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Exclusive Interview: Christine Lagarde Says Dialogue With Greece Continues; Tsipras Agrees to Reforms, Then Urges "No" Vote; ECB Maintains Cap on Greek Funding; Geek Finance Ministers Advisor on Greek Crisis; "Yes" Likely Means Change in Government; US Stock Markets Rise; European Markets Higher; US, Cuba to Reopen Embassies

Aired July 1, 2015 - 16:00   ET



RICHARD QUEST, HOST: Shrugging off worries about Greece, the market in New York rises sharply, up more than 130 points. There goes the gavel,

trading is over, it's Wednesday, it's July the 1st.

A bit more adulthood is still needed. Tonight, the head of the IMF, Christine Lagarde, tells me Greece must work for stability.

He agreed to the European deal, then called for his people to vote no. It's a day of mixed messages from the Greek prime minister, Alexis Tsipras.

And this is what change looks like. The US will open an embassy in Cuba, ending a five-decade economic embargo. That's the next step.

I'm Richard Quest, live in Athens, where I mean business.

Good evening from the Greek capital, where it was a day of drama, decisions, flip-flops, and tonight, the head of the International Monetary

Fund says the dialogue with Greece continues, but the country will get no special treatment. The financing has stopped.

It all comes at the end of a most extraordinary day in which the Greek prime minister appeared to make two dramatic U-turns.

First, Mr. Tsipras offered concessions to Greek creditors. Then, he urged a "no" vote in Sunday's referendum, which he said will still go

ahead. We'll bring you all of that in just a moment.

Before that, the international exclusive interview with Christine Lagarde. I asked the managing director, who spoke to me just 24 hours

after Greece has gone into arrears or defaulted, I asked the managing director, had she had any contact with the Greek authorities since it all



CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: The IMF has been in contact with the authorities in Greece to clarify

whether or not the country intended to not pay its installment to the Fund and to the international community, so we have to do that to really clarify

that that is the position. And we did receive clarification. I also received a letter from the prime minister indicating that that was the


And I have to tell you, Richard, it's -- it's clearly not a good development from the IMF perspective, but the IMF is solid, strong, and we

have a good and solid balance sheet.

We've had many countries in the past which have been in arrears for very short periods of time. Through good cooperation and focus on what

needs to be done, we've always been able to work it out. I very much hope that we can do that with Greece as well.

QUEST: Except the situation does seem to be deteriorating, as regards Greece. Now, I know, obviously, in the great scheme of the IMF, this

amount of money is not going to make a difference, but how can the IMF now continue the dialogue with Greece?

LAGARDE: Well, there is one thing, Richard, which is certain, and that is once a country is in arrears with the Fund, it cannot receive

funding. So, the IMF cannot finance Greece for as long as it is in arrears vis-a-vis the Fund.

So, we will continue dialogue, because I think it's important. I think it matters that we stay engaged. I'm particularly concerned about

the development of the situation. I care. I am concerned about the people who are taking the suffering of this whole situation. So, we will still

engaged. We are -- this is the mission of the Fund.

QUEST: The Greek government has requested another bailout, a third bailout, this time from the ESM, the European Stability Mechanism. But

part of the rules or the procedures of the ESM does usually require IMF involvement with a similar request to the IMF.

Now, it seems somewhat fatal to the ESM request that they can't make any form of request to yourself. How do you square that circle, Managing

Director? You can't be involved in this latest bailout request.

[16:05:01] LAGARDE: Well, the best way to square that circle, if that's possible, is of course to make sure that this outstanding payment is

due -- which is due, is actually paid. Because then that clears the way for the IMF to reengage financially. So, it's -- I think it would be one

of the prerequisites in the whole reopening or resuming of discussions.

QUEST: The situation seems to be deteriorating. What's your understanding tonight. First of all, the Greek government says yes, it

will sign up to the agreement. Then it says it's going to have a referendum, and now, the Greek prime minister says he'll campaign for a

"no" vote. Managing Director, give us your perspective.

LAGARDE: It's very difficult for me to actually take a view. There is a democratic process that is underway, which has been initiated by the

prime minister on Friday to consult with the people of Greece. My strong hope is that whatever the outcome, we can continue to work.

