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QUEST MEANS BUSINESS

EU Calls for Reforms; Spain's Rajoy Defends Austerity; Growth in Spain; HSBC Admits Terrible List of Failures; DAX Hits Another Record; Growth and Austerity in Spain; Dow at Record High; FIFA Says No Compensation for Clubs for 2022 World Cup Change; Rio Olympics Puts pressure on Favelas

Aired February 25, 2015 - 16:00   ET

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


(NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: In New York, the closing bell is ringing as the Dow Jones Industrial ends the session once again at a record. A small

gain, but a record nonetheless. The bell has rung, three hits on the gavel, trading comes to an end, and it's Wednesday, it's the 25th of

February.

Tonight, recovery, reforms, and Rajoy. Spain's prime minister defends his plan as the EU demands action.

It's a terrible list of transgressions. HSBC gets a rough ride from British lawmakers.

And no compensation for clubs. FIFA's World Cup in the winter will be a free transfer.

I'm Richard Quest, live in Madrid, where tonight, as always, I mean business.

And a very good evening to you from Madrid. It's a relatively spring- like evening here. Winter seems to be almost over. Well, we're in the Spanish capital tonight because it's a good moment for us to take stock,

particularly, of course, as the Greek financial crisis continues to rumble on.

And in Spain, the prime minister says his country is showing some of the benefits of all the hard work of austerity and the reforms that Mariano

Rajoy and the government has put in place. It all happens as the European Union themselves, the EC, is calling on members to become more efficient.

The EU gave France an extra two years to bring its deficit below an agreed ceiling. And it said ambitious reforms are needed. The Commission

cleared budgets for Italy and Belgium, even though both countries missed deficit targets.

And the EU said it wouldn't start a disciplinary process for now, but it called on all member states to present reform plans by mid-April.

Here in Spain, of course, they are well aware of the necessity of reforms and the effect that it has on the economy. But after all, even

though unemployment -- youth unemployment is 50 percent, the Spanish economy is the best performing at the moment amongst the eurozone.

Mariano Rajoy must call elections by the end of this year, and he's facing growing pressure from the far left Podemos Party. Mr. Rajoy in

parliament defended his record and said the best thing his government did was refuse to take a bailout.

(BEGIN VIDEO CLIP)

MARIANO RAJOY, PRIME MINISTER OF SPAIN (through translator): Many had claimed that what we were trying to do was impossible, to promote economic

recovery by lowering the deficit, enacting structural reforms, while at the same time maintaining a large part of the social spending.

And since they said it was impossible, they urged us to ask for a bailout. They urged us, in a manner of speaking. But we didn't do it.

Honorable colleagues, that was the greatest decision made by this government. The greatest social policy of this government was avoiding the

bailout.

(END VIDEO CLIP)

QUEST: So, that's the view from the government, and the prime minister says his reforms have worked. But many in Spain say it doesn't

feel like a recovery has taken place or is even underway, even if the numbers themselves still say that there is actually good, solid growth.

Government spending has been cut 9 percent since 2010. Tax reforms have attracted foreign investment. And they've also boosted economic

growth to where it's now 2 percent a year, which is, after all, amongst the best, and certainly amongst the best of those countries that have been

through some form of bailout or austerity program.

Rajoy says that the growth rate will jump to 2.4 percent this year, and he announced new measures to encourage job creation. Pass forms have

given companies more flexibility. Even so, unemployment, it may be down, it's still above 23 percent. Joining me now, Fernando Fernandez, who's the

economics professor at the IE. Hello, sir.

FERNANDO FERNANDEZ, PROFESSOR OF ECONOMICS, IE BUSINESS SCHOOL: Hello, how are you?

QUEST: Good to see you. We've a lot to talk about. Crucially and importantly, is the prime minister right when he says growth has returned

and it is sustainable?

FERNANDEZ: Well, the Spanish economy is growing at an annualized rate of 2.4 percent in the last quarter of last year. So, the economy has

recovered, that is clear. Now, it is also true that the draw has been so large that people still don't feel it so much. Because still, GDP is below

-- 8 percent below what it was before the crisis.

QUEST: Right. And unemployment, although it's a touch down, that level of growth isn't strong enough, really, to make meaningful reductions

in unemployment.

FERNANDEZ: Well, unemployment is coming down.

QUEST: Slowly.

FERNANDEZ: Slowly, but it all depends. It is coming down much faster than it was predicted by most economists a year ago, and that is thanks to

labor market reform. So, this is the first time the Spanish economy was able to create jobs when it was only growing at 1.4 percent.

QUEST: So, what are the market labor reforms that Spain has introduced that Greece needs to introduce as seen from Madrid?

FERNANDEZ: Well basically, Spain has been able to make the labor market much more flexible. It has reduced firing costs, it has made it

cheaper and easier to hire people, and it has also made it more flexible internally. So, the firms can now change the people around from different

locations and from different jobs within the company.

