With the failure of coalition talks to form a government and new elections planned, Greece’s exit from the euro, or Grexit, as it’s being called, now seems less a question of if than when. The bookmaker Ladbrokes, after a flood of wagers, recently decided to close betting on the subject. “It is safer for us to suspend betting than to keep cutting the odds,” said the company. Banks, meanwhile, are reportedly already setting up trading systems that include a new drachma currency. This has ratcheted up fears of a financial meltdown not unlike Wall Street’s in 2008.
For Greece, the result would be devastating. Tens of billions of dollars worth of aid from the EU would be suspended. It would be frozen out by the lenders it so desperately needs. Its banking system would almost certainly fail. Starting a new currency from scratch is not something that happens overnight either, or at small cost to businesses. Greece would find itself out in the cold in a time of need, without the many benefits of membership in a continental trading bloc.
Yet there is a view emerging that the split might not be such a bad move in the long term. (After all, how much worse could things get in a country where the unemployment rate is over 20 per cent and lenders are already running scared?) A new drachma would rapidly lose value after its launch (by as much as 50 per cent, by one estimate). Many Greek businesses owing money in euros would likely face bankruptcy. But the devaluation would also cut the cost of Greek goods and services, giving a boost to exporters and to the country’s all-important tourism industry. Cheap labour and cheap real estate would lure new businesses. There is some precedent: Iceland’s krona rapidly devalued in 2008. This year, its economy is expected to grow more quickly than the EU’s.
And what of the EU? Some say it would emerge a whole lot stronger without its weakest link. Months of speculation about the Grexit have given investors time to plot an orderly withdrawal. Most importantly, Greece’s pain might convince Spain and Italy that sticking to austerity is a worthwhile price of EU admission. As the German daily Die Welt argued, “In the end, Greece might have done the euro one last favour.”
Signs of the Times: Fashionable finance
Having conquered the world of online book sales, Amazon has set its sights on a new target: high-end fashion. It has already hired a full-time staff of stylists and models and is featuring top designers like Michael Kors. Department stores aren’t happy. They say Amazon’s foray into fashion is threatening to put them out of business.
Researchers at MIT say tablet computers are on track to become the most rapidly adopted technology since electricity was discovered. It took the telephone nearly a quarter-century to reach just 10 per cent of the U.S. market. Cellphones took more than a decade. But the MIT study says tablets have already reached 13 per cent of the U.S. market since Apple launched the iPad in 2010.
Neither a cancer diagnosis nor a scandal involving former protege David Sokol have slowed 81-year-old Warren Buffett. His Berkshire Hathaway is backing Coty in its $10-billion takeover bid for Avon Products. Buffett also recently said he considered a $22-billion acquisition of an unnamed firm before ultimately balking at the price.
Ikea says it plans to open its largest North American outlet in Montreal, just months after opening a mega-store in Ottawa. The mecca for Billy bookcases will be almost half a million square feet, with a restaurant that can seat 600, and parking for 1,400.
By the numbers
1 day Goldman Sachs reported just a single day of losses in its first quarter, while earning $100 million on 24 of the 62 days in the quarter.
54 per cent The Greek unemployment rate among people aged 15 to 24. The youth vote helped lift anti-bailout parties in recent elections.
150 points The drop the TSX suffered to start the week, fuelled by fears of a global slowdown. It hit a new low for 2012.
$103 million North American box-office earnings in the second week for the film The Avengers—breaking a record held by Avatar.
$1 billion The amount being spent by investors to build a ghost town in New Mexico that will be used to test green technologies.
$1.5 billion A lawsuit filed against SNC-Lavalin by investors who allege company directors are responsible for the firm’s stock decline amid a payments scandal.
‘We made a terrible, egregious mistake. There’s almost no excuse for it.’
The CEO of JPMorgan Chase, Jamie Dimon, addressed his firm’s $2-billion trading loss last week, the result of a complex hedging strategy. Weeks earlier he had dismissed worries about the trades as ‘a tempest in a teapot.’
The good news
Toyota said it expects to double its profits in its current fiscal year, having put production troubles from the tsunami and quality-control controversies behind it.
Canadian exports and imports both declined (along with oil prices), but the country’s trade surplus still grew, rising to $351 million in February from $273 million.
Americans are feeling upbeat about the state of their economy. A consumer sentiment index rose several points in April marking the highest gain in almost four years.
Take a breath, Mark Carney. After years of warning about the risks of borrowing, consumers may be listening. A CIBC report says consumer debt levels had their smallest monthly gain in March since the early 90s.
WestJet Airlines’ first-quarter earnings rose 42 per cent to $68 million. It also announced plans to buy Bombardier planes for its new regional service. Welcome news for both Canadian travellers and the aerospace industry.
Canada reported a jobs shocker, adding 58,200 positions, most of them full-time, in April. That’s about six times the number forecasted.
The Canadian Tire shopping empire is stronger than ever: revenue and earnings were up over 20 per cent last quarter, boosted in part by its acquisition of the sporting goods retailer Forzani Group.
The bad news
Same-store sales at 20 major U.S. retailers were weaker than expected last month, according to Retail Metrics. An early Easter and cold weather were partly to blame for America’s empty malls.
Canadian farms are getting bigger, but fewer. In the past five years, their numbers have dropped by more than 23,000, or 10 per cent. The fall of the family farm is a trend with deep roots, dating back to the ’40s.
One analyst rated Loblaw’s stock a sell as the grocer faces weak sales growth and more competition from new arrivals like Target. With food prices also rising, the fight for Canadian consumers is more heated than ever.
Spain nationalized its fourth-largest bank to try to backstop its ailing finance sector, raising new fears that it may need a Greek-style bailout. The euro crisis deepens.
Chinese exports grew just 4.9 per cent last month—half of what economists had expected—while imports rose 0.3 per cent. That could spell trouble ahead for Canada’s resource economy.
The Dutch central bank warned that Europe faces a “lost decade.” Meanwhile the Federal Reserve Bank of Cleveland warned it will take several years to bring the U.S. unemployment rate back down to six per cent. Prepare for long-term pain.
The situation at ailing Internet giant Yahoo! went from bad to worse. CEO Scott Thompson resigned after being accused of lying on his resumé about a degree.