Greece is in the middle of Europe, is a member of the European Union, of the euro area, and I hope that the situation will be clarified, because

I think that what Greece has suffered a lot is from uncertainty and from a degree of confusion.


QUEST: Christine Lagarde, the managing director of the International Monetary Fund. And you'll hear more international exclusive interview


As to the events in Greece, a day when things were changing by the hour. It is just after 11:00 PM local time, 23:00, 12 hours since we

learned that Prime Minister Tsipras had sent his letter to Greece's creditors, appearing to capitulate and agree to their terms.

That was the way the morning went here in Athens, but by half past 5:00 this afternoon, the prime minister was on television. Yes, he had

agreed to something, but he was urging the contradictory "no" vote in Sunday's referendum. Isa Soares has more on what seems to be a dramatic

about-face in Athens.


ISA SOARES, CNN INTERNATIONAL CORRESPONDENT (voice-over): Not budging. And still pushing for a "no." The Greek prime minister is

standing defiant. Addressing a nation in crisis, Alexis Tsipras sought to dispel rumors he was backing down to pressure from international creditors.

Announcing that his referendum will go ahead as planned on Sunday, he urged Greek people to vote against the eurogroup's austerity measures.

ALEXIS TSIPRAS, PRIME MINISTER OF GREECE (through translator): On the other side, by saying "no," it's not just the banish no. It's a decisive

move for a better agreement.

SOARES: Tsipras' show of defiance came less than 24 hours after he wrote a last-minute of concession to the eurogroup. In it, he agreed to

almost all their conditions for a continued bailout with a few exceptions.

But despite that, Tuesday's midnight deadline for a deal came and went. Greece became the first advanced economy to default in a payment to

the IMF, and its current bailout program abruptly ended.

German chancellor Angela Merkel dismissed Tsipras' last-minute proposals, saying Europe now needed to wait for the Greek referendum.

ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): Now we are waiting for the referendum. Before the referendum, no further talks to an

aid program can take place, which is not possible anyway without the approval of Germany's Bundestag lower house of parliament, because we are

in the legal sphere of the ESM.

SOARES: Speaking Wednesday, Tsipras also stressed a "no" vote would not mean Greece leaving Europe.

TSIPRAS (through translator): Some insist that a vote of "no" is -- they would try to get the country out of the euro. Those are the ones who

are lying.

SOARES (on camera): Alexis Tsipras is once again trying to calm nerves, telling the Greek people that the crisis is temporary and urging

them to vote "no." But people here are confused. Many just don't know what exactly they'll be voting for.

SOARES (voice-over): (inaudible) tells me, "I don't understand the question below the referendum. There is no meaning to it. There is no

proposal that you can agree or disagree with," he says.

UNIDENTIFIED FEMALE: A "no" would also mean that we don't know what is going to happen, but we know that we're not going to continue the same


SOARES: With the existing bailout program now expired and no firm proposals for a new one yet on the table, it's unclear exactly what

Sunday's referendum question will be.

[16:10:00] As Greek banks remain closed and pensioners take to the streets in protest over austerity measures, Tsipras insists he wants to

stay in the euro club, by play by his own rules.

Isa Soares, CNN, Athens, Greece.


QUEST: In the last hour, the European Central Bank, the ECB, which in many ways has all the trump cards, the ECB has confirmed it's keeping the

Greek lenders on a very tight leash ahead of the weekend referendum.

The governing council says it's going to keep the so-called ELA, Emergency Liquidity, the funding for the Greek banks, it's capped at just

under $98 billion. Strict capital controls remain in place ahead of Sunday's vote. You'll remember that Greek citizens can only take out 60

euros -- about $65, $66.

Now, speaking earlier, the eurogroup president, Jeroen Dijsselbloem said the situation is unlikely to change until next week.


JEROEN DIJSSELBLOEM, PRESIDENT, EUROGROUP: Given the political situation, the rejection of the previous proposals, the referendum, which

will take place on Sunday. And the "no' advice of the Greek government, we see no ground for further talks at this point.


QUEST: Officials here in Greece are reacting to the day's events. Coming up next, one of Yanis Varoufakis' advisors tells me what a "yes"

vote means for the future of this government. It's QUEST MEANS BUSINESS on an extraordinary day in Athens.