QUEST: And this, of course, was the country with the Spanish -- the jobs for life, and people didn't get jobs or full-time jobs because of

those rules.

FERNANDEZ: Right.

QUEST: Is there a feeling here that what Spain has done should now be followed by Greece?

FERNANDEZ: Well, the feeling in Spain is that it has worked. I don't know whether --

QUEST: Is there?

FERNANDEZ: Oh yes, sure.

QUEST: Is there that feeling?

FERNANDEZ: Sure. That is the feeling. The other feeling, too, is that it hasn't worked enough. There is still a long way to go. But we are

working there. I think that Rajoy is right when he says we're showing the world, the European economies, that this mix of adjustment and financial

system works.

QUEST: And is there any feeling here that since Greece clearly is going to get some relief and Spain did take bailout for its banks. Look,

Spain now says, hang on, we should have relief. It's a political issue in the country.

FERNANDEZ: I'm not sure it is. I really don't.

QUEST: You think not?

FERNANDEZ: I don't think so. I think that the feeling in Spain that we need -- maybe we need more time to produce -- to deliver the results

that the people and the economy are waiting for. I don't think there's a feeling that we need more assistance. In fact, if anything, I think the

feeling is that Spain needs reform.

QUEST: But there's no resentment against Greece?

FERNANDEZ: No, not at all. Not at all.

QUEST: Really?

FERNANDEZ: I don't think you'd find anybody in Spain having resentment on Greece. No. If anything, we have solidarity with the

Greeks. This the Mediterranean, after all.

QUEST: This is a very --

(CROSSTALK)

FERNANDEZ: The only thing they have to do, the reforms that we have done.

QUEST: OK.

FERNANDEZ: But we certainly do not think that we should get relief any further.

QUEST: Good to see you, sir. Thank you for helping us understand what's happening --

FERNANDEZ: Thank you.

QUEST: -- in this country, with the reason, of course, so crucially important. One of the reasons people said that the EU would stand firm

against -- or the eurozone would stand firm against the Greeks was because the Spanish and others would want something back from themselves.

When we come back to Madrid, we're going to be talking about a very nasty scandal in the banking sector. This time, it's HSBC, or maybe not

this time. Once again, it's HSBC. You'll hear how the chief executive and the chairman got a right royal roasting before Parliament. QUEST MEANS

BUSINESS in Spain.

(COMMERCIAL BREAK)

QUEST: Welcome back. It's QUEST MEANS BUSINESS. We are live in the Spanish capital, we're in Madrid tonight. HSBC got a right royal roasting

when its chairman and chief executive went before a Commons committee in London, and the chairman had to admit there had been a "terrible list of

failures," in his words.

Douglas Flint and the chief exec, Stuart Gulliver, were both hauled before the British lawmakers. It was a grilling over allegations the bank

helped wealthy clients dodge taxes. The MP John Mann called their credibility as executives into question.

(BEGIN VIDEO CLIP)

JOHN MANN, BRITISH MEMBER OF PARLIAMENT: Why haven't you sacked Mr. Gulliver?

(LAUGHTER)

DOUGLAS FLINT, CHAIRMAN, HSBC: Because I think he's doing an excellent job. We were both taken on -- we were both invited by the board

to take our current positions --

(CROSSTALK)

MANN: In that case --

FLINT: -- just after the --

MANN: No, in that case, why haven't you then resigned yourself? Because if Mr. Gulliver's not responsible, you're responsible.

FLINT: Well, in 2010, 11, we were invited by the board to take our respective positions after the worst financial crisis since the 1930s to

embark upon a period of massive regulatory reform and restructuring of the bank. And that's an activity that we continue to prosecute with all our

endeavor and with all our -- all the hours that we have in the day.

(END VIDEO CLIP)

QUEST: Not the sort of questioning that any bank chairman or chief exec wants to hear. Jim Boulden is at CNN London to bring us an

assessment, and particularly, Jim, on what is this "list of terrible failures"?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Yes. Well, it's a terrible list, that's the term that Chairman Flint used today. And what

they're talking about is a litany of scandals. Of course, the other banks, as well, have faced this. But HSBC has a particularly nasty list here.

Let's go through some of this, Richard. We talking about tax inversion, tax evasion with the Swiss bank branch of HSBC. So, we're

talking about the idea that a lot of people put money into a Swiss bank account, owned by HSBC, back in the early 2000s.

And what did they do that for? Well, some people call it tax inversion. It's not illegal. Some people, of course, say tax evasion.

Those investigations continue.

You had international money laundering in Mexico when you had criminals laundering money through an HSBC bank there. You have all these

scandals in London: libor, eurobor. You had forex rate fixing, gold price fixing.

Maybe the most serious is forex. This is the foreign exchange dealing, lot of that done here in London. HSBC and other banks had been

accused of basically rigging some very, very interesting parts of the day just to be able to make a little bit of extra money.

