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The inoculation failed: How euro debt virus is spreading

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Europe back in spotlight There appears to be no stopping the spread of the euro debt virus.

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Having taken something of a back seat to the debt ceiling debate in the United States, Europe is again the focus of the markets today. The inoculation, meant to halt the crisis at Greece, Ireland and Portugal, simply didn't work.

Borrowing costs in Italy and Spain remain elevated today, though down slightly from their peaks. Italy's Premier Silvio Berlusconi planned to speak to parliament, while his finance minister met with the chief of the 17-member euro zone's finance group. Spain's Prime Minister Jose Luis Rodriguez Zapatero returned from vacation to deal with the crisis.

"The steam is slowly building in the sovereign debt pressure cooker as the realization slowly dawns that the [bailout fund]doesn't have the funds to prevent a full scale financial meltdown, which would only leave the [European Central Bank]as the last line of defence," said CMC Markets analyst Michael Hewson.

Adding to the general fears, France's Société Générale said it probably won't meet its 2012 targets as it writes down its Greek debt.

At the same time, the Swiss National Bank surprised markets by cutting interest rates to help stem the climb of the franc , which has surged as a "safe haven" currency. The franc did fall in the wake of the announcement, which included other steps as well, though senior currency strategist Elsa Lignos of RBC warned the dip would be short-lived unless the central bank follows the move by actively selling the currency.

"The SNB has not said explicitly that it will intervene yet only that it 'will take further measures … if necessary,'" she said. "We stress that verbal intervention is unlikely to be enough - unless we get a drastic improvement in risk appetite, the SNB will need to actually sell [the franc]for the effect to last."

Japan's PM calls for support The Bank of Japan heads into a two-day meeting tomorrow amid calls from politicians, including the prime minister, to help bolster the economy, prompting speculation of intervention in currency markets as the yen remains strong.

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"Japan's economy is in the process of recovering from disaster, so we must closely watch currency moves," Prime Minister Naoto Kan said at a cabinet meeting, according to Reuters. "We want the BOJ to continue to support the economy."

Japan's strong currency has been an issue as the country struggles to rebound from the devastation of mid-March, and some observers expect some form of monetary easing when the central bank ends its meeting on Friday.

Of pork prices and China Rarely has there been so much focus on pork prices. But they're important now as an indicator of sorts for China, the engine of the world's economic rebound.

Pork accounts for about 3 per cent of the basket used by Beijing to measure inflation. And markets have been watching inflation closely for signs of what the People's Bank of China may do to further tighten monetary policy to cool the economy.

But, Qinwei Wang, the China economist at Capital Economics, notes today, pork prices fell in the second half of last month, which should reassure markets somewhat.

"It is too soon to sound the all-clear," Capital Economics said. "But given that consumer price inflation in everything except pork was stable over the first half of the year, this should provide reassurance that inflation dangers are easing, and with them, the need for continued monetary tightening."

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Annual inflation in China is running at 6.4 per cent at last count.

RIM unveils new devices Research In Motion Ltd. embarked today on one of the most ambitious launches in its history, as the struggling smart phone giant tries to halt a decline in market position and strike back against its fast-moving rivals, The Globe and Mail's Iain Marlow reports.

The Waterloo, Ont.-based technology company took the unusual step of simultaneously launching three new models around the world in an unprecedented effort to build on its success in international markets.

The bid to show global strength comes at a crucial time for RIM, which has ceded market share in North America but posted 67-per-cent year-over-year growth in international revenues as it conquered emerging markets in Africa and South Asia.

Agrium climbs Canada's Agrium Inc. is riding the boom in agricultural products to bumper results.

Agrium said today its second-quarter profit climbed to $718-million or $4.54 a share, diluted, from $518-million, or $3.28, a year earlier. Sales rose to $6.2-billion from $4.4-billion.

"Despite this spring being one of the wettest and latest in history across much of North America, our diversity throughout the value chain enabled us to deliver record earnings," said chief executive officer Mike Wilson.

"Growers in the eastern U.S. corn belt and Western Canada in particular were not able to plant all the acreage, or apply all the nutrients, they would have liked to this spring," he said in a statement.

"Global crop and crop nutrient markets remain tight. The combination of all these factors is expected to bode well for crop input demand this fall and Agrium will be there to provide the products necessary for growers to maximize their yields and returns."

In International Business today China projects its steel production will slow in the second half of the year after a strong first half, running counter to the bullish view of the world's largest iron ore miners that expect firm demand for the steel making commodity, Leslie Hook of The Financial Times reports from Beijing.

In Economy Lab today There's an important case in which a fall in productivity will increase incomes, and recent Canadian experience appears to be consistent with this exception. Our preoccupation with productivity may be misplaced, Stephen Gordon writes.

In Personal Finance today Gold's price is going up and up, but research carefully if you're thinking of selling .

Many of us fume silently when restaurant bills are split evenly - and in our view, unfairly.

From 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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