Canada gets taste of European debt crisis

The chase by Marty Cej:

A direct line between events in Europe and Canada was brought into clear focus yesterday when Finance Minister Jim Flaherty cut his projections for government revenue and moved out his target date for balancing the budget. All told, Flaherty slashed $53 billion from his revenue estimates between 2011 and 2016 due to slowing global growth and rising financial risks. Many investors appear to agree with the minister's gloomier outlook this morning as stock markets across Europe shed billions of dollars in value and bond yields in Italy -- the world's third-biggest bond market -- surged 66 basis points to 7.38 percent. A few moments ago, British Prime Minister David Cameron said Italy's cost for borrowing money had jumped to "a totally unsustainable level." He implored Europe's leaders -- again -- to get their act together and provide details of how they planned on preventing the contagion from spreading even further. At present, Greece has failed to announce a new leader, Italy's Berlusconi has said he will resign once new austerity measures are approved but there is no certainty as to who will step into the PM role; the ECB is adamant that it will not be the lender of last resort (it says so right there in the ECB's mandate), no one wants to buy EFSF bonds and the IMF wants to get back into the business of helping developing nations rather than saving profligate developed ones. Apart from that, we're good.
A large part of our mandate is to ensure Canadians understand precisely where we are in the economic cycle, to analyze countless data sources on global economic activity, recognize changing global dynamics and unpredictable politics (opa!) and to bring it home in a form that is comprehensive, understandable and, hopefully, can yield some benefit to viewers in their financial decisions. Finance Minister Flaherty said yesterday that his new forecasts provide a "cushion" for Canada in a worsening global economic environment. We need to press harder today on whether that cushion will be sufficient, whether events in Europe are accelerating beyond the combined resources of the ECB, EU and IMF to slow down. France's two largest banks, for example, have a combined exposure of $416.4 billion to Italian public debt. How much more of a hit can France's big banks take from plunging bond holdings? How long will they continue to lend when their capital is crumbling? If credit freezes up in Europe, what will that mean for U.S. and Asian exporters and, by a short extension, Canada's exports to the U.S. and Asia? Like Willie Dixon said, bring it on home.
With Italy, let's talk about the most likely scenarios. Centre-Right coalition? The centrists say "bah!" and Berlusconi's party goes looking for new friends that results in some technocrats in charge? General elections are called? In any event, the next stage will take weeks to unfold and investors will be left having to make some tough decisions in a vacuum. Did I mention that Greece cannot agree on who will lead that country?

I admit that it is with relief that I turn to Canadian and U.S. earnings, which continue to top most expectations. GM, for example, reported a profit of $1.7 billion US, or $1.03 a share in the third quarter, topping the 94 cent average expectation. Also on our radar today is WestJet, Shoppers Drug Mart, IAMgold. Silver Wheaton, Saputo, Enbridge, Onex, RONA, LionsGate, Quebecor, PetroBakken and Wi-Lan. Macy's, too.

RONA CFO Dominique Boies joins us at 2:10 p.m. ET while Pat Daniels, the CEO of Enbridge, sits down with BNN at 4:00 p.m.

Markets Yawn...then drop at Resignation of Italy's Prime Minister Silvio Berlusconi's

By Barry Moody

ROME (Reuters) - Prime Minister Silvio Berlusconi's pledge to resign after implementing economic reforms did nothing on Wednesday to staunch a perilous collapse in market confidence in Italy.

Financial markets have been clamoring for weeks for Berlusconi to depart because of his failure to push through painful austerity measures.

But after Berlusconi's announcement on Tuesday that he would step down, there were few signs of the swift appointment of a government capable of supervising reforms. Berlusconi said he expected an election would not take place until early 2012.

Yields on 10-year Italian debt soared above what is seen as the 'red line' of 7 percent and spreads between Italian government paper and German bunds also rose over another watershed of 500 basis points, reaching a record of above 560.

Analysts said Italy was now in territory where Greece, Ireland and Portugal were forced to seek bailouts.

Berlusconi said he envisaged an election taking place at the start of February, and that PDL party secretary and former justice minister Angelino Alfano would be the center-right's candidate for prime minister.

"I will resign as soon as the (budget) law is passed and, since I believe there is no other majority possible, I see elections being held at the beginning of February and I will not be a candidate in them," he told La Stampa newspaper.

Italy is at the eye of the euro zone debt storm because, as the region's third largest economy, it is viewed as too big to bail out. Its travails therefore pose a threat to the survival of the single currency.