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QUEST MEANS BUSINESS

Falklands 30 Years On; Argentina Threatens Major Banks Over Falklands; Avon Turns Down $10 Billion Offer From Coty; US Markets Hope to Repeat Successful Q1 in Q2; European Markets Up Despite Bad Data; Eurozone Ripe for Recession; Canadian Dollar Up, Euro Down, Pound Steady Against Dollar; Future Cities: Vancouver Blends City and Nature

Aired April 2, 2012 - 14:00   ET

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


RICHARD QUEST, HOST: There's fury over the Falklands. Thirty years on, and now Argentina's threatening the banks.

Time to go. Hungary's plagiarist president Pal Schmitt quits.

And a city where you can ski and sail. It's Vancouver, and it's this month's Future City.

I'm Richard Quest. We start a new week and, of course, I mean business.

Good evening. It is 30 years since Britain and Argentina went to war over the Falkland Islands, and today they're engaged in a war of words over the fate of the tiny and hugely significant islands, which are called in Argentina, Las Malvinas. Services were held in Argentina and the UK to mark the war's anniversary, and both governments have restated their beliefs that the Falklands belong to them.

For the UK side of the story, Dan Rivers is outside Number 10 Downing Street for us this evening. The UK -- the British foreign secretary, William Hague, very firm today, wasn't he, that there's going to be no -- no one should be in any doubt as to where they stand?

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: Absolutely. William Hague wrote an article in a paper here in Britain describing Argentina's rhetoric and its threats against firms involved in oil exploration, against banks who are backing those firms, as "deeply regrettable."

In turn, the Argentine president, Cristina Fernandez, has also hit back, reasserting Argentina's claim of sovereignty. In many ways, the story hasn't changed in one way to mention, both countries claim Las Malvinas or the Falklands as their own 30 years after they went to war over the issue.

But one significant change has taken place: they've discovered oil. Lots of oil.

(BEGIN VIDEOTAPE)

RIVERS (voice-over): The waters that have so isolated these islands and their wildlife are now about to change life here forever. Environmentalists might be fretting about the threat to these pristine beaches, for 225 kilometers away, it's drill, baby, drill.

This is the Ocean Guardian, hired to a British oil exploration firm, Rockhopper, which has hit black gold in an area of ocean called the Falklands' Northern Basin, to the fury of the Argentines, who claim the oil and the islands are theirs.

STEPHEN LUXTON, DIRECTOR OF MINERAL RESOURCES: You have the North Falkland Basin here, which is the first --

RIVERS: Stephen Luxton is the director of mineral resources and shows me other drilling sites to the north and south. The oil rush is only just beginning.

LUXTON: I think it will change things. It's how you manage that change and how you control it. The current development model is to keep as much of the engineering work as possible offshore.

RIVERS: In some places, it feels like the celebrations have already begin. The Globe Pub is a lively local nightspot which is only set to get busier with oil workers.

But elsewhere, this sleepy capital of 3,000 people seems only just to be waking up to the fact that business is about to boom.

In one of the two supermarkets here, shoppers browse the expensive imported fruit. Soon, they might be less worried about the prices. The Falkland government will get 9 percent of oil revenue generating tens of millions of Falkland Island pounds, potentially transforming life here.

ANDREZ SHORT, FARMER: If I look back to when I grew up here, it is totally, totally different now to what it ever was then. So, it will change. How it will change, I don't know, but it will change.

RIVERS: Over a very British cuppa at government house, the governor of the islands rejects Argentine claims the oil is theirs.

NIGEL HAYWOOD, GOVERNOR, FALKLAND ISLANDS: It's another Argentine myth that they peddle that Britain is after their oil. It's not Britain. It's the Falkland Islands' resource.

RIVERS (on camera): Most islanders of this windswept place want to spend the first chunk of oil money on improving the terrible roads, most of which are only made of gravel. The reality is, they could probably pave them with gold, such is the amount of money that's going to come into the coffers. They're talking about setting up a sovereign well fund to preserve it for future generations.

RIVERS (voice-over): The Falklands might be remote, but they are about to get very rich, and Argentina is furious that they won't get a cent. The dispute is set to get even more intense.

(END VIDEOTAPE)

RIVERS: Some idea of how the Falklands have changed, Richard: in 1980, the GDP was a puny $8 million. Now, it's about $160 million. When the oil starts flowing, it could be much, much bigger than that.

