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George Soros: 'We are on the verge of an economic collapse'

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Soros on Europe Europe's debt crisis has brought the region to the brink of an "economic collapse," George Soros warns, and it's likely the monetary union will at some point agree to a plan by which some of its members can leave.

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"We are on the verge of an economic collapse which starts, let's say, in Greece, but it could easily spread," the renowned investor said at a panel discussion in Vienna yesterday, according to Bloomberg News. "The financial system remains extremely vulnerable."

This week marks either the beginning of the end for Greece's troubles, or the beginning of the end for Greece. Whatever happens, though, the debt crisis in the euro zone is far from over.

Greek politicians are debating a new round of austerity measures tied to the country's bailout, after an agreement on targets between Athens and the threesome of the EU, the European Central Bank and the International Monetary Fund. A vote is expected Wednesday amid widespread protests against plans to further slash the public sector and hike taxes.

There are some signs of movement today. French President Nicolas Sarkozy said banks in his country are prepared to help out by rolling over debt, and, according to reports, German banks are studying a similar proposal.

"Comments by Chinese PM Wen Jiabao at the weekend that China would remain a long-term investor in Europe's sovereign debt market appear to have been shrugged off by investors as realization dawns that Greece is symptomatic of a wider problem in Europe," said CMC Markets analyst Michael Hewson.

"Furthermore it is likely that it will take a few more than token purchases of European bonds to convince market participants, and bond markets in particular that Europe has the means to resolve its problems. While welcome news to peripheral European economies at a key time it is unlikely that this generosity is prompted by anything other than a determination in keeping their biggest export market ticking over, and it is likely that the Chinese will attach as many strings as possible to any help that may be forthcoming."

Mark Williams, senior China economist at Capital Economics in London, estimated that China has already acquired more than €40-billion of euro-denominated assets this year, but the crisis still rages.

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"Despite warm words of support from China's leaders, there is no reason to believe that China has the ability to solve the euro zone's debt crisis," Mr. Williams said. Indeed, it is quite likely that Beijing has already been buying substantial amounts of euro-denominated assets, and yet this has not prevented yields from rising."

As for the proposal to roll over maturing Greek government bonds, Mr. Hewson said that "the big unknown remains with respect to how these would be viewed by the ratings agencies and whether they would be classified as a 'credit event' and therefore subject to a ratings downgrade."

If the austerity measures aren't passed, there's little chance of Greece getting more money, which will, of course, raise even greater fears of default.

"Without new money, we project Greece will default on its debt service between July 15 and July 22," Carl Weinberg, the chief economist at High Frequency Economics, said in a report yesterday.

"It has €6.8-billion in bond redemptions and coupons to pay out at that time. All indications suggest it lacks the cash. If it makes it through the July cash squeeze, another rush of bond redemptions and coupons will be due around Aug. 20."

Competition chief goes after Air Canada, United Canada's competition cop is challenging a joint venture between Air Canada and United Continental Holdings Inc. , alleging it would "monopolize" 10 key Canada-U.S. routes and "substantially reduce" competition on nine others.

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This would lead to higher prices and reduced choice on important routes, the Commissioner of Competition, Melanie Aitken, said in a statement today, The Globe and Mail's Brent Jang reports.

"The proposed joint venture would allow Air Canada and United Continental to operate and set prices as one airline," she said. "If allowed to proceed, consumers will face higher prices and even less choice on key, high demand air passenger routes."

Air Canada said it has been co-operating with Ms. Aitken, though disagrees with her.

"The proposed U.S.-Canada transborder joint venture opposed by the bureau would increase existing customer benefits significantly via lower fares, better co-ordinated flight schedules and connection times, more route choices, and improved frequent flier benefits," United added in a statement.

The airlines forged the venture last year to co-ordinate scheduling, sales and pricing on transborder routes.

Ms. Aitken said she filed an application today with the Competition Tribunal to block the deal, saying it is effectively a merger between the two where their Canadian and U.S. operations are concerned.

Ms. Aitken isn't just challenging the joint venture, but also three existing co-ordination deals between the two carriers.

"The current agreements between Air Canada and United Continental already allow the companies to set prices above competitive levels on all key 19 transborder routes, which alone violates the Act," she said. "Making matters worse, they now want to fully merge their operations."

RIM chiefs under pressure The co-chief executive officers of Research In Motion Ltd. are under mounting pressure to split the role of chairman and CEO at the BlackBerry maker.

Institutional Shareholder Services Inc., an influential proxy advisory firm, recommended that move today, following in the footsteps of a rival adviser last week.