QUEST: This was a banner hanging today on the building of the Greek Finance Ministry. It reads "No to blackmail and austerity." And it echos

the defiance of the country's prime minister.

A very good evening to you, I'm Richard Quest, QUEST MEANS BUSINESS, we're live in Athens.

Elena Panariti is an economic advisor to the Geek finance minister, Yanis Varoufakis. She works in the building that we just showed you.

She's a volunteer, and she says if there's a "yes" vote on Sunday, it will most likely lead to a change in government, because the government itself

is putting forward the prospect and urging people to vote "no."

I spoke to her earlier and asked her to explain the day's remarkable events and how they unfolded.


ELENA PANARITI, ECONOMIC ADVISOR TO GREEK FINANCE MINISTER: A lot of stress. The support team, which I'm part of, was stressed and hopeful that

there is going to be a positive closure in the day.

And then, there is, I believe, those who are in the political side of the team, that had a question in the back of their minds. I just think

that yes, we want it to be hopeful. But we have had bad experiences, and we're afraid that we will not have a conclusion today, and we will actually

have a conclusion on Monday.

QUEST: Whichever way you look at it, the day was extraordinary and seemed to get worse.

PANARITI: Well, we don't really know, but I hope it's not going to ever get any worse.

QUEST: How does things move forward between now and Sunday, do you see it?

[16:14:55] PANARITI: Well, I believe we have to keep cool and calm within our borders today and tomorrow until Sunday to get through that

referendum in the calmest and the least panicked way we can, and manage to get -- whatever a result will be, manage to get a normal, rational outcome

to be able to reconvene on Monday to a solution.

If it's a "no," then reconvene according to what Mrs. Merkel said today and the eurogroup's conclusion, let's reassess where we are and how

we go forward. Are we going to talk about the new ESM loan, what type of conditionalities.

If it is a "yes," the word -- the political word out there from the government is that there is probably going to be a change. But first, of

course, they need a good democratic success to the result.

QUEST: Now, this all assumes a long period of time. I heard the prime minister to day today, rest assured, it won't be long. But that

can't necessarily be true because if it's a "no," there's negotiations over conditionality, and if it's a "yes," then you've still got to put in place

the ESM deal.

PANARITI: Correct.

QUEST: And the banks are closed, and the ECB isn't giving any -- finish my sentence for me.

PANARITI: In one full day just today, yesterday and today -- today's what? Wednesday.


PANARITI: Yes? And it feels as Friday. Because just the whole day, like an hour feels like it's a whole century. How are we going to get to

Sunday? How are we going to get through after Sunday? Then the technical discussions, then negotiations over those discussions. And if we have

political changes, goodness, we'll have to deal with those as well.

QUEST: All at the same time --

PANARITI: All at the same time.

QUEST: You'd have to hope that the ECB starts funding this country again through ELA, emergency liquidity. Because if they don't, well,

switch off the lights.

PANARITI: Yes, I've seen countries that have switched off the lights, and I really hope we don't ever get there. There was also a request that

we may have to handle Greece with emergency funding. And I, again, expect not to go there.

But it is unprecedented for my country. It is unprecedented. Last time we had anything like that was during the wartime.


QUEST: Joining me now is Haris Theoharis, the parliamentary spokesman of the opposition party, To Potami. Sir, thank you for joining us. What

did you make -- what does the opposition make of what happened today?

HARIS THEOHARIS, PARLIAMENTARY SPOKESMAN, TO POTAMI OPPOSITION PARTY: Well, the prime minister issued a statement that he wants the Greek people

to continue to vote "no."

QUEST: What do you make of that?

THEOHARIS: Well, this is just a procrastinating tactic to pretend that he's negotiating with Europe. Europe has made it clear that he's not

negotiating anymore. So, he wants to show the Greek people that there's still a chance of a solution within Europe. Why? Because he thinks that

Greek people, if they realize that the "no" vote means out of Europe, they will not vote for that.

QUEST: But he has a point in the sense that if he goes -- if he does get a rousing "no" vote, he will have a stronger hand when he goes to

negotiate the next bailout under the ESM.

