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QUEST MEANS BUSINESS

NYSE, Deutsche Boerse to Merge; Consumer Goods Price on the Rise

Aired February 15, 2011 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: The bells of the bourses, the New York Stock Exchange and Deutsche Boerse now announce they are to merge.

Inflation frustration, prices are on the rise.

And time for a new generation of phones, 4G steals the show in Barcelona.

I'm Richard Quest. We have an hour together, I mean business.

Good evening.

Whether it is emerging economies or the developed ones, it seems the pain of inflation may be spreading. There were two pieces of news that put inflation very firmly back onto the agenda today. China saw its benchmark shopping basket of goods rise almost 5 percent in prices over the last month. Food alone rose more than 10 percent.

Excuse me.

In the U.K., the Bank of England's Governor Mervyn King saw inflation hit 4 percent last month. Twice the level of the central bank's targets. The Bank of England will bring out its official inflation review and forecast tomorrow. But Mervyn King, Governor King, did have to write a letter of explanation to the British Finance Minister George Osborne as to why inflation was so high.

Now, if you'll join me in the library, you'll see what it is all about. There are three reasons, primarily, that Mervyn King says is not the worry that perhaps the headline number suggests it is. VAT, well, VAT went up in January, up to 20 percent, and that of course is affecting everything from restaurants, right on through the food chain, the petrol, you name it.

It will eventually fall out of the numbers in the fullness of time. And that is one reason why the governor believes it is not such (UNINTELLIGIBLE).

Pound sterling fell in 2007, 2008, that raised the cost of imports and, of course, did some serious damage when the pound fell. And commodities have been rising very sharply. Crude oil prices a major problem, Brent crude is now, of course, above West Texas Intermediate. So, al in all, there are reasons that the governor says, means that Britain's inflation rate at over 4 percent, plus, is likely to get worse, but is not of such seriousness that he needs to raise interest rates now.

To discuss this with me is Stephen King, the chief economist at HSBC.

Is he right, the governor, when he says, it's a problem, but it's not a crisis?

STEPHEN KING, CHIEF ECONOMIST, HSBC: Well, I hope he is, because if he's wrong it could complete disaster in the U.K. But the good news, I think, is that what we have at the one sense is price inflation, but not much in the way of wage inflation. Completely different from the 1970s when both prices and wages went up, wages rose, and prices chased afterwards, and prices rose and wages chased afterwards. This time around we haven't got any obvious wage inflation in the U.K., or in Europe, or the U.S. What we've got is price inflation, because of those rising commodity come through elsewhere in the world.

QUEST: Right. Now, there may be a difference at the beginning of the scale between price inflation, or wage inflation, or one-but if inflationary expectations follow through, one does often, if not usually lead to the other. Because I want more to buy the goods that I'm paying more for.

KING: There is not doubt that you want to have more. We all want to have more. But the key question is whether you can actually negotiate at substantial wage increases currently. One thing to bear in mind is that take the U.S. as an example. Unemployment is up at a 9 percent rate, which is incredibly high. With that kind of rate, very difficult to negotiate those kinds of pay increases. In the U.K. one of the big surprises has been that wages really haven't picked up in the way you might have seen in the past.

QUEST: Those are downward pressures on inflation, but if the inflationary pressure isn't taken away to start with, eventually, surely it does bubble up.

KING: Well, the big question here, of course, is whether monetary conditions in the U.K., the U.S., and elsewhere, really are loose or tight. Now Mervyn King would argue that monetary conditions actually are relatively accommodating in theory, but in practice they are not because money supply growth is so weak, which is a reflection of the credit crunch story.

QUEST: Now, we'll just pause for one second there, since you brought us nicely onto monetary policy. Because late last year I interviewed Andy Sentance; he is just one dissenting voice in the Bank of England's Monetary Policy Committee. But at the last meeting he was joined by another, Martin Weale. They voted for an immediate rise in rates. We'll ask you what you think in just a second, first though, Andrew sentence on why he wants rates to go up.

(BEGIN VIDEO CLIP)

ANDREW SENTANCE, BANK OF ENGLAND, MONETARY POLICY CMTE.: The reason I would like to see gradually, in terms of raising interest rates, is because there are obvious sensitivities about uncertainties in the global economy and the U.K. economy. Confidence is inevitably at this stage of the cycle quite fragile. And so we don't want to deliver a big shock to interest rates. And actually it is one of the argument, I think, in support of my view, is that if we leave interest rates at low levels, and then we find that inflation continues to run above target, and growth continues to be OK, we may actually find ourselves having to raise interest rates more quickly than I would like in the future.

QUEST: The U.K. economy has a spectacularly poor record, doesn't it, in terms of inflation taking off quite suddenly? There are unique factors within the U.K. economy that means that inflation is always bubbling underneath, ready to explode.

SENTANCE: I think that might have been true in the `70s and `80s. I'm not sure it has been true since the mid-1990s, where we've actually managed to anchor inflation expectations and the way they impact on wage setting and price setting around the inflation target. Now what I'm concerned to do is to keep us in that-to keep us in that mode. I think the danger that we face is that if we persistently run with inflation above target, confidence in the Bank of England's Monetary Policy Committee, and in the inflation target, will begin to erode. When that confidence is eroding it is much, much harder to get it back.

(END VIDEO CLIP)

QUEST: It is a question of credibility. You and I were talking about that. If the bank is perceived to allow rates, at 4 percent, CPI, at 5 percent, the credibility gets shot.