QUEST: Quick question. When you were there, Dan, did you get the -- did you talk to any of the locals who actually do believe that the Argentines should take over sovereignty or that there should be some accommodation with the islands being handed back but the residents still being allowed to keep their British citizenship, as the Argentinians have suggested?

RIVERS: Unequivocally no, not a single person we spoke to on the islands thought that they should be part of Argentina or there should be any kind of compromise at all.

Now, Argentina will say, well, look, all of these people were colonized here. They came and settled here in the last -- in the 19th century, and that there was an Argentine gaucho population there that was kicked out by the Brits and, therefore, these aren't real islanders, the real islanders who were there before got kicked out.

But certainly the Falklanders who are there now are absolutely 100 percent loyal to Britain, and that's how they want it to stay.

QUEST: Dan Rivers in Downing Street for us tonight. Dan alluded to the fact, not only with the oil, but also the threats that were made overnight from Argentina's government. The country's dragging some of the world's biggest banks into the dispute because of involvement with exploration.

It was a letter to the stock exchanges of London and New York. Now, Argentina says several companies are helping Britain look for oil in the Falklands, which they call -- is illegal. They've blasted Barclays, HSBC, Merrill Lynch, UBS, Credit Suisse, and BNP Paribas.

Argentina wants to change the flights that can go in and out of the Falklands. At the moment, the only way to the land Chile flight once a week. Mrs. Kirchner wants Argentine Airlines to open its own service. And in February, the Minister of Industry tried to put pressure on the country's biggest importers, asking them to trade only with countries which respect Argentina's claim to the Falklands.

Let's talk more about this. Celia Szusterman is an expert on Latin America at the Institute for Statecraft and joins me now. Why now? Why now, 30 years on?

CELIA SZUSTERMAN, DIRECTOR, INSTITUTE FOR STATECRAFT: Yes, well, it's not now. We have to grant it to de Kirchner. First of all, it is in the Argentine constitution of 1994.

QUEST: Why has she become bellicose now?

SZUSTERMAN: Well, she hasn't become bellicose. She has always said that this is a very important matter for her, very close to her heart. She's exploiting the nationalist cause. And not -- I'm not defending her - -

QUEST: No --

SZUSTERMAN: -- but it's not -- no, it's not new. She has been doing this for a year. But it's just been under the radar for most people.

QUEST: OK. So, then we have this threat.

SZUSTERMAN: Yes.

QUEST: To go after banks and companies involved. That is a serious ratcheting up of the rhetoric.

SZUSTERMAN: It is. And I think it's very regrettable and -- it's not what I would have suggested if somebody had asked me the way to go.

The problem is that in Argentina, they had the idea that this is how you conduct business and government business, by picking up the phone or sending letters threatening and bullying people. And they think that this will rise the risk for any company trying to explore for oil on the islands.

QUEST: Right. Now, anybody who'd just heard -- and I think you heard Dan's last answer, that basically says, whatever the historical precedent in this case, as long as there are 3,000 people on the island and 3,000 of them, or 2,999, want to stay British, doesn't that question of self- determination pretty much end the subject? How do the Argentinians get over that problem?

SZUSTERMAN: The Argentinians do not accept that this is a case for self-determination. This is the whole thing. They base their case on history and geography. And history, as Dan mentioned, is the usurpation of the lands and the expulsion of the Argentines on the islands. Now, there were only about 30 people, and they had only been there for five years.

QUEST: How much of this is Mrs. Kirchner making -- deflecting the slowdown in the Argentinian economy at the moment to try and -- if you -- Margaret Thatcher discovered in the 1980s, you can whip up a bit of support.

SZUSTERMAN: Of course, and every government discovers that, and it's always good for opinion polls and whatever to -- wave the nationalistic flag.

QUEST: Particularly if your economy's going down.

SZUSTERMAN: Particularly if your economy is going down. And I'm not suggesting -- I think Argentina's economy is in serious problem, and everybody is anticipating a drop in growth next year. And there are serious problems with energy and with the fiscal deficit.

QUEST: So, finally, Celia, how do they -- how do both sides come back from the brink on this one? Everybody says there won't be a war. Fighting is not on the agenda, and we doubt we would probably see that in this day and age. But how do they manage to get an accommodation?

SZUSTERMAN: It'll take a very long time, because the problem is that there are not only two sides to this dispute, there are three. And Argentine --

QUEST: Three?