Of course, we're talking about employees much lower down than the CEO and the chairman. Bernie Madoff lawsuits, of course. The Ponzi scheme in

the US. And finally, faulty mortgages.

This is interesting, because we're talking about before the economic crisis. We're talking about HSBC selling mortgage bonds to Fannie Mae and

Freddie Mac. These turned out to be very, very bad, indeed, and this was 2005, 2006, 2007.

Again, HSBC, the CEO said a few days ago, it's too big to manage, and they had cleaned much of this up. And now they say -- Mr. Gulliver, the

CEO says it's a much more manageable bank. They're still working themselves through all of this, Richard, but they say this was the past.

It wasn't on his watch. It was somebody else's problem, Richard.

QUEST: One of the problems Gulliver had more than maybe the chairman is, of course, he's been with the bank for 30-odd years.

BOULDEN: Yes.

QUEST: He was quite heavily pushed on this. Now, yes, he wasn't in that division, and yes, he had other responsibilities. But he had to

admit, didn't he Jim, that fundamentally, he was on the inside when many of these things happened?

BOULDEN: That's right. And what I think was interesting, the very first question that Mr. Gulliver was asked today was about his own Swiss

bank account, the one that had a Panamanian connection. It's kind of complicated.

But that's what the MPs wanted to hear about, is why does he think he can lead this bank and clean it up if he himself maybe 15 years ago had a

Swiss bank account.

QUEST: Right.

BOULDEN: Now, he explained the reason for that. But the bottom line is, the chairman has asked, as you heard, why don't you sack Mr. Gulliver?

He says we need him to clean this up. HSBC says now they're a very different bank and that they hope that this kind of scandal will not happen

again. Richard?

QUEST: Jim Boulden, who is at CNN London. Jim, thank you for that.

We now take a moment to look at the European markets and how the trading day. The best of the session, the record came in DAX, which hit a

fresh, all-time high. Shares in Athens fell more than 1 percent after the big gains. The gains were the best part of 10 percent, so maybe 1 percent

is handing back.

In Athens, the Greek finance minister says his country is moving on to the next phase. This is the four-month extension negotiations as they wait

for the eurozone to, of course, do the deal.

(BEGIN VIDEO CLIP)

YANIS VAROUFAKIS, GREEK FINANCE MINISTER: We've had a four-month bridge period onto the new future. On to the future, I should say. And

now we're in the process of negotiating that. And that was a great achievement, but now, we've got it as an achievement, it's a fact. And now

we're moving on, thank you.

(END VIDEO CLIP)

QUEST: Joining me now is Francisco Gonzalez, he's the chairman and chief executive of BBVA. I don't need to remember too much the name of the

bank, because we're standing, sir, outside one of your very branches here in Madrid.

FRANCISCO GONZALEZ, CHAIRMAN AND CEO, BBVA: Yes.

QUEST: Let's start with a view on how you briefly view what's happening now in Spain, the banking sector, and in the economy. How bad is

it, or good?

GONZALEZ: No, how good is it.

QUEST: How good?

GONZALEZ: Because what this country has done over the -- has achieved over the last three years is really striking. We have fixed the financial

system, we have cut back on public spending, and we have one of the most flexible labor markets in Europe.

QUEST: Do you believe that the banking sector -- we were just talking about HSBC and their problems in the UK -- but you had different problems

in here, of course. You had the recapitalization of banks, you had the whole issue. Is the banking sector in -- following stress tests, firmly

capitalized?

GONZALEZ: Yes. I feel this country's financial system is well capitalized. We have recapitalized the banking system over the last couple

of years. The saving bonds have disappeared, and now we have 12 banks which are well. Well-capitalized and up and running.

QUEST: Are they able to play their full role in the -- in the lending? Because obviously, now, capital requirements are now key.

GONZALEZ: Yes.

QUEST: There's restrictions on the amount of lending. You're waiting for QE from the ECB.

GONZALEZ: The real thing, not just in Spain, but in Europe, is that we, the banking system, are awash with liquidity.

QUEST: You're awash with liquidity because it's --

GONZALEZ: With liquidity.

QUEST: Right, because the ECB's churning it out. You don't know what to do with it.

GONZALEZ: No, no. They're all (inaudible). The problem is there's a lot of demand. Now we are seeing that demand is picking up. At this time

in five years --

QUEST: From which section? Demand from consumers, or demand from companies for investment?

GONZALEZ: The demand from consumers, some demand from companies to invest. For example, the alternative and company which is bought. The

institution is changing for good very, very fast. This year, we'll see a growth in Spain of 2.7, one of the largest in Europe. Spain and Germany

are going to be the engines of growth in Europe.

QUEST: How are you at BBVA, how are you going to cope with quantitative easing, this new environment that the whole structure's

changing in a way.

GONZALEZ: The whole structure's changing. As I said before, we are awash with liquidity, and we are scrambling to find people who borrow money

from the BBVA. And that is what we are doing every day.