KING: It does. One of the problems they've had is they have been forecasting low inflation for the last two or three years and it hasn't come through. Now, of course, what Mervyn King is say is that this is all to do with the fact that external shocks have come through that they couldn't possibly have expected. They will also expect that in a year's time inflation will come back down again. Now, there is a precedent for this, in important precedent, which is that in Japan, back in the beginning of the 1990s, we had the same kinds of external problems coming through, in particular higher oil prices. Bank of Japan responded by raising interest rates, because they saw a major inflationary threat in front of them.

As it turned out, the inflationary threat wasn't there. It was all about deflation, eventually. So, one of the dangers the central bank has is if it raises rates then discovers inflation falls back to quickly, it will then look foolish in hindsight.

QUEST: We do (ph) turn to China now, in many ways more important than the U.K.'s inflation rate.

(LAUGHTER)

KING: Indeed.

QUEST: Look, the central bank has raised rates, third or fourth, depending on your definition. And we now know why, we are starting to see why, 4.9 percent and rising.

KING: Yes. Well, it hasn't just raised rates, it has also raised so- called reserved requirements. Basically, it means it is much more difficult for banks to lend as much as they might have been doing previously. There is no doubt that in China's case one of the really important and difficult challenges they face is the challenge of trying to maintain social stability. The worst that can happen in China is rapid increases in inflation that drive food and energy prices up, and make the poorest people even worse off.

QUEST: But you would agree that if the pressures, particularly commodity pressures, continue with China, which of course is fueling the commodity pressures, then further rate rises and liquidity tightening is inevitable.

KING: Absolutely. But the issue for China, in one sense, is now the price set up of global commodities. If it gets its own inflation under control, probably global commodity prices will also be better under control. Therefore the threat from China to the rest of the world, in terms of inflation, will go away again.

QUEST: Excellent. Many thanks indeed, Stephen.

KING: Thank you.

QUEST: Thank you for coming in this evening.

Now, when we return we'll be in New York for a mega exchange merger. The only question is, did Deutsche Boerse merge with the New York Stock Exchange, or did they buy'em. And if they bought'em, what does that say about Americana? In a moment.

(DESK BELL CHIMES)

(COMMERCIAL BREAK)

QUEST: It's a deal that creates the world's biggest exchange powerhouse. Germany's Deutsche Boerse is de facto buying New York Stock Exchange's Euronext. It will form the world's largest owner of equities and derivatives markets. We knew the deal was in the offing, but it has actually come to fruition. Perhaps more quickly than we had expected.

The combined company, now there you are, the Boerse will own 60 percent of it, will be owned by the Germans, and New York Stock Exchange Euronext taking 40 percent. So any idea that it is not a takeover, that number pretty much blows that out of the water. Deutsche Boerse gets 10 out of 17 seats on the board. The New York Stock Exchange chief exec stays on as the chief exec of the combined company. Does that make it a merger of equals? The group will be headquartered both in Frankfurt and New York. That is the way it looks.

So, who got what? Alison Kosik is in the New York and joins me now. She has been following today's developments and is joined by the current, and future, CEO of the New York Stock Exchange Euronext.

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Hi, Richard. Yes, we are with Duncan Niederauer, he is the CEO of the NYSE Euronext. And let me get to some of those questions that you just addressed, Richard.

And ask you directly. You know there has been talk whether this is a merger, is this a takeover? At 60/40, you have got to admit this sounds more like a takeover?

DUNCAN, NIEDERAUER, CEO, NYSE EURONEXT: I don't think so. There are lots of deals that aren't 50/50. It is a merger. I think the board construct, the management construct, the dual headquarters structure all suggest more of a merger, a business combination. I don't blame people for thinking first, it is an acquisition. They are the bigger company. There are several other exchanges around the world whose market caps are bigger than ours. But I think you'll see as the details come out, this looks and feels much more like a merger.

KOSIK: What is the U.S. loosing in this deal?

NIEDERAUER: I don't know why you would ask that, we're actually winning. I think we're both gaining. I think it is a win-win. If you look how both stocks have behaved you have now got a dually headquartered company in New York and Frankfurt. Our company today is dually headquartered in New York and Paris. Now we're stapling on a big largely international business to that. It is the U.S. and New York leading from the front. This time, with a partner in Frankfurt as opposed to a partner in Paris and now you will put together truly a unique globally diversified set of financial markets that are highly regulated and transparent. So, I think everybody is winning, nobody is loosing.

KOSIK: Critics are saying that despite this deal the NYSE will still continue loosing market share. What do you have to say?

NIEDERAUER: Critics sometimes don't have all the facts, but I think the facts will prevail. Look, the fact of the matter is, the equity, the U.S. equity business for our company, the way it is currently constructed is not the majority of the business anymore. It was argued several years ago that with a lot of the competition in the business here, we could not rely on U.S. equities as our single source of profitability over the long run. We also appreciate that the markets are global, the capital markets are worldwide and I think our view is we have got to continue to be invested in those markets and services across the value chain. The market share here has actually been pretty stable, for the last 12 to 24 months. The bigger issue is not competition from other exchanges, it is the increasing opacity of the U.S. equity markets.

KOSIK: What about the retail investors? The little guy? The little guy is going to be left behind, or will he?

NIEDERAUER: Why would-I don't know why the little guy would be left behind, but I think our view is the U.S. equity market is already very electronic. It is very fragmented. Nothing is really going to change here for that retail investors in terms of how they put their orders in etc cetera, but I think in terms of what goes on here everyday and in the equity market not a lot is going to change. I think the broader challenge the SEC has for the retail investor, nothing to do with this deal, is a lot of the orders that retail investors place may not find their way to the exchanges. And that is the bigger issue that the U.S. regulators have to deal with.