SZUSTERMAN: Well, the islanders'.

QUEST: Oh.

SZUSTERMAN: And Argentina doesn't want to take the islanders into account, and Britain is saying, we're not going to talk about anything without the islanders.

And Argentina says, this is a bilateral thing, we're not interested in the islanders, because they are -- implanted, colonial population. They are not indigenous. As if anybody -- there are very few indigenous people in Argentina, because most of them were killed off.

QUEST: We'll leave it there. Thank you for coming in.

SZUSTERMAN: Thank you, Richard.

QUEST: Many thanks, indeed.

Coming up, never mind what's happening with the Argentina in the United -- and the United Kingdom, in euro land, they are out of work and it is in the millions. It's the lengthening lines which proves whatever the numbers show, the recovery --

(RINGS BELL)

QUEST: -- is on the rocks. QUEST MEANS BUSINESS. Good evening.

(COMMERCIAL BREAK)

QUEST: Forget the Avon lady, the beauty products company has got Coty calling, and Avon has rejected a $10 billion offer from the smaller company. Alison Kosik's at the New York Stock Exchange.

Alison, look, they say -- Avon is a little betwixt and between, here, isn't it? They seem to be saying no to the $10 billion offer, but perhaps maybe possibly in the future, when Avon's got itself sorted out with a new chief executive?

ALISON KOSIK, CNN CORRESPONDENT: Yes, maybe it just needs to get its ducks in a row, right? I mean, look how much trouble or how many problems Avon has been in. It's really been struggling.

It's got a foreign bribery investigation on its back, it's plagued by weak sales. This leadership issue that it's had for a long time. So, sure, at this point, Avon's saying, "I'm going to close the door on this Coty bid, the $10 billion, and wait and see what happens.

By the way, this isn't -- it's not such a bad, bad deal, when you think about it. If you're Avon going through these issues, it's about a 20 percent premium. Wall Street calls this kind of deal, when you get a 20 percent premium like this, a nice big bear hug. It's an offer so generous, it's almost impossible to turn down.

Yet, Avon is doing just that because, Richard, Avon said that this bid undervalues the company, so it quick, says, "No way," at least not for now.

QUEST: All right, we'll watch this one, see if Coty comes back for round two. Day one of Q2, that's the second quarter, to get rid of the jargon. Q1, the first quarter, January to March, 11-point something on the S&P. The market had a great first quarter. Can it repeat it?

KOSIK: That is the question. It was such a really quarter, and when you look at April historically, Richard, the S&P 500 has risen every April for the past five years. It's returned an average of 4.5 percent over that period, making it the best month of the year by a long shot.

You look at even 2008 -- 2009, rather, alone, you saw the index rise almost 9.5 percent. Sure, it would be great to see this rally continue, but everybody's kind of cautious at this point.

Although you and I have talked about bits of corrections here and there, there hasn't been a real correction at all since the end of last year. So, it's not necessarily healthy for the market to rally so much without taking a breather at some point. So, you're going to see some caution with the trade.

Also, don't forget, you've got corporate earnings season kicking off next week. It's going to be interesting to see --

QUEST: All right.

KOSIK: -- how these top oil prices here in the US may have affected those bottom lines at corporate America. Richard?

QUEST: Alison Kosik is in New York for us this evening with the Dow up more than 70-odd points. In just a moment, Stephen Pope will be here to talk to me and give me a bit of analysis on what we've been talking about.

Before we get to you, Stephen, I just need to bring up the information on what's been happening in terms of the eurozone. And days after the eurozone finance ministers agreed to boost the bailout fund, the economy is in -- seemingly in trouble.

Join me at the -- in the library. The head of the ECB has reassured us a few weeks ago the worst is over. But try telling that to the 17 million people out of work in the eurozone. February's jobless, 15-year high, a rate of 10.8 percent, 10.2 percent for E27, that's the whole European Union.

Now, whilst the number goes up just by one fifth for the eurozone, put that into context of the United States, where unemployment is actually falling and creating jobs.

And the reason that, perhaps, things are so dire, that arrow going up is not good, let me tell you, and this arrow going down is not good either. Because France's purchasing managers index fell for the eighth month in a row. The overall PMI is 47.7 for eurozone.

And under -- this is for the eurozone -- and under 50 shows the economy is contracting, an you can see exactly how -- you can see this in France which, of course, faces elections.