THEOHARIS: No. He's not going to negotiate any bailout if he gets a "no" vote. If he gets a "no" vote, then, the Europeans -- Donald Tusk, the

European president, said today, I'm not going to help the Greek people unless they want to help themselves.

QUEST: Right. But Angela Merkel also said we will look at the result and we will talk when it's over, when it's after. We will see what we have

to talk. They still say they want Greece to stay in the euro. You don't believe it?

THEOHARIS: Well, they're saying they want us to stay in the euro if we want to stay in the euro as well. So, that's the asterisk therefore.

QUEST: But is this referendum -- I don't want to get us too much into the minutia of domestic Greek politics, interesting, though, that is for

yourself. Is this referendum after today's events still a referendum about euro, yes or no, or is it more complicated even than that now?

THEOHARIS: No, it's about the euro, yes or no. Perhaps even Europe yes or no. But certainly the eurozone.

QUEST: Can you see a situation where you would leave the eurozone, but your party would have argue to stay in the European Union. Because if

the "no" vote happens, your party has to accept that people don't want the euro, don't you?

THEOHARIS: Yes. Well, we'll have to accept the choice of the people. But this is going to be a very difficult situation. Greece is going to be

split in that situation, so it's not very easy to manage. Certainly we want to stay within the European family and in the core of Europe, in the

core of the eurozone.

QUEST: Good of you to talk to us, sir. Thank you very much, indeed.

THEOHARIS: Thank you.

[16:19:55] QUEST: Coming up in just a moment, a thaw in diplomatic relations between Washington and Havana. It has investors queuing up --

excuse me -- to break into the Cuban market. It's QUEST MEANS BUSINESS, we're in Athens. Good evening to you.


QUEST: US markets closed higher. Gorgeous view of Athens this evening. The markets were up, the Dow gained just under 1 percent. Alan

Valdes is the director of floor trading for DME Securities, joins me now from the floor of the New York Stock Exchange.

Alan, you -- the market managed to shrug off what was happening in Greece, having fallen sharply in previous sessions. So, why were they able

to be resilient now when there was still so much confusion?

ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: Well, at first, there's always that knee-jerk reaction to the news over the weekend.

We expected that. But when you look at it, Greece since the 1830s has been in default a total of 90 years. And it's just so small. It's the size of

Atlanta, economically.

So, there was a lot of bargain hunters coming in on Tuesday, taking advantage of that drop, and of course, it went right back up.

QUEST: There are other factors in the world that the New York market is looking at. I'm thinking both of China and of Puerto Rico. Factor

those two issues, particularly the Puerto Rican potential for default, which didn't happen, the bills were paid, but the economic situation in

Puerto Rico is dire.

VALDES: Sure, you're right. The good news is, yes, they paid a billion dollars, but the bad news is they still owe $71 billion. And the

governor says they can't pay it. But Greece is one thing, but we're kind of away from Greece. Right here in Puerto Rico, there's about 130 to about

160 funds that have exposure to Greece. Much more -- to Puerto Rico, much more than Greece.

So for the average American, it's more problematic, Puerto Rico, there's no question about it. They could be involved and not even know it

because the way they write these derivative contracts. You could have a holding in Puerto Rico and be totally unaware of it. So, Puerto Rico, I

think, for the average American is much more problematic, Richard.

QUEST: Ah, Alan Valdes, thank you for putting that in perspective. We talked about Puerto Rico on last night's program. We'll talk about it


European markets bounced back from yesterday's losses. The stocks climbed as it looked as if Greece could accept the lenders' terms. Now,

you have to bear in mind as you look at these closing numbers or the way the market traded, they were seeing the most optimistic part of the day,

when it looked as if Greece was going to accept the eurozone bailout terms.

The FTSE showed the slimmest gains of the day. The Bank of England says the risks to the UK financial system have increased as a result of the

crisis. The governor, Mark Carney, is ready to take action.


MARK CARNEY, GOVERNOR, BANK OF ENGLAND: The United Kingdom is relatively well-insulated from the direct consequences of events in Greece.

UK banks' exposure to Greece are relative -- are very small relative to the size of their capital bases. And the footprint of Greek banks in the

United Kingdom is tiny compared to the size of our economy. In contrast, our economic and financial exposure to the euro area is considerable.