KOSIK: What do you say to Americans sitting in middle America, right now, in Peoria, let's just say, and they're saying the Big Board, no longer American, when this deal goes through?

NIEDERAUER: Well, then if they have been saying that today they would have been saying that a few years ago, because merged with a European company four years ago. And it is still here. We run this company from New York and Paris today. We'll be running it from New York and Frankfurt tomorrow. The management team is going to be lead by me, I'm privileged to say. And we have a very balanced global management team, just like we have today, a global balanced board, and predominantly owned by U.S. shareholders. So, I'm not sure where the Big Board is going. I don't think it is going anywhere.

KOSIK: Let's talk about the name. What's the name going to be?

NIEDERAUER: I've said that to everyone else who has asked me. You, I think a lot of you heard what I said today. In a merger like this you have three choices when you are building a global business. You put the larger company's moniker first, you put the better brand of the two first, if there is clearly one, or you come up with an umbrella name for the global top-

KOSIK: Is New York the better brand?

NIEDERAUER: Both sides agree that NYSE is the bigger brand. Both sides agree that DB is the bigger company. I can tell you that the DB-NYSE name no longer being considered. So it is either the NYSE-DB name, or some name that evokes kind of the global name.

KOSIK: So brand is bigger than the company?

NIEDERAUER: I think what happens, Alison, a lot is brand is certainly an emotional topic around which people have a lot of pride and passion. And I think if we were a consumer brand this would be a really easy decision. We're not a consumer brand, we're a financial markets brand that is trying to run-and evidence that we're running a global business. So, I promised everybody in a month or two we'll have an answer on that.

KOSIK: All right. A month or two, Richard, we'll have a name.

Thanks so much for joining us.

Richard, back to you.

QUEST: Tell him just to call it the Big Board and be done with it.

(LAUGHTER)

KOSIK: He wants you to call it the Big Board and be done with it.

NIEDERAUER: The Big Board? Well, you heard the rumor this morning? It was going to be, someone said, the Big Boerse.

KOSIK: Ah, there you go.

NIEDERAUER: And that will not be the name.

(LAUGHTER)

KOSIK: Take care.

Thanks a lot, Richard.

QUEST: Many thanks, indeed.

KOSIK: He had to go.

QUEST: Alison Kosik-yeah, well he had to go. Many thanks, Alison Kosik, joining us from the floor of the New York Stock Exchange. Now the Big Boerse, or the Big Board, but what about the big New Yorkers? Ordinary men and women, what do they make of this deal? CNN's Richard Roth has been gauging their reaction from outside the New York Stock Exchange.

(BEGIN VIDEOTAPE)

RICHARD ROTH, CNN CORRESPONDENT (voice over): The New York Stock Exchange, the symbolic cradle of American capitalism since traders stood around a tree in 1792.

UNIDENTIFIED FEMALE: That is the New York Stock Exchange, the largest stock exchange in the world.

ROTH: And perhaps getting larger. The parent companies of the New York Stock Exchange and the Frankfurt stock exchange have agreed to merge with the German side owning 60 percent of the exchange powerhouse.

(On camera): The German stock exchange is merging with the New York Stock Exchange, they're taking it over, what do you think?

UNIDENTIFIED FEMALE: I think that's a joke.

ROTH (voice over): It's true. As confirmed by one New York newspaper. Suggesting Wall Street could be renamed Wall Strasse.

UNIDENTIFIED MALE: Trading has gone global. So the times when exchanges were natural monopolies are really over.

ROTH: Traders are not panicking. The exchange already has merged with the Euronext's electronic exchange.

JOSEPH GRECO, MERIDIAN EQUITY: At the end of the day, I mean, we really need to recognize-or really, those who take it too seriously, need to recognize that this is a very globally inter-dependent world.

KENNETH POLCARI, ICAP CORPORATES: Part of me is excited about it. I actually think, you know, it's a new century we're in. It's a new world we're in. So, I'm mixed about that.

ROTH: At the Museum of Finance, on Wall Street, one man who lost his job in the recent crash is worried.

ALEX SWINGLE, MUSEUM GUEST: Well, it like, you know, everyone is owning us now. I mean, it seems that-you know, we have our debt to China, you know the OPEC nations, Japan. It just seems like, you know, it's kind of scary.

ROTH: A billionaire who started on Wall Street is optimistic. I think it is very good for New York.

MICHAEL BLOOMBERG, MAYOR OF NEW YORK CITY: I think it is very good for New York. This is one of the better things for New York.

HARRY POULAKAKOS, RESTAURANT OWNER: Hi, guys.

ROTH: At one of Wall Street's legendary hang outs, Harry's, Harry himself has seen it all.

(On camera): Are you going to have more German food choices, if this merger happens?

POULAKAKOS: No, I stay the way I am. Whatever I do, I do for 40 years, so I'm not about to change.

ROTH (voice over): The German side would control up to 60 percent of the combined mega exchange.

PETER MORICI, ECONOMIST: Global leadership in financial matters is shifting, from New York, to the other side of the Atlantic. New York will play a lesser role than it has in the past.

UNIDENTIFIED MALE: It is still the New York Stock Exchange and we're still here for the American people.

ROTH: And one of them, a tour guide escorting British visitor to the exchange, doesn't want change.

