OpenERP 7.0 UTF-8 bug

If you get an error like this in openerp 7.0: new encoding (UTF8) is incompatible with the encoding of the template database
You need to change the database encoding.

The problem:

Client Traceback (most recent call last):
  File "/opt/openerp/server/openerp/addons/web/http.py", line 195, in dispatch
    response["result"] = method(self, **self.params)
  File "/opt/openerp/server/openerp/addons/web/controllers/main.py", line 718, in create
    params['create_admin_pwd'])
  File "/opt/openerp/server/openerp/addons/web/session.py", line 31, in proxy_method
    result = self.session.send(self.service_name, method, *args)
  File "/opt/openerp/server/openerp/addons/web/session.py", line 104, in send
    raise xmlrpclib.Fault(openerp.tools.exception_to_unicode(e), formatted_info)
Server Traceback (most recent call last):
  File "/opt/openerp/server/openerp/addons/web/session.py", line 90, in send
    return openerp.netsvc.dispatch_rpc(service_name, method, args)
  File "/opt/openerp/server/openerp/netsvc.py", line 289, in dispatch_rpc
    result = ExportService.getService(service_name).dispatch(method, params)
  File "/opt/openerp/server/openerp/service/web_services.py", line 122, in dispatch
    return fn(*params)
  File "/opt/openerp/server/openerp/service/web_services.py", line 167, in exp_create_database
    self._create_empty_database(db_name)
  File "/opt/openerp/server/openerp/service/web_services.py", line 136, in _create_empty_database
    cr.execute("""CREATE DATABASE "%s" ENCODING 'unicode' TEMPLATE "%s" """ % (name, chosen_template))
  File "/opt/openerp/server/openerp/sql_db.py", line 162, in wrapper
    return f(self, *args, **kwargs)
  File "/opt/openerp/server/openerp/sql_db.py", line 227, in execute
    res = self._obj.execute(query, params)
DataError: new encoding (UTF8) is incompatible with the encoding of the template database (SQL_ASCII)
HINT:  Use the same encoding as in the template database, or use template0 as template.

The solution:

root@server:~# su postgres
postgres@server:~ $ psql -U postgres
psql (9.0.3)
Type "help" for help.

postgres=# update pg_database set datallowconn = TRUE where datname = 'template0';
UPDATE 1
postgres=# \c template0
You are now connected to database "template0".
template0=# update pg_database set datistemplate = FALSE where datname = 'template1';
UPDATE 1
template0=# drop database template1;
DROP DATABASE
template0=# create database template1 with template = template0 encoding = 'UTF8';
CREATE DATABASE
template0=# update pg_database set datistemplate = TRUE where datname = 'template1';
UPDATE 1
template0=# \c template1
You are now connected to database "template1".
template1=# update pg_database set datallowconn = FALSE where datname = 'template0';
UPDATE 1
template1=#

Ctrl+Z
postgres@server:~ $ exit
root@server:~#