QUEST: You're trying to -- so you're now looking for that. Now, when we met in Davos, you were talking about technology.

GONZALEZ: I know.

QUEST: You're still interested in technology?

GONZALEZ: You know that we are --

QUEST: Have things got worse?

GONZALEZ: Yes, but --

QUEST: The risks are greater, and you still love your technology?

GONZALEZ: Well, you can't stop the tide. The detail is there. The most common word I heard in Davos was that the fiscal disruption is going

to be brutal. We have been working on the details over the last seven years. We are head of the pack worldwide. We have a thousand people, and

we have the channels. The revolution is going to be huge.

QUEST: Right. And I'm going to ask you the question I'm now asking many, many CEOs, which is, in terms of security of the banking sector --

because we saw, of course, this system where the hackers got into the banks, the ATMs started spitting out money. I assume that whoever's

responsible for IT at your bank answers to you almost.

GONZALEZ: I talk to him every month. We have, of course, a lot of people working on that. But in terms of security, there is no 100 percent

security. What you have to do is to limit the damage. And you have to have the right platforms, you have to have the right architecture. But

after that, it's a question of -- security's a question of not just the companies, but governments.

QUEST: I have to say, it's not often I meet somebody who says he's awash with money and he can't find enough people to lend it. I'll stand

outside your ATM and hopefully some will come out.

GONZALEZ: Some will come out. With a credit card.

QUEST: Oh, no, no. That was a bit I wasn't going to do. Thank you, sir, for joining us.

GONZALEZ: Thank you, bye-bye.

QUEST: We thank you for that.

GONZALEZ: Thank you, bye-bye.

QUEST: Look at the markets and how they've traded in the United States. It was one of those topsy-turvy, one of ups and downs days. The

Dow Jones closed at an all-time high. It was only just 15 points up, but it was good enough for a record.

It was the second day of testimony for -- on Capitol Hill for chairwoman Janet Yellen. She fiercely denied accusations that the Fed has

had a liberal bias.

You'll remember, before you and I said goodnight last night, we brought you HP's results and the disappointment that they were. Well, HP

shares are down 9 percent as a result of those results.

So, they've changed the date. It's going to cost the Europeans a great deal of money, and now FIFA says there'll be no compensation. That's

what we'll talk about next.

(COMMERCIAL BREAK)

QUEST: Good evening. We're live from Madrid. With all the bitter winter weather elsewhere, I have to say, here in the Spanish capital, it's

actually a rather pleasant evening and you're most welcome.

We're in Spain, of course, because this country is now the fastest growing in the eurozone, having come out of recession at a time when the

European Commission has been approving but warning to other countries of the work that they need to do.

Now, Spain, of course, is home of one of the world's biggest football clubs, and tonight, clubs across Europe have been told that they will not

be getting any compensation for the fact that the league championships and the various league games in 2022 will be absolutely destroyed as a result

of the World Cup moving to 2022.

It's a battle between the clubs and the countries. FIFA's proposal to stage the Qatar World Cup in November and December is going to cause havoc

with the European league schedules. The European clubs associations want to be compensated. The FIFA secretary general said that is not about to

happen.

(BEGIN VIDEO CLIP)

JEROME VALCKE, SECRETARY GENERAL, FIFA: There will be no compensation. The seven years to reorganize football around the world for

this World Cup.

We enjoy football when all is OK. Why we don't once organize ourselves and make sure that we can enjoy football in a different

environment, in a different situation, without suddenly screaming and saying that's impossible. It's not impossible, it's very possible.

(END VIDEO CLIP)

QUEST: So, no cash. Juan Castro is with me, the Spanish football correspondent for "MARCA," the most read sports Newspaper in Spain.

JUAN CASTRO, SPANISH FOOTBALL CORRESPONDENT, "MARCA": Hello.

QUEST: Are they as annoyed about it here in Spain as they are in England?

CASTRO: Well, the clubs are really angry with FIFA. But they have no other thing to negotiate. So, they are angry, it's true, but they will

negotiate, because they know there are no other solutions.

QUEST: Except -- he's quite right, isn't he, the secretary general, when he says, look, you've got seven years to prepare? I mean, if you

can't sort it out in seven years, it's not like it's happening a week tomorrow.

CASTRO: Yes, they have to do it. I'm convinced that they have to negotiate, because there is no other chance. And probably, they will be

compensated by money. They say right now that there will be no compensation, but there will be, I think.

QUEST: Since it is going to be so destructive to the European League schedules, why don't the European countries just say, fine, you have messed

us around, you've changed the rules. We're not going to come.

CASTRO: No, it's very easy. They cannot deny they are coming. They are in the same family. They have to negotiate between father and sons,

and they are in the same business, so they have to do it.

QUEST: So, is there also an anger here -- is there an anger that they feel these games -- or the World Cup was a summer World Cup, everybody knew

at the time it couldn't be done, and now it's been shifted, and Europeans are going to really get clobbered?