DEBBIE DOLENC, TOUR GUIDE: You know, I'm a proud New Yorker, and I'm a proud American. So, I like it the way it is. But I'm old fashioned. I'm an old-fashioned gal. And my-you know, how can I change my umbrella to have a German flag umbrella. You know, it just wouldn't work.

UNIDENTIFIED MALE: We enjoy the-you know, this area.

ROTH (On camera): Will the German flag be there? Where will the German flag be? Next to the three American flags?

UNIDENTIFIED MALE: Well, maybe we can add one German flag, but that's enough. You know, come on.

ROTH (voice over): Richard Roth, CNN, New York.

(END VIDEOTAPE)

QUEST: It's globalization write large. Instead of fretting, Hong Kong's chief executive Michael Wu says he's a man with a plan for beating inflation. He's one of the business leaders stepping up as we continue visiting with "The Boss".

(COMMERCIAL BREAK)

QUEST: Family values and status anxiety. A sophisticated presentation and a successful bottom line, for three business leaders we have been following know all about balancing substance and style. In London, it is My-Wardrobe.com, where "The Boss" is putting her relaunching brand to the test. In Hong Kong, our chief executive is getting down with the team. It's this edition of "The Boss".

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE (voice over): Previously, on "The Boss", Sarah Curran and her team could not decide on a new logo for My-Wardrobe.

SARAH CURRAN, FOUNDER, CEO, MY-WARDROBE.COM: It is going to be a problem on the men's (ph). I think it is way too familiar (ph).

UNIDENTIFIED MALE: And in Hong Kong, Michael Wu tells us why Starbucks made strategic sense for him and his company.

MICHAEL WU, CEO, HONG KONG MAXIM'S GROUP: They were actually selling much more than just coffee. They were selling a lifestyle.

UNIDENTIFIED MALE: It is the Chinese New Year and Hong Kong is ushering in the Year of the Rabbit. The view from Victoria Harbor is spectacular as fireworks light up this city's iconic skyline. Before the nighttime fireworks, Hong Kong Maxim's Group gathered for a traditional lunch to celebrate the end to 2010. Leading the festivities is Michael Wu, the chairman of Hong Kong Maxim's Group.

Inside Maxim's Palace Restaurant, four simple words are being uttered everywhere. Gong hay fat choi (ph), Happy New Year. Today, Michael is joined by his great uncle, one of Maxim's co-founders. Together they are a powerful message. In the Asian way of doing business this is not just a company, it is a family.

WU: When the company was very small we used to have the celebration at my grandfather's home. It is important for me because I think it is important to respect culture and tradition. It is so easy to forget these things when everyone is so busy.

UNIDENTIFIED MALE: For Michael, family and business go hand in hand. And today he's grateful to all those employees who made 2010 a success.

WU (translation on screen): Our company had a pretty successful year. It's because of everyone's hard work that this has been possible.

UNIDENTIFIED MALE: Bringing his employees together is not only about looking back, but also looking forward.

WU (translation on screen): Looking ahead to 2011, our business and the overall economy may not be as smooth as last year's because of several reasons such as inflation.

UNIDENTIFIED MALE: With this, Michael wants his employees to know he's got a plan, that they are being looked after.

WU (translation on screen): Our company plans for the long term and our foundation is very strong. So despite the challenging year ahead, we have a very long-term development plan.

UNIDENTIFIED MALE: The new arrived Year of the Rabbit is said to bring prosperity and success. No doubt Michael will be hoping the rabbit lives up to its reputation.

WU: The most challenging thing for our company now is not growth opportunities. There's plenty of them. The most challenging thing is finding the right people to lead our business.

UNIDENTIFIED MALE: I've got a printout of the guests we sent out, to save-the-date, which went out last week.

CURRAN: What have you had in terms of RSVP.

UNIDENTIFIED MALE: Yes, we had some good ones.

UNIDENTIFIED MALE: The guest list has been compiled, the save-the- dates sent out, now the reality is sinking in.

CURRAN: So, in total?

UNIDENTIFIED MALE: 236 have gone out.

UNIDENTIFIED MALE: In just two weeks Sarah Curran and her team will present the new, My-Wardrobe.com to heads of fashion houses, fashion editors, and of course, her investors.

CURRAN: We have Cedric, Gabriella and Sadie.

UNIDENTIFIED MALE: Yeah.

CURRAN: Do they count as one?

UNIDENTIFIED MALE: Sarah has everything riding on this. She's worked tirelessly to get it right and she knows she cannot afford to fail.

CURRAN: The invitations, the canapes, the drink, the venue, the setting, the flowers, every part is so important. Because this is us, presenting our new phase, our new direction.

UNIDENTIFIED MALE: With the big day approaching, Sarah wants to be across every detail. She wants to be the last voice making the final decision.

CURRAN: I really want stamps. We need to find a way.

Attention to detail is so important. It is what is going to make us stand out as a brand. And that is seen through the event, through the editorial, through the visuals, the look and feel of the site. And its is part, a core part of the brand DNA.

UNIDENTIFIED MALE: Today she's making sure this brand DNA is across every aspect of the re-launch party. From the invites, to the decoration, and the gift cards.

CURRAN: So, then, this is the gift card, going-

UNIDENTIFIED MALE: Yes, this is the discount card for press and VIPs. So we need to talk about whether you want, are you happy with the thickness of it, and all that kind of stuff.

UNIDENTIFIED MALE: As the chief executive she doesn't want to settle for the industry average. What's been seen and done.

UNIDENTIFIED MALE: Options of the job.

CURRAN: Options, more options.

UNIDENTIFIED MALE: She wants her team to think outside of the box.