Into this maelstrom. You may wonder, was there a bit of perversion going on for the markets? Why should they rally -- nearly 2 percent in London, DAX up, as well, 1.5, such strong -- even Spain, with all the problems that they've got?

The reason -- the reason -- was because of the US manufacturing numbers, which showed that the US manufacturing was actually doing better than expected.

It's a rum old world when the market goes up so strongly when you have bad numbers like we had in Europe today.

STEPHEN POPE, CEO, SPOTLIGHT IDEAS: Right. But what you have on that third panel is the benchmark industries across Europe populated by all the large caps. Although we should stress, look at Spain, they're only up by 0.4, so it barely got over the starting line.

QUEST: Right.

POPE: So, it's the large caps in Europe who can sell into the US and who can sell into China, India, and so on, that are seeing opportunities to carry on making money. That's why they're contradicting what you would see -- and if you look at anyone who only sells into eurozone or Europe, they're going to be struggling.

QUEST: OK. Eurozone, 10.8 percent unemployment. And that really doesn't belay to tell the whole story or the truth of the story, does it?

POPE: No, actually, it doesn't.

QUEST: Because Spain and Italy and Greece, you've got numbers up in the 20s and 30s.

POPE: That's right. Spain, for example, 23 percent across the whole nation, but you take the youth, 18 to 25 years old, and it's above 50. With Spain, now, you have the best educated and the least hopeful generation.

QUEST: So, we should be seeing at this point in a recovery -- not that there is one, because in euro land, there's not -- PMI turning up. And we are not.

POPE: That's right, and that's because the eurozone, as we just said many times, has danced and dallied around and never addressed the fundamental points, which is gearing up the economies to be friendly for business and wealth creation.

QUEST: Which is those two reports that were leaked in the last 48 hours to the commission that showed that there are still structural problems, and they've not been --

So if you're -- if that's right, Stephen, then all we have done is put a sticking plaster on the problem, and we haven't actually addressed -- we've treated the symptoms, not the cure.

POPE: Absolutely right. We've said this all the time, that people keep dancing around, trying to find the quick fix that we can stumble along until the next grand summit, when we address the next urgent fix that needs addressing. There has been now structural reform in the eurozone for the last three years, when this whole currency crisis blew up.

QUEST: It's happening now. It's happening now, they would say. Slowly but surely. Monti in Italy is putting his pension and labor reforms in. Rajoy comes up with a budget which has reforms. So, it's -- you're looking very -- you're looking like --

POPE: Rajoy should have delivered 34 billion euros of cuts if he's going to have any chance of making a government deficit of 5.3 percent in this year. And then even have a chance of making 3 percent next year.

QUEST: But you would be the first person sitting here telling me he shouldn't be making those sort of cuts.

POPE: What I'm seeing is that they really need to focus upon the supply side, because there is no scope for government stimulus, because the governments can't spend any money because there's none to be had.

They can't be flexible on their currency or the interest rate, because that's all handed over to Mr. Draghi, and he's not doing a bad job as it is, but he's --

QUEST: Yes, he's handing money out for three years, it'll all come home to Greece.

POPE: That's right. It's a reprieve. And because also, the ECB, what have they done? Loaded their balance sheet with any old junk any bank cared to deliver to them. Somebody somewhere is going to have to take that off the ECB's book, and what is that going to be worth? Nothing very much at all is what it's worth. So, the ECB's balance sheet should be in question, now.

QUEST: If the ECB's balance sheet -- the only good thing is that they can replenish it, they can just print a bit more to keep things going.

POPE: Oh, yes. Well, you know, I am very skeptical about the whole eurozone structure.

QUEST: All right.

POPE: Nobody will answer the truth, and one states the truth.

QUEST: Good to have you with us, talking some common sense. Many thanks.

Now, the currency markets, and the Canadian dollar is up just a half a percent against the US dollar. Euro has fallen slightly back. The pound holds steady. Look at that, 1.6020. We haven't seen that for a while on the market.

(COMMERCIAL BREAK)

QUEST: Vancouver has started work on three brand-new skyscrapers, and this month's Future Cities has plenty of reasons for which it should be proud. Not many places can have the bustling city and the great outdoors on its own doorstep.

As anyone who's been to Vancouver knows, it blends the city with the sea with the mountains, perhaps like no other city I've ever been to. As Paula Newton found out, Vancouver has all that and more.