CASTRO: Well, they are a bit shocked, but --

QUEST: But everybody knew.

CASTRO: Yes, everybody knew. Everybody expected, but now it's confirmed. They are shocked, but I'm sure that anyway they will play, and

anyway they will go to the fans, will go to visit Qatar and they will go to the games.

QUEST: And the state of football in this country, the most famous team, of course, is in Spain, the world team. The state of the game here?

CASTRO: Which state?

QUEST: The state of football in this country?

CASTRO: Well, no, I think they have to cooperate. No other solution. FIFA is the king of this business, and --

QUEST: So, they don't feel the same resentment to Blatter that they do in London?

CASTRO: No. It's true. That is true.

(LAUGHTER)

QUEST: Good to see you, sir.

CASTRO: Yes.

QUEST: Thank you very much, indeed. As we continue, of course, staying with the big events, the biggest event, of course, coming up,

Madrid's bid for the 2016 Summer Olympics, and they lost out to Rio, the host of the next -- of the last World Cup. And now, Brazil is getting

ready to host the Olympics for next year.

And IOC inspectors have been highly critical over what they found in recent inspections. Now, of course, a real fight is brewing as the IOC

says more needs to be done. Brazil is aware the clock is running out, and the Games have to start on time. Shasta Darlington explains.

(BEGIN VIDEOTAPE)

SHASTA DARLINGTON, CNN INTERNATIONAL CORRESPONDENT (voice-over): Some walls are left standing, but the roof is gone. Homes demolished to make

way for the 2016 Olympics. But here in the Vila Autodromo shantytown, some 50 families have simply refused to go.

"We work as doormen and security guards," he says. "We spend everything we have on our houses." Francisco Marinho invites us into his

home. He says he built it brick-by-brick over the last 12 years, now an oasis amid crumbled buildings and sewage running through the streets.

They occupy a tiny corner of what will be the 2016 Olympic Park. Right next-door, apartment blocks for athletes going up. Residents tell us

officials offered locals buyouts or a spot in subsidized apartment projects.

"They used pressure," he says, "going door-to-door telling us that we're going to lose everything if we don't accept their offer." City

officials say the offers are generous. But nobody is forced to accept.

Human rights groups say the government has repeatedly failed to meet agreed compensation and relocation timelines. Nonetheless, the locals

neighborhood association says roughly 90 percent of families have taken the offer. Each time we visit, there are fewer houses. Here, a solitary

family in the middle of destruction.

DARLINGTON (on camera): Coming back a few months later, all you find is another pile of rubble.

DARLINGTON (voice-over): When they go, their houses immediately torn down. Electricity and water lines have been affected by the demolition.

Rubble has accumulated for more than a year. Residents believe it's just to pressure them to leave. Officials didn't immediately respond to those

allegations.

"It looks like people living in the middle of a war," he says. "That a bomb has just exploded." Now, they say they're determined to stay, but

want the government to clean up the mess left behind.

Shasta Darlington, CNN, Rio de Janeiro.

(END VIDEOTAPE)

QUEST: When we come back, what is Russia accusing Ukraine of not paying for its gas or pre-payments? And now, the threat is yes, once

again, the taps may be turned off. This is QUEST MEANS BUSINESS in Madrid.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quests in the Spanish capital Madrid. There's more "Quest Means Business" in just a moment when you're going to

hear from the head of Goldman Sachs who tells us that a more equal society will benefit everyone.

And there are strange lights in the sky in Paris. They are drones but the question of course is what are they doing there and who's controlling

them. You'll hear those stories and more, but this is CNN and on this network the news always comes first.

ISIS is reportedly holding more Assyrian Christians captive than was initially thought. The Study on Human Rights Network says 150 people were

seized from villages in Northeastern Syria. It says ISIS is expected to release the message soon threatening their hostages' lives.

The FBI says it's arrested three men who were hoping to fly from New York's JFK to join ISIS in Syria. The men were arrested in New York and in

Florida. They face terrorism charges. According to a complaint heard in the Federal Court, the men planned to hijack a commercial flight to Turkey

and hand it over to ISIS.

United Kingdom's ruling out sending combat troops to help Ukraine fight pro-Russian rebel. Britain announced on Tuesday that it planned to

send military advisors to help train the soldiers. U.K. defense minister Michael Fallon told Parliament the government's considering additional

requests but it will not provide lethal assistance.

The Israel Prime Minister Benjamin Netanyahu says there's no ulterior motive for his upcoming visit to Washington. The Republican speaker John

Boehner's invited him to lobby for new sanctions on Iran to stop its nuclear program. President Obama favors a diplomatic approach and some

Democrats senators say they'll boycott the speech.