QUEST: Now, half a century of diplomatic division is coming to an end. President Barack Obama announced that the US and Cuba will reopen

embassies in each other's capitals. Speaking in Washington, Mr. Obama urged Congress to follow his lead by lifting the plus-50-year-old trade


[16:25:10] Havana estimates that the US economic sanctions cost its economy almost $4 billion in last year alone. The authorities say the

total economic damage reaches upwards of $116 billion. The cost to the US economy is estimated at $1 billion every year. And it is this situation,

this tit-for-tat losses that the US president says must end.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I've called on Congress to take steps to lift the embargo that prevents Americans from traveling or

doing business in Cuba. We've already seen members from both parties begin that work. After all, why should Washington stand in the way of our own



QUEST: Many US businesses are champing at the bit to break into the untapped Cuban market. Live to CNN's White House correspondent, Michelle

Kosinski. Good evening, Michelle, from Athens. From Athens to Washington, and this fascinating question. How much of this is about politics, how

much is about business, how much is the president looking for votes?

MICHELLE KOSINSKI, CNN WHITE HOUSE CORRESPONDENT: Yes, all good questions, there. And I think you have to see it as a strong combination

of all of the above and then some.

The economic benefit to the US once things open up fully is clear, and the White House doesn't really beat around the bush about that. They

mention that every time, also in an attempt to gain support for it, too.

They miss no opportunity to mention the potential for US economic participation in Cuba. Other countries have already been able to get a

foothold in there, and the US has really missed out on that chance for so many decades.

So, yes, especially when you look at telecoms, tourism, you name it, to be able to participate fully is going to be a benefit to everyone.

But some, Republicans especially, are accusing the president of putting his legacy ahead of human rights, here. Human rights, of course,

being a big issue in this kind of engagement with the Castro regime.

The White House denies that, but clearly, you look at this, this is such a big step, such a change in this icy relationship for such a long

time. It's doubtful that the president didn't think about this being a major coup, a major step up for his legacy long-term as well, Richard.

QUEST: Michelle Kosinski, thank you, Michelle, joining us from Washington. Now, still to come, QUEST MEANS BUSINESS live from Athens, the

former president of the ECB, Jean-Claude Trichet, when he was there at the top, he was the key architect of the first Greek bailout. He was a major

advocate for avoiding a Greek default. He'll join me after the break from Paris.


QUEST: In Athens there's more "Quest Means Business" in just a moment when the managing director of the IMF tells me Greece needs stability.

And Chinese markets are defying government's attempts to stabilize them. We'll talk about that and look at just how terrifying the losses are

and whether that continues. Before all of those discussions, this is CNN and on this network the news always comes first.

The head of the international - the head of the International Monetary Fund, Christine Lagarde, says the dialogue with Greece continues though it

will get no special treatment and the financing has stopped. It comes at the end of an extraordinary day. First the prime minister offered

concessions in a letter to the creditors, then he appeared to urge a no vote in Sunday's referendum.

Alexis Tsipras believes no will strengthen his hand in the talks. European leaders say it will hasten the country's exit from the Eurozone.

Christine Lagarde stressed how important Greece is and that she hoped for clarity going forward.


CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: Whatever the outcome, we can continue to work, Greece is in the middle of

Europe as a member of the European Union, of the Euro area, and I hope that the situation will be clarified because I think what Greece has suffered a

lot is from uncertainty and from a degree of confusion.


QUEST: The bodies of eight British people who died in Friday's massacre on a Tunisian beach have been brought home. They were flow to RAF

Brize Norton outside of London. Sadly, more bodies are on the way - at least 27 of the 30 dead people who were murdered were British.

The United States and Cuba are to reopen embassies in each other's capitals that'll end five decades of diplomatic division. President Obama

urged U.S. lawmakers to abandon economic sanctions imposed against the island nation 50 years ago and said the time had come to put the past

behind them.


BARACK OBAMA, UNITED STATES PRESIDENT: The progress that we mark today is yet another demonstration that we don't have to be imprisoned by

the past. When something isn't working, we can and will change.