"The board's mandate is to represent the interests of shareholders through overseeing management and instilling accountability," ISS said today, according to reports. "Conflicts of interest may arise when one person holds both the chair and CEO positions."

There will be a vote on the issue at RIM's annual meeting next month. RIM recommended shareholders vote against such a move, citing independent director John Richardson.

Bear Creek shares plunge Shares of Bear Creek Mining Corp. plunged again today, after an initial decline late Friday amid a deadly protest related to a mining project in Peru.

Five demonstrators were killed, and several more injured, in a clash with police last week, prompting Peru's outgoing government to revoke Bear Creek's licence for the project in Puno province, where several thousand largely Aymara Indian demonstrators have called for a halt to all mining because of pollution fears.

The government pulled the licence on the Santa Ana mine, and halted all new concessions in Puno for three years. As Globe and Mail mining reporter Brenda Bouw reports today, Bear Creek is threatening a legal challenge against the move, which threatens other resource companies in Peru, a region strong in minerals and home to the operations of several mining giants.

"This Santa Ana situation was a poor choice to resolve a political situation ... it's very appealable," Bear Creek chief executive officer Andrew Swarthout told investors today.

Raymond James analyst Brad Humphrey slashed his price target on Bear Creek stock to $7.80 from $13.50.

"This is unfortunate news and admittedly not the route we had anticipated the outgoing government would take," Mr. Humphrey said.

"That said, at current valuations we believe that Santa Ana has already been removed ... The stock will likely be weak as we suspect many investors believed, as we did, that after a review period the project would ultimately be given the green light. As a result (and even though we continue to see good longer term value at current levels) we are lowering our rating from outperform to market perform.:

Group backs TMX-LSE deal A group of senior Canadian executives have put their support behind the proposed merger of TMX Group Inc. and London Stock Exchange Group PLC, Globe and Mail Streetwise columist Boyd Erman writes.

The 11-member group of big names in the financial sector worries a rival bid by Canadian financial institutions would leave capital markets too concentrated.

What's coming this week Statistics Canada is expected to report this week that Canada's economy suffered a setback in April, kicking off what is generally believed to have been a soft quarter.

Economists expect the agency's report on gross domestic product Thursday morning will show that the economy contracted in April by 0.1 per cent, compared to March, marking the pullback in three months as Canada continues to climb back from the recession.

"A drop in manufacturing activity, partly due to a pullback in auto production in the wake of Japan's disasters, and related softness in wholesale trade and transportation will account for much of the weakness," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

"As well, housing starts and home sales softened from the prior month, as a cold, rainy spring may have dampened this sector and other activity. Providing modest offsets, the election campaign was in full swing and there was a small gain in retail sales volumes, while employment notched a hefty rise. Our call would leave GDP up a moderate 2.6 per cent from year-ago levels, about in line with the economy's long-run trend but well down from last summer's peak above a 4-per-cent pace."

Though the economy softened in the current quarter, consumer prices didn't.

Economists expect a separate Statistics Canada report on Wednesday will show that prices climbed 0.3 per cent in May, which would leave the annual inflation rate at about 3.3 per cent for the third month in a row.

"Food prices were likely flat in May, as further price increases in items such as 'meats' were met with unwinding of the 'Mexican Freeze'-induced run-up in veggie prices," said economist Emanuella Enenajor of CIBC World markets.

"Fuel oil and natural gas prices were likely flat, with pump prices also barely budging from the highest level in three years."

Fewer eligible for EI Fewer Canadians were eligible for jobless benefits last year - particularly men and young people - as more people turned to self-employment and long-term unemployment rates rose, The Globe and Mail's Tavia Grant reports today.

Eligibility rates for getting regular employment insurance benefits fell last year from 2009, when Canada was in the throes of a recession, Statistics Canada's annual overview of EI coverage found.

In International Business today The number of new medicines launched globally slumped last year, with a particular drop in the proportion coming from large drug makers, Andrew Jack of The Financial Times reports.

In Economy Lab today A common feature of many environmental programs is the idea of "green jobs," he employment opportunities generated by a given set of proposals are presented as an additional benefit of the policy agenda. This is also a common mistake, Stephen Gordon writes.

In Personal Finance today Few retirement homes are accepting of gay couples or singles, but preparation can help with finding and funding care later in life.

Rising food prices and a desire to know where their food is coming from has city dwellers growing vegetables in their backyard.

Are you ready to buy a home? Find out if it's the right time for you to enter the real estate market.

In today's Report on Business

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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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