A jury in Texas has found Eddie Ray Routh guilty of murdering the former U.S. Navy sniper Chris Kyle and his friend Chad Littlefield. Kyle

had served in Iraq with 160 confirmed killed. His autobiography was recently the subject of the film "An American Sniper." Routh was sentenced

to life without parole in prison.

The entire incidents of Russia and Ukraine and the provision of fuel took a turn for the worst. Russia now claims that Ukraine has failed to

prepay for gas as agreed in a previous agreement. Ukraine says it has made the required payments but it's refusing to pay for gas which is being sent

unused in the disputed in the disputed eastern part of the country.

The Russian minister says if Ukraine doesn't pay the money, then the gas will be switched off.

(BEGIN VIDEOCLIP)

VOICE OF DMITRY PESKOV, VLADIMIR PUTIN'S SPOKESMAN: Let's be frank. Quite unexpectedly a lot of water has passed under the bridges since that

time. (LAUGHTER). So we have, you know, witnessed the tremendous changes in global environment and international relationships.

(END VIDEOCLIP)

QUEST: This gas dispute has all the potential to be a major headache as it has been once be - several times before -- for the European Union.

Many of the supply lines of gas to Europe come through Ukraine, and any threat to switch them off would disrupt supplies to the E.U.

On Wednesday, there were plans which were overshadowed from the European Union's own energy union. The goal is to wean Europe off Russian

gas. The idea is to ensure cheaper energy for consumers and the plan as put forward by the Europeans involves merging the E.U.'s 28 national energy

markets.

It's a Herculean task and I asked the vice president and commissioner responsible for energy within the European Union whether ultimately it

wasn't all going to end up as one big bureaucracy.

(BEGIN VIDEOCLIP)

MAROS SEFCOVIC, VICE-PRESIDENT FOR ENERGY, EUROPEAN COMMISSION: We are concerned by the recent developments and I can tell you that it's seems

the last triter (ph) that I'm almost in permanent in contact with Ukrainian and Russian energy ministers and that we are trying to find the solut8ion

to this most controversial item on the table. And this means that supply of gas to the Lugansk and Donetsk territories and also the way how the

supply of gas should be organized and who should pay for it.

But I was in touch with both sides and I suggested that we should respect the winter package which is an agreement which we reached in

November on the supplies from Russia to Ukraine until March intact and we should talk with our energy how to resolve this issue separately.

And it's not easy because of course the political tension in these two countries is very high and therefore I invited the Ukrainian and Russia

energy ministers to come here to Brussels where I hope we will find the good solution to this very difficult problem.

QUEST: This new announcement by the Commission to basically break open the energy sector, I mean, to create a single market in energy across

28 countries - it's not going to be easy and I'm wondering where you even begin. How do you stop this becoming one big bureaucratic mess?

SEFCOVIC: (LAUGHTER). Yes, I agree with you that it's a huge challenge, but at the same time, I have to say that I am very encouraged by

the strong demonstration of the political will to do it this time right because I think there is clear understanding that in a European Union we

need (inaudible) energy union, and we need to profit from the biggest market in the world which is 500 million consumers.

And of course what they need to do is to remove technical and administrative barriers which are actually still present in Europe and

which are really dividing the European market into 28 national markets. And of course the result of it is that in Europe we pay much more for

energy than in the States, than in China.

Of course it have very negative consequences for our consumers, but also for our economic competitivity, so there is strong interest so to go

ahead and to really achieve the good results which is very important exercise.

QUEST: What is your goal here -- that somebody living in Finland decides to buy their electricity from a company producing it in Spain?

SEFCOVIC: Of course we would like to achieve is a much better region of those European-wide corporation in this matter. If you look at how much

we pay for energy in Europe and if you look at the structure of the price, you would see that if it comes to the wholesale prices, not that much

different than the prices in the States.

But if you look at the end user price, you see that we are paying much more. And the result is that in the price structure we have different kind

of levies.

We have subsidies, we have a taxation and on top of it in each country's different. So we would like - what we would like to do is to

phase out the unnecessary subsidies which are distorting the market.

We would like to open the national market to remove technical and administrative barriers. So really the customer in Finland would have much

wider choice than they have today.

(END VIDEOCLIP)

QUEST: The question of energy in the European Union. After the break, the deepening mystery of the mysterious objects in the skies over

the lights of Paris. Who is flying drones and why? Those drones are coming very close to some national landmarks. We'll be in Paris after the

break.

(COMMERCIAL BREAK)

QUEST: "CNN Business Traveller" and time for an update. Here in Spain the government has just announced that its - the tourism to the

country despite recession difficulties and economic woes - tourism in January was the best ever. More people are taking advantage perhaps of the

weakened euro. They're spending money, they're coming from China and of course they're coming from the United States.

Spanish tourism is booming -- for hotels in Spain, indeed across Europe and across the globe. The issue is how to integrate this new

tourists with all this technology that we were hearing about earlier from BBBA. The answer - more mobile apps. And it's amazing what an app can do

these days.