CURRAN: I'd rather have nothing than something that I thought was weak.

UNIDENTIFIED MALE: She wants them to make their mark.

CURRAN: It's so important to stand out. To be different, and to be unique and to have our own character.

UNIDENTIFIED MALE: Next week, on "The Boss", Michael Wu tell us how he attracts and maintains customer loyalty. And in New York, Richard Braddock prepares to launch a new product he believes will be a game changer.

(END VIDEOTAPE)

QUEST: And "The Boss" can be seen, of course, here, on QUEST MEANS BUSINESS every Tuesday, at just about this time.

And in fact, look at this, my invitation to Sarah Curran's opening, or re-branding, has arrived. Interesting to see if there are any canapes left by the time I get there.

When we come back in just a moment, we'll turn to Egypt and the new finance minister who wants to see his country back on its feet sooner rather than later. And also, the head of Egypt's tourism authority; he tells us why it is likely tourists will return.

(DESK BELL CHIMES)

(COMMERCIAL BREAK)

QUEST: Good evening.

Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And on this network, the news always comes first.

The world is changing and Middle Eastern leaders can't be behind the curve -- the message from President Obama at a news conference in Washington. The president spoke about the new demonstration in Iran, saying leaders there are pretending to celebrate Egypt's revolution while attacking people that are trying to express themselves peacefully, in his words.

Iran says the U.S. is behind the protests.

Fury in the Iranian parliament after anti-government demonstrations in Tehran. Lawmakers denounced the protests and called for the execution of two opposition leaders for inciting them. Tens of thousands of people have marched in the Iranian capital on Monday and video showed some of them being beaten by security forces.

The Italian prime minister, Silvio Berlusconi, is facing trial on charges of sex with an underage prostitute and abuse of power. The proceedings in Milan are set to begin on April the 6th. Mr. Berlusconi denied the allegations, saying they've thrown mud on the government, the country and him.

Egypt's new finance minister says corruption members of the former regime will be held to account. Samir Radwan, though, says he's steering clear of speculation about former President Hosni Mubarak's assets.

Fionnuala Sweeney has been speaking to the new finance minister and Fionnuala joins me now this evening from Cairo -- good evening, Finn.

FIONNUALA SWEENEY, CNN CORRESPONDENT: Hello there, Richard.

Well, it's a bank holiday here in Egypt, so we went to the home of the new finance minister, Samir Radwan. And we were rather surprised to find a man rather in his element, not at all daunted by the challenges facing him, but very realistic about them at the same time.

He's operating, of course, at the behest of the military government. He's facing protests from civil servants and other workers in this country and also trying to find a way to recoup the millions of dollars a day that's being lost to Egypt's economy.

So when we sat down, I asked him, first of all, to identify the two main challenges facing him.

(BEGIN VIDEOTAPE)

SAMIR RADWAN, EGYPTIAN FINANCE MINISTER: We have two major challenges. One is to create jobs and to improve wages and income conditions. The second is to set the economy back on the road recovery, to regain the high growth rates which we have achieved before.

SWEENEY: It's all about confidence.

RADWAN: Of course. We will -- we will not be able to get to those high growth rates without confidence of the Egyptian investor, of the Arab investor, of the foreign investor. These are very important.

SWEENEY: It won't also happen without stability.

What about the protesters who are now demonstrating, airing their individual grievances, mostly about wages, also about corruption?

RADWAN: Yes.

SWEENEY: How do you think the military will respond if those demonstrations continue?

RADWAN: You see, I think what -- what the young people of the 25th of January, they have done in 20 days what we couldn't do in 20 years or 30 years. So we have to be tolerant, to listen to the needs of the people who demonstrate. And it's all -- really, it centers all around jobs and around incomes.

As far as the military is concerned, I am extremely glad that they have handled this situation in a -- in a -- in a very good way. Not a single bullet from the army. And so far, they have been very cooperative with the demonstrators.

But I think it now, I don't want to sound patronizing, but it's now time for all Egyptians to get back to work. We have a big job to do.

SWEENEY: Is the military's patience infinite?

RADWAN: There comes a -- a moment in time where national security itself is threatened. And by national security, of course, there is the obvious one, but there is also the economic -- economic security, the livelihood of people; people getting to work, coming back from work, feeling secure.

So I think we -- we should not try their patience for too long.

SWEENEY: Do you foresee a crackdown?

How will they do their best to stop the demonstrators?

RADWAN: I think persuasion, telling people that we understand, we understand their grievances. But grievances which accumulated over three or four decades could not be solved in -- in a day or two.

SWEENEY: Let me ask about corruption, because the protesters are demonstrating, also, against corruption.

RADWAN: Absolutely.

SWEENEY: Can I ask you about the assets of the former leaders and those associated with Hosni Mubarak?

Has the government requested that their assets be frozen overseas?

RADWAN: Well, some, of course. The -- the government has requested that their assets be frozen, that they are forbidden from traveling, they are under investigation and the prosecutor general is doing his best, his office.

SWEENEY: And what about President Mubarak himself?

RADWAN: I, frankly, honestly, don't know about these news we hear about, you know, $60 million, $70 billion extra. I -- I really don't know about these things. But -- but what we know, there has not been capital flight of those people for -- from the country, according to the central bank.

(END VIDEO TAPE)

SWEENEY: Well, Credit Agricole puts the figure at $310 million that Egypt is losing every day because of this uprising. And he says that he's going to launch his own task force commission. They should be reporting back to him within a few days with their own exact figure.

