of Canada. What we are talking about is being more explicit about what the mandate of the Bank of Canada is."
This came after the House of Commons finance committee decided to study just that, though their decision Thursday probably won't change anything, not this time, at any rate.
Stable, low inflation supports the economy and employment, though I believe there are times when the priority should be jobs and growth, and times when it should be consumer prices. There are times when a little bit of inflation won't kill you depending on the economy of the moment.
The Federal Reserve, for example, has a dual mandate, one that includes stable prices and what it considers maximum employment.
The Bank of Canada Act also gives a nod to employment, and the central bank says it supports jobs through its inflation focus. Bank of Canada chief Mark Carney has said that he plays a role in general economic well-being, and there's no suggestion he isn't keeping his eye on the jobless rate.
- Bank of Canada to get marching orders to look beyond inflation
- No change to inflation target: Flaherty
- House considers new goals for Bank of Canada
- Mark Carney on a mission: First Canada, now the world
- With bank mandate up for renewal, Paul Martin recalls his own inflation battle
- Kevin Carmichael's Economy Lab: Ben Bernanke starting to read Bank of Canada's playbook
- Economy Lab: Central banks should have dual mandate: Inflation, jobs
- See the Federal Reserve Act
- See the Bank of Canada Act
- What the Bank of Canada says about its inflation target
Apple's rare miss Apple Inc. has a hit on its hands with its new iPhone 4S - it talks back to you - but it had a rare miss this week with its quarterly results. Still, as one analyst put it, it's probably just an "iBlip."
Apple , which shipped more than 4 million iPhone 4S smart phones in the first three days, earned $6.62-billion or $7.05 a share in its fourth quarter. The more than 17 million iPhones sold fell shy of expectations, which the company blamed on buyers waiting for the new version, with its Siri voice technology.
"Apple's surprise miss to Q4 Street expectations was the first in more than five years; however, we remain positive on the shares for three reasons: 1) the miss appears transitional; 2) catalysts and global opportunities remain ahead; 3) Q4 offers a healthy reset of expectations ahead of the iPhone 4S impact," said RBC analysts Mike Abramsky, Mark Sue and Paul Treiber.
Other analysts were equally forgiving, as The Globe and Mail's Darcy Keith reports, relating the disappointing results to temporary factors. Soon, they think, Apple will be beating Street estimates again.
Canaccord Genuity analyst T. Michael Walkley, for example, also saw the quarter as "transitional," continuing to expect strong growth from the tech giant and expecting record holiday sales. Like Apple itself, Mr. Walkley also thinks people held off as they await the new iPhone, and his checks with stores indicate continued strong world-wide demand.
And Baird analyst William Power dubbed the quarter an "iBlip," saying Apple still expects record iPhone and iPad shipments in its first quarter.
The Globe and Mail's Simon Avery also took a look at Apple's valuation this week, and found that, while it faces tough competition from Google Inc.'s Android system, it's sure tempting now.
- Apple misses Street expectations
- Apple's sour earnings report just an 'iBlip'
- Video: Omar El Akkad on the iPhone 4S and Siri
- A bite of Apple has seldom looked so tasty
- Apple sells 4 million iPhone 4S models in three days
Happy, healthy and wise? The Globe and Mail's Tavia Grant reported this week on an intriguing new measure of our quality of life, an index that goes well beyond the traditional look at gross domestic product.
The new Canadian Index of Wellbeing, one of the first of its kind, though other countries are working on something similar, gives a broader look, taking in 64 areas such as education, health and living standards. It's based at the University of Waterloo, and it finds that our wellbeing has lagged economic growth.
It finds that since 1994, wellbeing has increased by 11 per cent, while the economy grew by more than 30 per cent. Having said that, the first go runs only through 2008, meaning it misses the depths of the recession.
"This is a two-sided coin – the one side is fiscal and economic policies that governments set, and the other side is what it means to ordinary Canadians," said Roy Romanow, chair of the index's advisory board. "This is a seminal report, because it puts out for the first time some measuring stick as to actual impact of government policies. "
The index has certainly come at the right time, as Canadians recover from the financial crisis and economic slump, unemployment soars in many countries, and protests dot the globe.
Separately this week, a new global report from Credit Suisse showed that wealth in Canada has rebounded since the recession. Canada stands at eighth in the world in a ranking of aggregate household wealth, and 13th in terms of wealth per adult, at $245,000 (U.S.).
"While wealth per adult in the United States is still 8 per cent below the 2007 level, Canada's wealth in domestic currency is now 3 per cent above the 2007 figure," the report said. "This reflects the fact that Canada's financial institutions and housing market did not suffer a collapse during the global financial crisis."
The housing part of that is important. Unlike the U.S. real estate market, Canada's housing market didn't crash. Not only that, it has been gaining, and is expected to continue to do so.
A report this week by National Bank Financial projects an eventual slowdown in housing, in 2012 and 2013, but it sees no meltdown.
"Mortgage rates will almost certainly linger near their current historical lows for at least the next 12 months, which should prevent a pronounced slump in housing market activity," said the report's author, Shubha Khan. "We previously expected rate hikes would materialize as early as [the fourth quarter of]2011."
He forecasts an 8-per-cent gain in the dollar value of home sales this year, a 3-per-cent dip in 2012 and a 5-per-cent decline a year later.
