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Who holds Europe's debts, no 'fiscal shocks' seen in Canada

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Markets on the rise

World stock markets are on the rise as fears over Europe's debt crisis take a back seat to encouraging economic signs from Europe. European markets rose, followed by the Dow Jones industrial average , S&P 500 and S&P/TSX composite . The euro rose, as did the Canadian dollar , which stood at 97.25 cents U.S. at about 7 a.m. ET. The more optimistic mood in the markets so far this morning was sparked by the latest manufacturing data from Europe, which showed industrial production among the 16 countries that share the euro rose 0.8 per cent in April, better than expected and a showing that suggests the debt crisis is not derailing economic growth.

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"It seems the recent declines in the euro could well help the single currency in this respect making it easier for them to get through their current problems by enhancing growth prospects by making their exports cheaper," said CMC Markets analyst Michael Hewson. "However given the recent flakiness of the data and economists propensity to get their forecasts wrong it won't take much to stop the current recovery in its tracks and for the risk trade to be quickly reversed."

Canada among least exposed to fiscal shocks

The global economy will be rocked by "rolling fiscal shocks" over an extended period, but Canada stands "far apart" from other countries in terms of external debt exposure, Scotia Capital says. Economists Derek Holt and Gorica Djeric used World Bank data for measurements in five areas, including outstanding gross external debt as a share of GDP, foreign reserves as a share of the economy relative to total external debt, share of external debt owning to markets, and the "rough" maturity profile of external debt outstanding. Also studied were "future oriented views," given the increasing sensitivity to interest rate hikes among countries that need constant access to markets.

Canada, the economists found, is among the least exposed to shocks among the major industrialized nations: "Its external debt to GDP ratio stands at 70 per cent and toward the bottom of the list of the diverse set of countries for which we have data. The sovereign share of Canada's external debt position is also tiny at 15 per cent of GDP and among the lowest in the sample of countries. Canada also ranks favourably in terms of a low share of bank financing of external debt, a modest share of short-term external debt, and relatively high foreign reserves relative to the size of its economy."

Who holds what in European debt

A lengthy report by the Bank for International Settlements today notes that French and German banks are the most heavily exposed to the troubled economies of Portugal, Ireland, Greece and Spain. Among the findings of the international banking group:

- Banks headquartered in the euro zone, which include the 16 countries that share the currency, account for 62 per cent of all global bank exposure to those countries, collectively holding $727-billion (U.S.) in exposure to Spain, $402-billion to Ireland, $244-billion Portugal and $206-billion to Greece.

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- French and German banks held $493-billion and $465-billion, respectively, in exposure to those economies, or 61 per cent of all exposure among banks in the euro zone. "French and German banks were not the only ones with large exposures to residents of euro countries facing market pressures," the report said. "Banks headquartered in the United Kingdom had larger exposures to Ireland ($230-billion) than did banks based in any other country."

- Government debt accounted for a smaller portion of the exposure among euro zone banks than did claims on the private sector.

BP board discusses dividend

The board of directors of BP PLC meets in London today to discuss whether it will suspend its coveted dividend or take some other related action. The meeting comes amid mounting pressure in the United States to set money aside that would enable BP to meet its commitments related to the massive spill caused by the explosion of the Deepwater Horizon drilling rig in April. BP has said it will meet those commitments, and is working to contain the disaster, though it has not yet said whether it will suspend the quarterly payout. President Barack Obama, who meets Wednesday with officials of the energy giant, wants money put aside into a special fund.

A White House official also said today that BP has tabled a new plan to the government that would speed up containment of the spill in the Gulf of Mexico, potentially capturing 50,000 barrels a day by the end of this month.

Separately, Bloomberg News noted this morning that the Gulf spill has shaved some $19-billion (U.S.) from the value of the bonds of energy companies. Their debt, the news agency said, has lost almost 4 per cent from their April 27 peak as costs in the Gulf mount and investors grow increasingly concerned that new regulations stemming from the crisis will eat into profits.

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Related: Obama steps up pressure on BP for oil spill fund

Suncor sells more Petro-Canada assets

Suncor Energy Inc. unveiled a deal today to sell its shares in Petro-Canada Netherlands B.V. for $582-million, which includes hedging gains. The operation, which Suncor acquired as part of its takeover of Petro-Canada, is involved in eight offshore projects in the North Sea. Suncor has now reached deals to sell more than $2-billion in non-core assets. "As part of its strategic business alignment, Suncor is continuing with plans to divest of a number of non-core assets," the company said. "... Remaining proposed divestments include certain natural gas assets in western Canada and non-core North Sea assets."

U.S. identifies $1-trillion in Afghanistan resources

Afghanistan is sitting on almost $1-trillion (U.S.) in mineral wealth, including gold, iron copper, cobalt and lithium, The New York Times reports. U.S. officials have discovered huge deposits that could turn the embattled country into a rich mining centre, the newspaper said. "There is stunning potential here," the chief of the U.S. Central Command, Gen. David Petraeus, told the newspaper. "There are a lot of ifs, of course but I think potentially it is hugely significant." Read the story

UBS sees phased-in approach to telecom rules

UBS Securities Canada believes the federal government will opt for a gradual approach to changing foreign ownership rules governing the telecommunications sector. On Friday, Industry Canada released a consultation paper that lays out three options: Raising the direct limit for both telecom and broadcasting companies to 49 per cent, scrapping restrictions for companies whose market share is less than 10 per cent, and then following up for larger players, and killing all foreign ownership rules outright.

"Although the consultation process has only just begun, based on the government's objectives for telecom, we believe option 2 will most likely be favoured because it appears to achieve the mandate of providing greater access to capital for growth to those most in need (e.g. new entrants) and increasing choice/competition, while minimizing the risks of allowing foreigners to gain control over Canadian strategic infrastructure (e.g. incumbents)," said UBS analyst Phillip Huang.

Torstar's Harlequin signs Russian deal

The Harlequin Enterprises Ltd. unit of Torstar Corp. is learning a new word: сексуальный, Russian for "sexy." Harlequin announced today it has signed a licensing deal in Russia with Izdatelstvo Centreplygraph, which will publish novels by international authors in hardcover and paperback, and in mass-market paperback format for romance series. The Russian publisher plans to release more than 170 titles in the first year, most under the Harlequin logo.

From today's Report on Business

Flaherty pushes for expanded CPP

HMV moves beyond music

Great-West Life lets investors back out of real estate fund

Taking Stock: Deflation is the real threat

And, if you missed them: The weekend's best investing features

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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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