Check-in lines, nobody enjoys waiting in them. Airline mobile check- in apps have streamlined transit for travelers. And now hotels are catching up, hoping to have the same check-in desk success, this time with

the front desk.

All right, so we've told the hotel we're arriving at 11 o'clock.

Male: Yes.

QUEST: The Ritz-Carlton is one of the first luxury hotels to mobilize the upscale experience for guests, integrating high-touch services into

automated apps. It's a bit touchy.

Whoa, whoa, whoa, no, no, no, no, no, no. We apologize that mobile check-in is not available within 30 minutes of your arrival.

The idea is to enhance VIP treatment with do-it-yourself apps - enhance not replace.

I assume you still want to see some identification.

Male 2: I received your passport.

QUEST: Fine, so you saw it in my passport, fine.

Male 2: Yes.

Male: And the registration card needs to be signed here.

QUEST: It's not saving much. But if checking in wasn't a breeze, what else does the app offer? If you want fresh sheets or a toothbrush,

it's one tap away.

Left my toothbrush, so I'm going to look and see. I need to order a couple of - dental kit. Better have two of those. Oh, towels. You can

never have enough towels. Ooh and that's a towel set - not the whole lot, isn't it? Not the whole lot.

That was quick. If self-service - if total self-service is your thing, there's an app for that. Starwood's keyless entry bypasses the

check-in process all together. At the W Hotel I Hong Kong, you can walk straight through the lobby, access the lift, open your door and all with a

simple wave of your smartphone. No human interaction at all.

Mobile tech may be changing the hotel stay in subtle ways. It's about to change our flying experience even more. This is the Wayfinder, your

airport tour guide.

LYLE SANDLER, VICE PRESIDENT OF DESIGN, NCR: From the moment you pull up in your taxi, the platform will advise you to the best security line -

the shortest queues that are possible, how to get to your gate, whether or not there are delays, what the journey might be to ultimately get you in

the seat of the plane most efficiently.

QUEST: The system is up and running on kiosks across Dubai's airport, and soon a more advanced version is coming to mobile with turn-by turn

directions throughout the airport.

SANDLER: It will in fact be able to provide you recommendations based on your schedule, based on your flight.

QUEST: Eventually, the Wayfinder will take flight over mobile and land right on your smartwatch. For now, the first stop is the boarding

pass on your wrist. Scroll, scan, step onboard.

Hotels and airlines are adopting technology and regulators are too. Even dreaded Customs and Immigration. Long lines after a long

international flight are now being speeded up with the new Mobile Passport Control - the MPC.

It aims to speed up the process. It eliminates the paperwork. Clearing Customs got easier for U.S. and Canadian citizens. Fill it out

before you fly, submit when you land, receive a QR code, then head to the MPC express lane. MPC is currently in pilot mode at the Atlanta Airport.

STEVE KREMER, PORT DIRECTOR, U.S. CUSTOMS AND BORDER PROTECTION: Normally a person could wait in the old traditional process from 45 minutes

to an hour, and in this process they're going through our process within a few minutes.

QUEST: The big downside with the MPC is you still have to speak to an officer to past go. Technology's only taking us so far for now. It's an

improvement by bringing us one step closer to customs and border crossings with less hassle.

(END VIDEOCLIP)

QUEST: There's an app for that. Three Aljazeera journalists have been arrested in Paris and charged with illegally flying a drone. But that

doesn't answer the question because they're not the ones responsible for flying unmanned aircraft that are currently being investigated in Paris.

The aircraft have been flying close to some sensitive landmarks and buildings. Who's flying and why? Our technology correspondent Samuel

Burke is in the French capital for us tonight. Samuel, who's flying the drones?

SAMUEL BURKE, BUSINESS CORRESPONDENT: Richard, we `re looking over the streets of Paris and we see the people here looking up again to see if

there's going to be a third night of drones flying over some of the most recognizable and important landmarks here.

Those Aljazeera journalists, three of them, were arrested in the west of Paris for flying the drone in an urban area though it was he woods.

Aljazeera tells us they were actually using the drones to film a story about these mysterious drones that have flown over some of these important

places.

I want to just remind the "Quest Means Business" views of some of the places where they were spotted on Monday night. I believe we have a map

here that shows. We don't know if it was one drone, Richard, or five different drones or one drone seen five times, but a drone or drones were

spotted over the Eiffel Tower, the Bastille, Place de la Concorde - that famous plaza -- as well as the U.S. Embassy and then again a second night

beginning 11 p.m. Tuesday on into 2 a.m. Wednesday. Drones were seen over the Latin corridor, over Gare de l'Est, one of the biggest train stations

in Paris, and probably most worrying, over the French National Assembly.

Richard, this is of course the city that is still reeling after those attacks - those terrorist attacks at Charlie Hebdo as well as the Jewish

supermarket - so it very much has Parisians on edge. Though it's important to note, Richard, that the Parisian authorities don't seem quite as worried

about something nefarious. They're carrying out an investigation though it's being carried out by the Parisian police and French prosecutor's

office, not by the French military, Richard.