- New index pinpoints inequalities in Canadians' quality of life
- Infographic: Comparing GDP to the Canadian Index of Wellbeing
- Wealth in Canada rebounds, now eighth in world, report says
- Read the Credit Suisse wealth report
- Tammy Schirle's Economy Lab: 'We are the 30%' a better chant for Canadian protesters
- Canada's housing market: 'Slowdown postponed'
- Infographic: Housing to slow in 2012, 2013
- Economic fits and starts: Are we in for 'flash' recessions?
In the markets The S&P 500 gained 1.1 per cent this week, and the Dow Jones industrial average 1.3 per cent, though Toronto's S&P/TSX composite slipped by 1.1 per cent.
The TSX, noted Robert Kavcic of BMO Nesbitt Burns, is "now down more than 11 per cent so far in 2011, much worse than the 1.5-per-cent drop in the S&P 500 - it's looking more and more like this will be the first year since 2003 that Canadian stocks underperform their U.S. counterparts."
Mr. Kavcic called this week's earnings reports a "mixed bag" of results.
"With about one-fifth of the S&P 500 reporting, 73 per cent have beaten earnings expectations, while 63 per cent have beaten on revenues," he said. "That's about in line with the overall results seen last quarter, but trailing behind Q2's early-season performance - recent earnings seasons have tended to start strong and moderate later on."
A roundup from the lighter side this week 1. "This situation does not improve with time. This is not a fine wine." This comment by Canada's Finance Minister Jim Flaherty, in Dublin, was a different take on the euro crisis, and one of the best lines yet.
2. "The panel reviewed some of the CBSC's previous decisions involving the word 'bitch' and concluded that the use of the word in the song 'Crazy Bitch' did not reach the level of abusive or unduly discriminatory comment as the song only referred to one particular woman rather than generalizing all women as 'crazy bitches.'" This is from the Canadian Broadcast Standards Council's decision to allow Buckcherry's Crazy Bitch because it's only about one crazy bitch, not women in general.
3. Initial public offerings have been killed or cut back for several reasons, but here's a novel one. YG Entertainment, a South Korean talent agency, has scaled back its IPO because of a marijuana scandal involving one of its stars, Reuters reported this week. The star in question said that he did in fact smoke a wee bit of pot, but he thought it was a cigarette.
4. Best line of the week, from Howard Lindzon at StockTwits: "I was talking dirty to the iPhone and it was dishing it right back. That's hot."
5. The cover of The New Yorker has a clever take on the Occupy Wall Street protest, with an illustration of protesting bankers of old - they look like Mr. Monopoly - complete with signs with slogans such as "Keep things precisely as they are."
Required reading from Report on Business this week Gerry Pond worked 38 years for New Brunswick's phone company, rising to the president's office and to paycheques of hundreds of thousands of dollars a year. But a decade after leaving, he figures that as an investor, he has made more money this year from just one deal than from his entire career with NBTel. It's because he took a bet on a Fredericton university dropout named Chris Newton. Gordon Pitts reports from Fredericton.
Maple Leaf Foods Inc. unveiled a sweeping $560-million overhaul that will see it close most of its aging meat-processing factories in Canada in a bid to slash costs as it fights with more efficient global rivals. Jacquie McNish reports.
So far, Bonnie Brooks is enjoying early signs of a turnaround at the Bay, one Burberry handbag at a time. But as competition tightens, she's racing to complete her three-phase plan, still only in its first stage after her three years at the helm, Marina Strauss writes.
After a year of stumbles, Jim Balsillie predicts a turnaround for Research In Motion Ltd. Iain Marlow was at RIM's conference for software developers in San Francisco.
It has been easy to underestimate Big Jim Irving Jr., The Globe and Mail's Gordon Pitts writes. Born with a silver spoon, people say. Hopelessly immersed in operations, and lacking in vision. A hulking guy with the back-slapping style of a lumber salesman. That dismissive assessment was proven wrong this week.
What to watch for next week Bank of Canada Governor Mark Carney takes centre stage, first with the central bank's policy announcement on Tuesday and then with the release of its monetary policy report Wednesday. "The Bank of Canada won't surprise markets at its policy meeting that day, shrugging off upside surprises to core inflation and holding rates at a stimulative 1 per cent, pointing to external uncertainty and sluggish growth," said Emanuella Enenajor of CIBC World Markets. "The MPR release (Wed) should add more colour to the BoC's cautious outlook, likely to include downgrades to prior growth forecasts."
The U.S. Commerce Department reports Thursday on how the economy performed in the third quarter. Economists believe the report will show America's gross domestic product expanded at an annual pace of 2.3 per cent, bouncing back from the 1.3 per cent of the second quarter and the 0.4 per cent of the first. "A pickup in personal consumption, an acceleration in business capital spending and a rebound in the auto industry likely more than offset further cutbacks in municipal government spending to pull the U.S. economy away from the recession edge in Q3," said senior economist Sal Guatieri of BMO Nesbitt Burns.
Several major U.S. companies report quarterly results, but Canadian earnings really kick into high gear with the likes of Canadian National Railway Co., Canadian Pacific Railway Ltd., Goldcorp Inc., Rogers Communications Inc., Methanex Corp., Barrick Gold Corp., Teck Resources Ltd., Maple Leaf Foods Inc., Nexen Inc., Potash Corp. of Saskatchewan, and TransAlta Corp. Among major international companies, Amazon.com Inc., BP PLC, Deutsche Bank AG, UBS AG, Boeing Co., Ford Motor Co., Visa Inc., Colgate-Palmolive Co., Daimler AG, Procter & Gamble Co. and Royal Dutch Shell PLC report.