Last December I announced that the United States and Cuba had decided to take steps to normalize our relationship. As part of that effort,

President Raul Castro and I directed our teams to negotiate the reestablishment of embassies. Since then, our State Department has worked

hard with their Cuban counterparts to achieve that goal.

And later this summer, Secretary Kerry will travel to Havana formally to proudly raise the American flag over our embassy once more.


QUEST: Gazprom has stopped natural gas deliveries to Ukraine. The Russian energy company says it has not received advance payment for July's

gas supply. Ukraine's state energy company announced it would stop buying Russian gas because of disputes over Gazprom's prices.

A heatwave is baking Western Europe with temperatures up to 40 degrees Celsius in some places. Officials in Spain are warning residents to stay

hydrated. They're also keeping a nervous eye out for the possibility of forest fires.

In London, 36.7 degrees was recorded at Heathrow Airport. It's the hottest July day on record.

Welcome back to "Quest Means Business." We are live in the Greek capital in Athens where it's been the most extraordinary 24 hours. The

head of the Eurogroup Jeroen Dijsselbloem says there will be no talks about Greece in the coming days.

The ministers are awaiting the outcome of Sunday's referendum and only then will it respond. This idea of wait until the referendum was a

sentiment echoed by Angela Merkel of Germany.


ANGELA MERKEL, GERMAN CHANCELLOR, VIA INTERPRETER: Holding a referendum is a democratic sovereign right of the Greek State. It is the

legitimate right of Greece to do that whenever they want and about whatever they want and which (AUDIO GAP) ever recommendation the government wants.

But make it as clear, it is also a democratic sovereign right of the other eight member states of the Eurozone to respond to the Greek decision

in a proportionate way.


[16:35:03] QUEST: That is the overarching architecture, if you like, under which we talked to Christine Lagarde, the managing director of the

IMF. In the second part of my international exclusive interview, I asked Christine Lagarde what the members of the IMF are now telling the other

countries about the situation in Greece.


LAGARDE: I think many members around the table of the IMF - there are 187 countries - they would like to see that situation resolved, that

uncertainty waived and clarity. I think that's what I hear most. They're also very keen that this matter be resolved in an even-handed fashion and

that they really do not see the reason why there would be a special case or a special treat because it has been the case in other places around the

world, whether you look at Ireland and Portugal in the Eurozone or whether you look at other countries on other continents.

These situations happen. Countries have to take hard measures, the situation has to be made stable, sustainable and they have gone through it.

So they would hope very much that this can be resolved as well.

QUEST: On this question of the other countries - the Spains, the Portugals, the islands - here in Athens you have been here, you've spoken

to them. They say too much austerity. The IMF itself has almost - well has - agreed that the first and earlier programs were too austerity-led.

With that in mind, can you see a way forward? Can you see a possibility for talks to resume that allow growth to come back to Greece

after the weekend referendum?

LAGARDE: I would certainly hope so. And, you know, in the latest proposal that was put to the authorities, the fiscal targets had been

lowered. The period of time during which the country could adjust had been extended. And, you know, this is something that can be discussed. For us,

from an IMF point of view, everything has to be balanced.

There are structural reforms, fiscal adjustment to make sure that the country's on a sustainable path on the one hand and that is really the task

of Greece which has done a lot already on that front but needs to do more, particularly in structural reforms.

But on the other hand, there has to be financing, there has to be a debt (ph) operation in order to make sure that it is on a sustainable path.

So it has to be balanced. And -

QUEST: Right.

LAGARDE: -- you know, in the same way, Richard, it has to be balanced from a social point of view. When we are saying that taxes have to be

paid, yes, they have to be paid particularly by those who are the wealthiest.

And at the other end, clearly there has to be a social safety net gradually put in place as the untargeted other protection regimes are

becoming more targeted.

QUEST: Right.

LAGARDE: So everything else, you know, it's a - it is - it has to be balanced.

QUEST: When you use that phrase `adults in the room,' a phrase that will come back no doubt to haunt you many times, when you use that phrase

and adults - you will hope for adults in the room, do you believe you believe the events of the last 48 hours show that there aren't adults in

the room still negotiating?

LAGARDE: You know, given the level of uncertainty, confusions and constant movement, and I think - I think - a bit more adulthood would still

be needed, yes.

