Skip to main content

The Globe and Mail

As the euro zone dies a slow death, a leadership vacuum

These are stories Report on Business is following Tuesday, July 12. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

Follow Michael Babad and Globe top business news on Twitter

Europe in turmoil The euro zone is in disarray today. Its finance ministers have again failed to ease market fears, politicians are pointing fingers, and there's open talk of an eventual breakup of the 17-member monetary union. Bond yields spiked again today, and credit default swaps soared.

Story continues below advertisement

At the heart of the crisis is an absolute failure by Europe's leaders to come up with any answer to the 14-month-old troubles that began with Greece and spread like a virus through the periphery countries and now into the bigger economies.

"Continued policy paralysis and discord amongst EU leaders about how best to deal with the sovereign debt crisis continues to undermine the single currency," said CMC Markets analyst Michael Hewson.

"With Germany opposed to anything that could pass for a move towards a fiscal transfer union, efforts to head off an imminent crisis appear stymied," Mr. Hewson said today in a research note.

"Bond yields in Spanish and Italian 10 year paper have soared with Spanish yields pushing above 6 per cent for the first time since the inception of the euro, and Italian yields pushing above 5.7 per cent. This move higher in yields wasn't helped by reports that a Spanish regional government had a budget deficit more than twice as large as previously thought, raising new concerns over the true state of regional finances in other Spanish regions."

Finance ministers from the euro zone met yesterday, and released a statement last night promising to what's necessary to ease the crisis. That would include easier terms on loans and extended maturities, but the lack of real detail and timelines only added to the worries.

Today, Reuters reports, some investors are now betting that the euro zone will eventually collapse. Such comments have been heard before, of course.

It doesn't help that politicians are bickering among themselves.

Story continues below advertisement

"I am now convinced, after 14 months, that no matter what Greece does - and we have proven ready to live up to our responsibilities - if Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that will could engulf our common union," Greece's Prime Minister George Papandreou said in an open letter to the chief of the euro zone. "Strong and visionary European leadership is needed."

Markets tank Fears over the euro zone continue to ripple through global markets today. European bank stocks, in particular were being hammered, though markets were more optimistic after a successful Italian bond auction.

"The threat of contagion to core Europe, brought about by disappointment over Eurogroup's failure to provide a plan to help Greece and the looming bank stress test release, have sent market participants scrambling for safe havens," said Scotia Capital's chief currency strategist Camilla Sutton. "Accordingly, equities and commodities are weak, volatility indices have risen and the [U.S. dollar]is strong."

Tokyo's benchmark Nikkei lost 1.4 per cent, and Hong Kong's Hang Seng 3.1 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.7 per cent and 1.2 per cent by about 8:30 a.m. ET.

Dow Jones industrial average and S&P 500 futures also fell.

"Investors continued to turn away from risk overnight amid increased worries that the European debt situation is becoming increasingly difficult to contain after an EU finance ministers meeting ended without a clear plan once again," said Derek Holt and Karen Cordes Woods of Scotia Capital.

Story continues below advertisement

"Italy and Spain were also swept up further on contagion worries as global equity markets plunged another 1 per cent to 2 per cent around the world. The Hang Seng, in particular, plummeted just over 680 points or 3 per cent while U.S. equity futures are solidly in the red this morning . As the flight to safety continues, U.S. Treasuries are rallying once again with two-year yields now closing in on the record low of 0.33 per cent reached in mid-June.

Trade deficit narrows Canada ran a trade deficit in May for the fourth month in a row, though it narrowed to $814-million, as the strong Canadian dollar and softening demand in the United States took their toll on exports.

The deficit narrowed from $857-million a month earlier.

Exports climbed 1.2 per cent, slightly outpacing the 1.1-per-cent gain in imports, Statistics Canada said today.

The rise in exports was the result of a 1.5-per-cent gain in volumes, while prices dipped 0.3 per cent. That was led by machinery and equipment, and auto-related products. In volume terms, imports actually fell, by 1 per cent, though prices increased 2.1 per cent.

"The strong Canadian dollar and persistent softness in U.S. demand continue to be headwinds for exporters, with trade expect to weigh on GDP growth for the second straight quarter," said Benjamin Reitzes of BMO Nesbitt Burns . "However, with auto production expected to rebound in [the third quarter] Canada should see some improvement in its trade performance."

As far Canada's trading partners, its surplus with the United States narrowed slightly to $3.7-billion from $4-billion, as exports inched up 0.1 per cent and imports climbed 1.1 per cent. Exports to other countries, though, increased 4.4 per cent, largely because of stronger trade with the EU.

"The robust gains in two-way autos trade and a double digit rise in imports from Japan suggest that supply-chain disruptions could be gradually easing," noted economist Emanuella Enenajor of CIBC World Markets.

In the United States, surging energy prices pushed up imports, leading to the fattest trade deficit in more than two and one-half years. The U.S. recorded a deficit of $50.2-billion (U.S.), up from just shy of $44-billion.

Gaz Métro to acquire Vermont utility Canadian gas distributor Gaz Métro Limited Partnership has edged out rival bidder Fortis Inc. for control of Vermont's biggest power utility, Central Vermont Public Service Corp. , The Globe and Mail's Bertrand Marotte reports.

The deal today boosts Gaz Métro's presence in the key U.S. market.

The Vermont utility had previously reached a deal with Fortis, but said today it has killed that agreement in favour of the better bid from Gaz Métro, a cash deal worth about $472-million (U.S.) or $35.25 a share.

"Our philosophy is to rely on experienced local management and provide them the capital they need to grow and thrive," Gaz Métro chief executive officer Sophie Brochu said in a statement.

In International Business today Inflation in Britain fell unexpectedly in June, while the trade gap widened, pointing to more weakness in the economy and providing support to those in the Bank of England who want to keep interest rates at a record low, Reuters reports.

In Economy Lab today Toronto has topped Vancouver to become most expensive city in the country to live in because of its relatively high rental accommodation costs, The Globe and Mail's Tavia Grant reports.

From today's Report on Business

Report an error
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

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.