(RINGS BELL)

(BEGIN VIDEOTAPE)

PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT (voice-over): Vancouver, Canada, sitting on the Pacific rim, it's famously the city where you can ski in the morning and sail in the afternoon.

SAM SULLIVAN, MAYOR OF VANCOUVER, 2005 - 2008: Sailing to me is a real indication of quality of life. It's something that you can do in Vancouver, we've got great facilities.

NEWTON (on camera): A 2011 survey by "The Economist" ranked Vancouver, Toronto, and Calgary third, fourth, and fifth respectively. So, what are the Canadians doing right?

NEWTON (voice-over): Vancouver's dense downtown core is home to some 600,000 people, many of whom love the great outdoors.

UNIDENTIFIED MALE: Vancouver!

NEWTON: An active lifestyle is part of this city's identity, boosted by the 2010 Winter Olympics. The obesity rate here is just 6 percent. That's the lowest in Canada.

SULLIVAN: We're a city that loves the nature, loves quality of life.

NEWTON: Vancouver's Disabled Sailing Association was founded by former mayor Sam Sullivan.

SULLIVAN: And why not? Disabled people can do so many more things. What a powerful statement, to be able to go sailing.

NEWTON (on camera): Part of the appeal of this city is its geographical location. Vancouver is surrounded by a rainforest, perched on the water, with spectacular mountain views.

GREGOR ROBERTSON, MAYOR OF VANCOUVER: It's one of the great things about living here is that access to wilderness and beautiful outdoors is off the charts, and that's drawn people from all over the world to live here.

NEWTON: So, if Vancouver is one of the world's most livable cities, where do people actually live? Well, the answer is everywhere. You look to one side of the street, and even here in the downtown core, you'll see a family home. Cross the street, look up, and you'll see people living in highrise apartment blocks.

NEWTON (voice-over): Vancouver is trapped by the landscape. Water, mountains, and wilderness mean there is limited space. So individual is the urban landscape here, it's even coined its own term: Vancouverism. It means building up and not out.

ROBERTSON: Vancouverism and the densification downtown has been very successful. It doesn't appeal to everybody, but it has attracted many people. It's attracted many families, surprisingly.

SULLIVAN: The European cities seem to be afraid of height. They have this inertia from their -- I don't know -- medieval beginnings, and we're not afraid of height, we're not afraid of the density. And it's better for the environment, it's better for the economy, and it's better for the culture and the social dynamism.

NEWMAN: Yet, while this is the city that seems to have it all, there is a downside to being so desirable. Vancouver is the most expensive city in North America, pricing many people out of the area they grew up in.

ROBERTSON: Affordable housing has become our biggest challenge, now. Pressure in the housing market is created by so many people wanting to live here. It's the most liveable city in the world.

NEWMAN (on camera): Do you worry that even if everybody lived here --

ROBERTSON: Absolutely.

NEWMAN: -- that this becomes a city for elite people?

ROBERTSON: It is a big concern going forward. We have to continue to create affordable housing in the core of the city where people work and live. We've got to make sure that the city doesn't hollow out and become like a resort city.

NEWMAN: Key urban planning decisions from the 1970s means this city looks a little different from others. There aren't any multi-lane highways cutting through the landscape here, and the waterfront is open to all. They take public access very seriously in this city.

SULLIVAN: Vancouver, I would say, is one of the most accessible cities for wheelchairs. In fact, many people would come to Vancouver and say, "Oh, Vancouver's accessible because it has a disabled mayor."

And I would say, actually, it's the opposite. Vancouver has a disabled mayor because it's so accessible.

MOURA QUAYLE, PROFESSOR OF THINKING STRATEGIES, UBC: I really think of Vancouver as a mobility city, a movement city. The transportation and infrastructure decision to not have freeways has been profound in how we think about the road infrastructure, how we move in the city. So, it's really been thought through as a system.

And the fact that we took a stand on freeways, and now we can watch other cities tear down their freeways, at least we've saved that money, which can now be put into more transit.

NEWMAN (voice-over): With its green spaces and accessible streets, Vancouver has skillfully crafted an urban niche out of its natural surroundings. Yet, with the intense pressure for housing, living in the world's most liveable city comes at a cost.

Paula Newton, CNN, Vancouver, Canada.

(END VIDEOTAPE)

QUEST: Coming up in a moment on the program, the latest headlines and knowing when to bow out. A plagiarism scandal from 20 years ago brings down the Hungarian president. QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

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