But you can see him there walking that fine line, saying that the military's patience isn't limitless, but yet that the people have to be allowed to vent their fears and frustrations. It won't be all done in a day or even in a matter of weeks, Richard. But he's confident that what this operating has given him, rather than daunting challenges, is actually a chance to wipe the slate clean.

QUEST: Fionnuala Sweeney, who is in Cairo for us this evening.

Now, the core issue for, of course, one of the most important industries is telling the world it's safe to come back. The chairman of Egypt's tourism authority now tells us that the U.K., Germany and the Netherlands are all planning to lift travel bans, specifically around the Red Sea resort area and Luxor. Egypt's crucial tourism industry employs 10 percent of the country's people. It makes a phenomenal contribution to the GDP.

(BEGIN VIDEO CLIP)

AMIR AL AZABY, CHAIRMAN, EGYPTIAN TOURISM AUTHORITY: I'm positively confident that there will be a lot of change. You know, our expectations, our best expectations were that people -- that tour operators will begin to come beginning from the beginning of March.

Now, we discovered that we will begin to receive foods, airplanes beginning from next Friday. I'm speaking about charters coming from Europe at the beginning.

QUEST: You just said, Chairman, that you are expecting charter flights and holiday flights to start coming back to -- to Egypt. Now that's all...

(CROSSTALK)

QUEST: -- will -- will be of great importance to you.

AL AZABY: Yes. Yes. And it will be of big importance for us because charters represent all the -- our main market, you know, is Europe. Europe represents for us more than 70 percent of the global movement to Egypt, more than 90 percent of the movement to the Red Sea coming from Europe is coming through charter flights. So charter flights are fundamental for us.

So the comeback of the charter flight means simply that we are on the right track now actually.

(END VIDEO TAPE)

QUEST: The chairman of Egypt's Tourism Authority.

It's a story we will continue to follow closely, as, indeed, we always do with all travel and tourism issues, which is why our next story is of particular interest. The man behind Southeast Asia's biggest discount airline, he is rigorous about keeping costs down.

(BEGIN VIDEO CLIP)

TONY FERNANDES, CEO, AIRASIA: We weren't seduced by the sexiness of having a long haul and a short haul airline.

(END VIDEO CLIP)

QUEST: In it for the long haul with a short haul bit on the side -- AirAsia's chief talks to me about planes, profits and ramping up for 2012.

(COMMERCIAL BREAK)

QUEST: Southeast Asia's biggest discount airline likes the look of the Airbus A320 Neo. AirAsia's chief told me earlier today, a decision about an order for the planes is imminent.

Chief exec Tony Fernandes was in Paris for the launch of the new Paris-Kuala Lumpur service run by his long haul unit, AirAsia X.

Fernandes has been cherry picking routes.

I asked him if AirAsia is now a hub and spoke carrier to Malaysia.

(BEGIN VIDEOTAPE)

FERNANDES: We are two separate airlines. AirAsia X is a separate airline than AirAsia is quoted (ph) and AirAsia X will be listed separately.

But I think the symbiotic relationship between that without is becoming a reality. But we're not true hub and spoke. We do have some fly through flights. But definitely this long haul model is working because of the short haul AirAsia, which other long haul low cost modes didn't work because they didn't have that network that AirAsia has.

QUEST: So what are your next routes that you're going to add on and how quickly would you like to see AirAsia X add new routes?

FERNANDES: Well, I think this -- this year in a bit of a consolidation year. We may add one or two. We've been fighting hard to get rights to Sydney. I think that's an important route. And we would like to get into the Middle East via Jeddah. I think in Europe, we're looking at some interesting routes like Nice or Milan, somewhere into Germany and potentially up into Scandinavia or Eastern Europe.

The growth in Japan, Korea, China, India and Australia continues, which is where the bulk of our profits are going to be generated.

So I think 2012, we're really going to be ramping up and we've been in discussions with Airbus. But our model is really beginning to click and AirAsia is very, very powerful. So both are working hand-in-hand.

QUEST: Talk about the aircraft purchases. Obviously, you need the larger aircraft for the long distance routes. But you're also, I see quoted today, you're talking to Airbus about the Neo and the -- and the next generation planes.

When would you hope to make a decision?

FERNANDES: I would hope it's imminent. I mean, obviously, we -- we had the senior guys from Airbus, Tom Enders, came up last night. We pushed this -- this deal. We pushed this aircraft, I mean. And we like it. We like what we see. We like the fact that there are two good competitors in the engines, Pratt & Whitney and the LEAP-X from GE, CFM. And they're both talking about reductions of 15 percent on fuel and are guaranteeing it.

So we're excited about it. If we can get the right pricing and the right kind of structure, then we will announce it imminently. It's -- it's -- you know, we are very far down in the discussions, but like anything, we make sure we have the right deal so we can produce low fares for our customers.

QUEST: Finally, Tony, just talking about this -- this hybrid of the two airlines, the long distance routes growing, by your own admission in 2012, very much piggy-backing on the -- the strong route network of AirAsia.

As the chief exec, how are you managing to ensure that you don't let costs get out of control, linking these two airlines together, building a - - a -- carrier up. It's very easy to see how suddenly it spirals.

FERNANDES: Oh, very easy. I mean I think the first thing you can see on my determination to keep costs low was I separated the airlines. There was a lot of talk of them being merged. Many people voiced it. But I saw complexity getting into the business and costs creeping in for both airlines.

So we've separated them. I am here today as the founder of AirAsia X, but there is a CEO and a separate management team that's really focused on that. And I'm ranging AirAsia, the short haul network.

