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Without Germany, euro crisis is 'only going to end one way'

These are stories Report on Business is following Wednesday, May 30, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Spain at the brink Europe's crisis deepened today as Spain and its banks remained in the crosshairs, spooking global markets again.

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Spain continues to insist it will not go the way of Greece, Ireland and Portugal and ask for a bailout. But markets are betting otherwise.

Spanish bond yields spiked again as concerns over the country's banking system grew, notably where Bankia is concerned.

Today, the European Union proposed that the euro zone set up a "banking union" that would spread the risk throughout the entire 17-member monetary union.

But something like that would no doubt cause problems for the stronger countries such as Germany, already the driving force behind the bailouts.

"There was a brief flurry of excitement at midday when an EU Commission report suggested recapitalizing banks via the European Stability Mechanism, but hopes faded rapidly as everyone realized the one tiny flaw in the plan – it depends on Germany giving away more of its money," said futures dealer Rupert Osborne of IG Index.

"This is still the only viable method of solving the crisis, but for some unfathomable reason the Germans aren't too keen on - as they must see it - throwing good money after bad. Unless they change their minds, this crisis is only going to end one way."

With Spain in focus, and continued uncertainty in Greece in the run-up to a mid-June election, the euro zone promises to continue wreak havoc on global markets. The situation grows more dire by the day, along with faith in Europe's leaders.

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"Throughout the long months of the euro zone crisis, one comforting thought has remained to us all: The common thread linking Greece, Ireland and Portugal was the fact that they were all relatively small economies in the grand scheme of the European project," Mr. Osborne said.

"Yet now the crisis looks to have Spain firmly in its grasp, a country that is possibly too big to save. The prospect of a Spanish bailout has sent markets into definite risk-avoidance mode, with yields on government bonds hitting new record lows."

It's no surprise that, also today, a European confidence index slumped this month.

Markets slump Global stock markets sank today, dogged by mounting fears over Spain and China's warning that it plans no further major stimulus measures.

Tokyo's Nikkei lost 0.3 per cent, and Hong Kong's Hang Seng 1.9 per cent. The ugly mood carried into Europe, where markets quickly sank, and then into North America, where the S&P 500 and Toronto's S&P/TSX composite were hit.

RIM sinks deeper Shares of Research In Motion Ltd. plunged today amid the company's rapid fall from grace.

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Today's rout follows the announcement late yesterday that RIM expects an operating loss when it releases first-quarter results in late June, followed by several more quarters of sub-par performance.

As Rita Trichur writes in today's Report on Business, the company also hired JPMorgan Chase & Co. and RBC Dominion Securities to help with its strategic review.

It took no time for analysts to begin marking down their target price RIM shares, which are now dangerously close to slipping below $10.

Raymond James analyst Steven Li, for example, slashed his target to $12 this morning, from $15.

What's worse, Mr. Li believes markets are still underestimating the extent to which sales and margins have declined, which poses further risk when RIM reports June 28. He also says there's a risk of another inventory writedown.

"Yesterday morning, we lowered our forecasts for RIM given our concerns on the quarter and how fundamentals were deteriorating," Mr. Li said. "We did not cut enough."

Some observers, of course, are holding out hope that RIM will be acquired, but analysts warn of the uncertainty there.

RIM warned of intense pressure in its announcement late yesterday.

"The ongoing competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace, and we expect our Q1 results to reflect this, and likely result in an operating loss for the quarter," said chief executive officer Thorsten Heins.

"We are continuing to be aggressive as we compete for our customers' business - both enterprise and consumer - around the world, and our teams are working hard to provide cost-competitive, feature-rich solutions to our global customer base."

Mr. Heins went further, warning that "our financial performance will continue to be challenging for the next few quarters."

He did, however, project that RIM's cash position would grow further from the more than $2-billion at the end of its last fiscal year.

And he added the company's global subscriber base has climbed to about 78 million, largely on offshore markets, though he cited the "high churn" in the United States.

RIM's market share in the United States has been eroding amid the popularity of other devices, notably the iPhone from Apple Inc. and smartphones powered by the Android system from Google Inc.

For analyst Mark Sue at RBC Dominion Securities, the situation is becoming "increasingly critical." And the coming launch of its BlackBerry 10 offering faces a bigger threat.

"The challenge of attracting (and retaining) customers, enterprises, developers and carriers is intensifying," Mr. Sue said.

"We see RIM losing its most lucrative users (those in the U.S.), which may be difficult to regain even with BlackBerry 10. New international subscribers are price sensitive and may be difficult to retain over time. We believe RIM also needs stabilization in its legacy business as a source of funds to support the changeover to BlackBerry 10"

Shaw gets newsier Shaw Media is betting big on news, adding a noon news program to its Toronto lineup and introducing extended local newscasts in Regina, Saskatoon and Winnipeg, The Globe and Mail's Steve Ladurantaye reports.

Senior vice-president of Global News and station operations, Troy Reeb, said that by the end of August the broadcaster will have added 40 hours a week of news programming across the network each week.

Shaw believes it can steal market share from the all-news networks offered by the Canadian Broadcasting Corp. and CTV.

Ackman on motivation Bill Ackman wasn't thinking about sex when he launched a heated battle against Canadian Pacific Ltd. .

But he does believe people are motivated to succeed by sex.

Yesterday on CNBC, the driving force behind Pershing Square Capital Mangement was asked about such a comment he made to a group of Wharton students. Was he trying to get their attention, or does he believe it?

Both, he said, suggesting that "ultimately we're animals" motivated by basic instincts.

"Why are people motivated to succeed?" said Mr. Ackman, who took on CP's blue-chip board in a months-long battle, leading to the departure of the chief executive officer and several directors.

Mr. Ackman was asked on CNBC whether he was thinking about sex during that fight.

He was not: "Unfortunately, I'm too far removed from college at this point."

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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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