QUEST: A final question, Managing Director, so I can be absolutely clear of your message tonight. Your message tonight to the Greek people is

what? The IMF is still there? The IMF will still help? But you want your money back. Is that your message?

LAGARDE: The rules of the IMF is that when a member does not reimburse its due to the international community, then it cannot be

financed. So we have a program which continues until March, but we cannot finance any more until the international community - that is the IMF - is

paid its due.


QUEST: That's Christine Lagarde of the International Monetary Fund. Jean-Claude Trichet's the former president of the European Central Bank.

Jean-Claude Trichet joins me now from Paris. And always delighted to have you, sir, on "Quest Means Business." We'll jump straight in.

[16:40:01] By any definition, by any standards, what we're seeing in Greece tonight is very difficult for policymakers. What do you think, sir,

needs to happen now?

JEAN-CLAUDE TRICHET, FORMER PRESIDENT, EUROPEAN CENTRAL BANK: Well first of all, I agree with you, we have opened ups and downs, we have

double languages - one language in Barca, another language back in Athens. It's very difficult and I think that trust which is so important in any

negotiation is vanishing dramatically.

So I would certainly call for reestablishing trust by all means, no more double language which complicates a thing, and that would be my own,

you know, first observation.

QUEST: The - I know you don't like to necessarily comment on your former (AUDIO GAP) bank - the ECB - but the ECB has said tonight it will

not increase the emergency liquidity that has been given. In many ways, the ECB does always hold the trump card.

So let me ask you - what do you think it will take before the European Central Bank will once again loan to Greece?

TRICHET: Just what I think, my colleagues we - absolutely right to decide that they could not augment the ELA and the final monetary financing

of Greece only for Greece to avoid to have a credible pan. We always did that - we did that in all other previous cases and of course it is fully

justified in the present situation in Greece.

And, again, I trust that what we need is a credible plan approved by the international community by the IMF, by the European governments and

institutions in order for having, again, growth and jobs in Greece. Without a credible plan -

QUEST: Right.

TRICHET: -- which would be credible in the eyes of the owsulds (ph) or the entrepreneurs and of the international community, there is no chance

to have growth and jobs.

QUEST: You have seen many financial crises. Of course you led the bank in 2008 in the worst. Give me your assessment - how bad is the

economic situation in Greece at the moment do you believe?

TRICHET: The enormous paradox is that Greece had done since 2010 where I had to cope with myself with the start of this abominable crisis.

Since then, enormous progress has been made in terms of regaining competitiveness, in terms of regaining appropriate balance of the cur (ph)

accounts, on the one hand, and the budget on the other hand.

So what we are observing now is a dramatic destruction of the credibility that Greece had only a few month ago. This was about to be

financed again by the markets, and in the IMF projections, Greece was in growth in black figures with positive growth -

QUEST: Right.

TRICHET: -- this year and next year.

QUEST: All right.

TRICHET: Of course now trust has been demolished and we are in a totally different case.

QUEST: So the Eurozone is going to have to consider a new bailout plan under the criteria for the ESM. Mr. Trichet, would you lend Greece

more money?

TRICHET: I think that what we need first is a good plan - a plan that would be credible and that every - I would say - savers and investors in

Greece and in the world would consider credible. If we have that, there is no doubt that the European would embark on an appropriate alleviation of, I

would say, the interest payment -

QUEST: Right.

TRICHET: -- and perhaps a longer duration for the outstanding stock (ph) of debt. So there is no problem which could not be solved in my

opinion if we have a credible plan.

QUEST: And that's what is waiting for. Jean-Claude Trichet, sir, it's always an honor to have you on "Quest Means Business" and we're

grateful that you've given us your time. Thank you, sir.

TRICHET: Return the pleasure.

QUEST: This is a critical - thank you, sir - this is a critical week for the euro. Rarely do you see such times. Goldman Sachs says it's a

confusing week as well. The analyst wrote the euro's resilience in the face of Greece is - in the Goldman Sachs' words, "makes no sense to us."

[16:45:04] All week we are tracking day by day, hour by hour. On Wednesday, the euro proved its resilience once again. It was just off .7

of 1 percent against the dollar. Goldman is still bearish. It predicts the euro will fall if the ECB is forced to increase stimulus to avoid

contagion. Says the euro (AUDIO GAP) could be worth 95 cents against the dollar in a year's time.

