Skip to main content

The Globe and Mail

The end of 'Merkozy' could be a good thing for Europe

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

What Europe's elections could mean Is the end of "Merkozy" nigh? And if so, what might that mean for Europe's austerity drive?

Story continues below advertisement

Politically, things could look a lot different come Monday morning after two key elections, and lesser votes, in the embattled European economies.

In France, polls suggest Socialist hopeful François Hollande could beat Nicolas Sarkozy in Sunday's presidential run-off, though I stress they're polls and the French president was moving up on Friday. And in Greece, it's just about anyone's guess as to where things end in Sunday's elections to replace the technocrat government now in place.

There are also regional elections in Italy and Germany.

All of this takes place against the backdrop of crippling unemployment across Europe, and cutbacks that have sparked strikes, demonstrations and riots in a backlash against the region's harsh austerity measures.

The weekend elections promise not only to remake the political map, but also to upset the cohesion behind the fiscal compact.

Throughout the crisis, Mr. Sarkozy and Germany's Angela Merkel, the duo dubbed "Merkozy," have led the austerity drive and held the fragile euro zone together in the face of angry markets.

Their partnership looks set to end, however, at least at this point.

Story continues below advertisement

"While that may cause some concerns about France renegotiating European treaties and a shift away from conservative budget policies, policy differences likely won't be as significant as the election rhetoric suggests," said Benjamin Reitzes of BMO Nesbitt Burns.

And would it necessarily be a bad thing? Personally, I don't think so. I agree with Avery Shenfeld, the chief economist at CIBC World Markets, that some easing is badly needed.

"Hollande will also break the Franco-German alliance that has insisted on rigid austerity, with the recent euro zone pact guaranteeing deep recessions in countries aiming at unrealistically abrupt deficit improvements," Mr. Shenfeld said.

"A gradualist approach might require more support from [European Central Bank]securities purchases to becalm initial bond market fears. But the end result would be more sustainable progress on deficit-to-GDP ratios, by preventing the denominator from falling, and sustaining public support for reductions in the numerator."

Whatever happens, the markets could be in for a fresh bout of turmoil next week.

"Given Hollande's opposition to fiscal austerity and the recently struck fiscal pact, however, his possible victory could well position European sovereign debt markets to cycle flows into German bunds and away from a number of other euro zone economies," said Derek Holt of Scotia Capital.

Story continues below advertisement

"Greece also holds elections and this may add uncertainty to the path toward a fresh budget and its implementation that could rattle markets. Finally, regional elections will be held in Germany and Italy that will be in part a judgment on the euro zone crisis."

Facebook's IPO Investors are all a-twitter of Facebook Inc.'s planned initial public offering.

Facebook this week set the range for pricing its shares at $28 (U.S.) to $35, in turn valuing the social network phenomenon at up to about $95-billion. It plans to offer 180 million Class A shares, with an additional 157 million from stockholders.

The Class A shares carry one vote, the Class B stock 10. That means those holding Class B shares will control more than 96 per cent of the votes after the IPO. Chief executive officer Mark Zuckerberg alone will hold more than 57-per-cent control.

Facebook's offering on Nasdaq follows other social networking deals, which, as The Globe and Mail's Omar El Akkad reports, have raised concerns of another technology bubble.

Facebook's revenue climbed in the first quarter of the year to almost $1.1-billion, from $731-million a year earlier, while profit slipped to $205-million from $233-million.

RIM shares sink RIM stock also has investors all a-twitter, but for all the wrong reasons.

As The Globe and Mail's Iain Marlow reports, shares of Research In Motion Ltd. hit an eight-year low this week, sinking after the company unveiled its BlackBerry 10 software.

Thorstein Heins, RIM's new chief executive officer, unveiled it at the company's BlackBerry World conference in Orlando on Tuesday, displaying what Mr. Marlow describes as sleek new software and enhanced functionality. Still, RIM shares fell by about 6 per cent on the day in question, and continued dropping as the conference continued.

"It could be that the stock is starting to trade on fundamentals and not takeover, break-up and partnership speculation," said analyst Kris Thompson of National Bank Financial. "The May and August quarters are going to be ugly either in terms of volume shipments and/or gross margin."

U.S. jobs growth slows The United States continues to try to struggle out of its jobs crisis.

The U.S. economy created just 115,000 jobs in April, marking the second consecutive month of weak growth. At the same time, the unemployment rate dipped to 8.1 per cent, but that was because hundreds of thousands of people dropped out of the work force, giving up the hunt for a job and thus no longer counted.

"Once again the unemployment rate surprised, but not for the right reasons," said senior economist James Marple of Toronto-Dominion Bank.

"Particularly disappointing, the participation rate of core working-age people 25-54 fell back to its lows in October and November of last year. If the participation rate of core working age people does not rebound it will mark a permanent decline in U.S. economic potential. However, if it does rebound, it will make further declines in the unemployment rate harder to come by."

Required reading this week If the bubble bursts, Barrie McKenna writes, Canadians will surely want to know why Mark Carney and Jim Flaherty didn't do more, sooner.

Canadian graphite miners are angling to be high-end suppliers to the global lithium ion battery market. Pav Jordan takes a look at what that means.

A change in ownership at a single Chevrolet franchise in an Edmonton suburb is setting the stage for a transformation of Canada's automotive dealership network, Greg Keenan writes.

From bumbling oaf to capable parent, you've come a long way, Dad. Susan Krashinsky reports on the transition of the father.

The activist shareholder pushing for an overhaul of Canadian Pacific Railway Ltd., now armed with a powerful endorsement, is pushing ever closer to victory in a looming board showdown rarely seen in Canada. Jacquie McNish and Brent Jang report.

What to watch for next week The key report next week comes Friday morning with Statistics Canada's reading of the labour market in April.

Economists expect the report to show that between 7,000 and 10,000 jobs were created last month, with the unemployment rate holding at 7.2 per cent, though it could inch up as more people join the labour force.

"After a wild outburst saw more than 82,000 jobs added in March, we look for a subdued 7,000 increase in April," said Benjamin Reitzes of BMO Nesbitt Burns.

"With the economy expected to expand 2 per cent this year, don't expect much pickup in employment trends," he added.

In the markets, several companies will be reporting quarterly results, including Kinross Gold, Molson Coors Brewing, Toshiba, Walt Disney, Agrium, Cisco, Enbridge, AOL, News Corp., Quebecor, Rona, Sony, Telus, Tim Hortons, Bombardier, Canadian Tire, Cineplex, Magna International, Sun Life Financial and TMX Group.

"The Q1 earnings season is now largely in the bag, with about 85 per cent of S&P 500 companies reporting," said Robert Kavcic of BMO Nesbitt Burns.

"Overall, results look quite sturdy, with just over 70 per cent of S&P 500 companies beating expectations, a modest improvement over the prior quarter and somewhat better than the historical norm," he said in a research report.

"Consumer services, technology and industrials were the real winners this quarter, posting the biggest share of results that topped the consensus call. Meantime, about 57 per cent of TSX companies have topped expectations, also a modest improvement over the prior quarter. Overall, it appears that we are well into a more mature phase of the cycle, with the days of significant across-the-board earnings surprises behind us."

Report an error Licensing Options
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.

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at