So that shows our determination, that we weren't seduced by the sexiness of having a long haul and a short haul airline.

(END VIDEO TAPE)

QUEST: Seduced by the sexiness of a long haul and a short haul airline.

Tony Fernandes from Paris.

Well, we have been led astray. There's nothing else for it. No other way I can put it.

Guillermo at the World Weather Center, you -- you -- you've lulled us into a false sense of security, believing that spring had sprung and that all was -- was rosy in the garden.

GUILLERMO ARDUINO, CNN METEOROLOGIST: But I'm talking about the south. And I -- we were talking about Italy. And now I have to change a little bit, because we are going to see some bad weather.

QUEST: Ah, ah.

ARDUINO: What?

QUEST: London. London today -- and I'm sure many of our viewers in Northern Europe, across Germany and the -- look, tell us what we've got.

ARDUINO: Yes. Rain. We've got rain. But, you know, when I look at the east and I see all this cold air in place, 10 or more degrees below normal, I say let's go to Britain and enjoy.

Seven degrees doesn't look bad at all compared to minus 18, minus one in Berlin. We see some snow here in Germany.

Now, the south, though, and I was looking at Italy in particular. And we see there are two systems that are going to come into Italy. And the evening is when we see some rain showers here. And they're nothing extraordinary to report. We do have, though, some snow and -- in the high elevations here in Spain and also some rain, Bilbao, for example. And then the rain goes all the way up to Birmingham in England and we have, of course, you know, the rain showers -- the rain, I must say, in London.

But we are right where we should be temperature-wise. The east is where the cold is really, really important. It's what is driving the weather in that part of the world.

And this is what we can expect in the next two days. So we will see on and off rain showers in Italy and we will see the same in the west, in Britain, you know, all this rain that we have all over the place.

Airport wise, no problem at all. Dublin with some windy conditions. Barcelona also reporting rain as we speak. And we will see some more. And the northern parts of Spain not looking nice at all.

Copenhagen with some windy conditions, as well.

So it doesn't look pretty, but it is not unbearable. It is much better than Asia. We see now hot -- the hot -- the cold air is going to be emphasized in the north and we will see a slight warm-up in Ib -- in the Korean Peninsula and Japan, where, you know, Richard, we saw a lot of snow in the eastern parts of the Korean Peninsula. And the temperatures continue to be extremely cold, you see, minus nine in Beijing, minus eight in Seoul as we speak, and minus two in Tokyo -- Richard.

QUEST: All right.

We'll blow you off this time, but we're watching.

We're watching and we're making notes.

ARDUINO: Bye.

QUEST: Nothing else?

Well, there.

Guillermo, many thanks, indeed.

Now in a moment, when we return, it will be Smartphones. When it comes to these new gadgets, some of us find it difficult just to keep up. If you've just got the hang of a 3G Internet phone, it could be obsolete before you and I know how to set it properly.

Jim Boulden is in Barcelona after the break.

(COMMERCIAL BREAK)

QUEST: For all the twists and turns we've seen in the Smartphone world recently, there's one thing for certain -- faster and better, which is why every company at the Mobile World Congress in Barcelona wants you and me to upgrade our networks and our phones sooner rather than later.

It's all a bit much if you're a bit slow.

Well, Jim Boulden tells us why 4Gs are better than three.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN CORRESPONDENT (voice-over): When using your current Smartphone, you're using, of course, 3G networks. But the handset makers, the operators here and those who are developing the apps want you to upgrade.

The question is how quickly will you upgrade to 4G?

DARRYL EDWARDS, CEO, AIRCOM INTERNATIONAL: Well, mobile operators are always investing in their networks, OK?

I think what's changed is the fact that a data explosion is absolutely driving more investment. And if you think back, you know, 2G was about voice and with a little bit of data. And 3G was more data and -- and voice. 4G is all about -- basically, all about data. It's what the networks are optimized today in a 4G world.

PAUL JACOBS, CEO, QUALCOMM: Well, there's a lot of talk about 4G, whether it's based on extensions of the third generation technologies or the new technology, LCE. And that's definitely an area that operators care about, because thanks so much consumer demand for wireless data, multi- media, gaming, all of these things that really are driving them to roll out these new networks.

And now, the question is, what frequencies are we going to run this on?

BOULDEN (on camera): OK.

JACOBS: Is there a spectrum available and where do we put all these new technologies?

BOULDEN: And in that 4G world, data equals video.

TONY HOLCOMBE, CEO, SYNIVERSE: This changes everything. When you see the video, when you see people with an iPad and what they can do with the video...

BOULDEN (on camera): Yes.

HOLCOMBE: -- and what potentially could be done as the 4G networks get built out, which is just critical. These are not going to reach full potential until we get that 4G fully operational around the world.

DAN HAYS, ANALYST, PRTM: There's a raging debate in the wireless industry today about what really is 4G. I think in the end, the way that we think about it is it really is enabling customers to get at the information that they want when they want it. And that -- whether that's video or audio or files, it doesn't really matter.

BOULDEN: 4G might mean different things to different operators and called different things around the world and even unveiled at different times throughout this year. Don't be confused by all that. The point is, 4G is said to be 10 times faster than 3G.

JERROD RISKE, VERIZON WIRELESS: It's no longer a three hour wait. It depends on the quality of the movie, certainly, but it can take you minutes instead of hours, like potentially it would on 3G. So you can expect to have that downloaded within 30 to 60 seconds.

UNIDENTIFIED MALE: Welcome to the LD Electronics Exhibition.