QUEST: Samuel Burke who is in Paris with the drones. After the break, the head of Goldman Sachs, Lloyd Blankfein, tells us that equality

in society benefits all. In a moment.

(COMMERCIAL BREAK)

QUEST: The Chinese government says it expects growth this year and beyond to remain pretty much on track and it's taking whatever measures are

necessary to ensure that happens. Meanwhile, the head of Goldman Sachs says that the bank regards this as the Chinese century. That's where the

good growth will be in the future. Lloyd Blankfein was speaking to Poppy Harlow.

(BEGIN VIDEOCLIP)

LLOYD BLANKFEIN, CHAIRMAN CEO, GOLDMAN SACHS: With something that's high growth, there's also high risk associated with it. They started out

growth at all cost - let's grow as fast as we can because they have certain things they had to accomplish -

POPPY HARLOW, JOURNALIST FOR CNN: Right.

BLANKFEIN: -- to bring its population in from the villages, etc. But that growth at all costs meant steel mills in the middle of Teno (ph)

spewing out toxic gasses in the - you know - next to population zones. It also meant financing a lot of activity all at the same time and that

probably led to corruption.

The have to slow that down and they have to get rid of like twin ills and which, by the way, correlate somewhat. The corruption of the economy

and also the corruption of the environment. And so they are consciously watching their growth slow down so they can have much more sustainable

growth.

HARLOW: Does China's expanding state-run economy and the success that we've seen overall so far call into question hands-down success of

capitalism?

BLANKFEIN: You know, at the end of the day, everything is going to be a hybrid. The U.S. is not pure capitalism, in place there's no place for

pure capitalism - unregulated capitalism. We have a regulated system. They're coming from a different place.

We're going to meet closer to the middle, but the point is, there's enough of an overlap in our systems and in our objectives so that we can

work together well. And in fact it's hard to imagine a problem or a situation in the world today that wouldn't be handled better if the United

States and China would cooperate on them.

HARLOW: I'm wondering where you think oil goes and if you think crude prices at, you know, half of what they were less than a year ago - isn't

that positive or negative for the U.S. economy?

BLANKFEIN: Well, taking the last one first, of course lower energy of the input for so much manufacturing and production and to the extent the

cost of that input is lessened, it creates wealth - it doesn't take away wealth. Just do the thought of experiment and imagining instead that oil

prices had doubled instead of halved. What if oil were $250 a barrel? Would that be good for the economy? Of course not.

HARLOW: You have said that income inequality is destabilizing. So, other than growing the pie, what can be done? Where's the responsibility

lie?

BLANKFEIN: Listen, one of the things that we have to do which is I think the easiest thing is I think we have to supply to the general public

and cheaply or freely all the things that the very well-to-do could buy for themselves that the poor don't that are the predicate for success later in

life.

So training, education, housing - those are things that the wealthiest people have and the poorest people don't have, and if you don't have it,

you lose your access to the escalator that could take you up and through the middle class and higher.

And so what we have to do is if you collected revenue from the whole which means from - in a progressive tax system, the wealthier people - and

not write checks to people but rather invest it in education, housing, those benefits will just disproportionally inure to the neediest elements

of society. We've done a better job in this country at creating wealth than we have of distributing it. And we have to do a better job. And it

behooves everybody to join in.

By the way, the people who are the beneficiaries of the economic progress aren't necessarily the cause of it. In other words, if you ask

people to vote - are you for inequality? --

HARLOW: Right.

BLANKFEIN: -- everyone would say no. It's just that there've been a lot of factors in the world that have evolved that have skewed the world

that with the rise of technology, a winner-take-all market, I think we all have to get together and work on this problem. It's everybody's problem.

(END VIDEOCLIP)

QUEST: Lloyd Blankfein talking to Poppy Harlow - the head of Goldman Sachs. We will have a "Profitable Moment" from Madrid after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment" which comes to you from Madrid. This is Serrano which is the equivalent if you like of the Fifth Avenue,

the Bond Street. It is the main, most expensive shopping street in Madrid - certainly one of them.

The economy in this country has been so badly hit - unemployment 23/25 percent, youth unemployment 50 percent. But as you've heard on this

program tonight from bankers, from officials, you heard from the prime minister earlier that the turnaround has begun.

And although it is slow to be sure and there's still an enormous way to go, with growth of 2.4 percent, perhaps 2.7 next year, Spain promises to

be the most successful economy in the Eurozone. It's all proof perhaps that the reforms are working, painful though they may be. And maybe it's a

lesson to others of what happens when you actually get on with the job.

And that's "Quest Means Business" for this Wednesday night. I'm Richard Quest in Madrid. Whatever you're up to in the hours ahead, (RINGS

BELL) I hope it's profitable. I'll see you tomorrow.

END