I'm Conrad and I'm here with the LD Optimist 3-D, the world's first 3- D Smartphone with full 3-D viewing experience.

BOULDEN: When it comes to the next generation handsets and next generation applications, people are flocking here to the LG stand, where they're showing off a 3-D phone. Of course, I can't show you that. But it does mean you can record video in 3-D and upload that video in 3-D to YouTube.

Jim Boulden, CNN, Barcelona.

(END VIDEO TAPE)

QUEST: There are so many chief executives in Barcelona, anyone who's anyone in the telecoms industry is there at the moment.

Jim caught up with Hans Vestberg, the chief exec of one of the biggest makers of network hardware, Ericsson.

You have to bear in mind, of course, when you talk about all this new technology, it does actually need networks to invest.

So Jim asked him where 4G fits into his vision for Ericsson's future.

(BEGIN VIDEOTAPE)

HANS VESTBERG, CEO, ERICSSON: What we really want to be is, of course, a name that really operates around the world to actually succeed in this next growth when it comes to 4G, 3G and all of that. So I think that's our role as well as (INAUDIBLE) in 35 years.

BOULDEN: In one way, you benefit from the fact that you can partner with everybody, can't you?

I mean you -- you benefit no matter who's doing well and who's not doing well.

Who's doing well now? VESTBERG: I think that if we're looking -- looking back at 2010, we -- we see, of course, that a -- a lot of the growth are coming from small phones, connected devices and here the U.S. is sort of I'll come back and taking the lead, because a lot of innovation is coming from there.

So we have seen the U.S., parts of Asia, like Japan, being growing a lot on -- on mobile broadband, especially.

But I would say that mobile broadband and broadband in -- in particular is probably the biggest growth potential for all operators all around the world.

BOULDEN: When we talk about 4G, it's just about getting faster. It's about consumers being able to do a lot more with their mobile devices.

How quickly is that going to be rolled out?

It's very expensive.

VESTBERG: No, I think that what -- what is surprising me a little bit is that the 3G, the HSBA of the world, is going much faster. And we have now actually tested and proved 168 megabits per second on the HSBA.

So the whole 3G investment is continuing well. On the -- at the same time, 4G is coming earlier than we predicted and some really large U.S. operators and some Europeans has already starting to invest in volumes already.

But I think it has to live together. But it's all, in this industry, about scale, of course...

BOULDEN: Yes.

VESTBERG: -- which is very important. And it's the reason why GSM Phone is so -- so cheap, because it's a massive scale. You can use the whole 1.2, 1.3 billion mobile phones a year in order to get down the price.

BOULDEN: We hear a lot about mobile ecosystems.

Explain to me what's -- what is Ericsson's ecosystem?

VESTBERG: The ecosystem that we are looking to is, of course, of doing enablers that can put all content on top of it. And today, for example, we've launched together with Alcamin (ph) an exclusive agreement to basically take their -- their content delivery networks to the mobile side to see that we can deliver to the five billion mobile subscribers the same quality of experience, quality of services as Alcamin (ph) have done on the fixed side.

BOULDEN: The technology sometimes confuses people, but what they really want to know is whether I have to buy yet another thing. But then again, the -- the handsets and the -- the mobile devices and -- and the -- the laptops or whatever, they're all getting much faster anywhere.

VESTBERG: Absolutely. And with, also, with a quick turnaround we have on mobile phones...

BOULDEN: Yes.

VESTBERG: -- I mean you just imagine how -- how many people are changing phones. Of course, it will be quite quick to change that now, as well. But you're right, I mean we need to see that the whole ecosystem is there, from technology to devices and applications in order to benefit from all of this.

BOULDEN: Here we are in 2011, maybe a year after countries came out of the recession.

Do you see companies making the investments in infrastructure that you expected?

Do you see head of game?

Are we out of the recession as far as Ericsson is concerned?

VESTBERG: I think that last year, in the first half year, we -- we had a quite a big impact of it. We basically have one regional authority or 10 regions growing.

BOULDEN: Only one?

VESTBERG: Only one.

BOULDEN: Yes.

VESTBERG: And that was North America.

BOULDEN: OK.

VESTBERG: And then, basically, we came back in the second half of 2010 and we got up to four regions growing. But that still means there were six regions not growing...

BOULDEN: Yes.

VESTBERG: -- especially in Africa, parts of Asia, the Middle East are not growing at the moment, very cautious. So we will see this year how their appetite for investment are. I mean that still remains to be seen.

BOULDEN: OK. It remains to be seen.

No predictions?

VESTBERG: No predictions at this stage. It's not the time for predictions.

(END VIDEO TAPE)

QUEST: 4G, 3G, 2G, Gin a bit.

We'll be back in a moment, Profitable Moment, where we will consider those rising prices and the risks of inflation.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

Should we be worried about the return of inflation?

It's easy to get excited about rising prices. After all, the inflation hawks tell you by the time inflation is a problem, it's too late. So it has to be snuffed out before it gets started.

And that's why inflation at 4 percent in the U.K., 2.4 percent in euro land and 4.8 percent in China is worrying.

The problem is not today's rate, it's what you and I believe the rate is going to be, what they call inflationary expectations.

If we think prices are rising, we may ask for higher pay. We may spend more now before those prices go up.

Now, inflationary expectations -- it's the wishy-washy bit of economics. But make no mistake, what you and I believe will happen to prices must -- well, in the past, and certainly in the future, it has a nasty habit of coming true again.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

"PIERS MORGAN" is next.

END