But look at how the week has gone. Up it goes, down it goes. This is the way the various events (AUDIO GAP) of the week. We will follow it


Coming up, the other big story in the financial world - China. The bears are taking some rather big bites out of the market. It is worrying

and the Chinese government is struggling to back off the bears - in a moment.


QUEST: The sun is about to rise in Shanghai where investors will be girding themselves for the new trading day on Wednesday. Chinese stocks,

they sank deeper into the bear market. The Shanghai Composite dropped more than 5 percent in the last hour of trading. Five percent.

Now let's look at the graphs and put it in context. Stocks of course have been on this remarkable run since January where the Shanghai was up

more than 60 percent in just February and June. But the last few weeks have seen an upward trend, not only unstable and Wednesday's fall came

despite government efforts to stabilize the market by cutting rate.

Patrick Chovanec is the chief strategist at the Silver Crest Asset Management, joins me now from New York. Patrick first of all, put China

and the issues of China into perspective when we're all obsessed by what's happening in Greece.

PATRICK CHOVANEC, CHIEF STRATEGIST, SILVERCREST ASSET MANAGEMENT: Right, when you look at markets and you see the sell offs at least

yesterday, and you see the same thing happening in China, it's - you tend to - it's easy to lump it in. But really what's going on in China is a

completely separate story.

China has seen over the past year a classic bubble - a classic stock market bubble. If you looked in a textbook and you took the graph out, it

would match up exactly with what's going on right now.

QUEST: Right. But if it's been a bubble and the bubble seems to be bursting, look, you know as well as I do, sir, trying to take the air out

of a bubble without pricking it and watching it burst is impossible.

CHOVANEC: And that's what the Chinese government would like to do and that's what they stepped in last weekend with the central bank, cutting

interest rates, cutting reserve requirements and they hoped as - they hoped that it would boost the market as it has every time that they've done that


But on Monday the market fell. Then they had to step in on Tuesday with really what most people believe was directed buying - by government

entities or -

[16:50:03] QUEST: All right

CHOVANEC: -- and that held it up for about a day but then it fell apart at the end of yesterday. So what we're seeing here is a war between

the party and the market about who gets to decide what stock prices are in China.

QUEST: Right. But if it's a bubble and if it is bursting, are the economic fundamentals good underneath so that there is, if you like, a

solid bottom to hit upon or do you fear that there's something deep, nasty and smelly waiting to be discovered?

CHOVANEC: Yes, the market - the economic fundamentals - were never good all along and that's why it was clear - clearly - a bubble. You know,

back a year ago when stock prices in China were about half of where they are right now, you could have made the case that if a turnaround was around

the corner for the Chinese economy, maybe it was a time to buy.

That turnaround never materialized, things got worse, things continue to fall. We've just had PMI numbers out of China that were very weak. And

so I think that what this bubble bursting will show, it will really rip the mask away both for domestic and for foreign observers of the Chinese


A lot of people saw the stock market rising in China and said, well, something good must be happening. And in fact a lot of bad things were

happening. And in many ways it was a distraction. It was a distraction from reform that needed to take place in the Chinese economy.

QUEST: Sir, thank you for coming and putting this very significant story into perspective. We'll talk more about it in the days ahead,

certainly when I'm back in New York and we can talk about it face to face.

Now, I need to bring some news to you. Several major airlines have been called into a price-fix investigation by the U.S. Department of

Justice. The DOJ says it's looking into possible unlawful coordination to keep airfares high. United confirms they've been subpoenaed. There's no

word yet on which other airlines have been invited - as it's politely called - to talks with the investigators.

In a moment we will continue a pivotal few days for both Greeks and Europe. We're going to take a look back at the most traumatic week in the

Greek debt saga so far. "Quest Means Business" in Athens.


QUEST: So about a thousand bank branches unlatched their doors across Greece for one purpose - pensioners who don't use ATM cards so those

pensioners could withdraw a limited amount of desperately-needed cash. We even saw a demonstration of pensioners here in Syntagma Square.

Each pensioner was permitted to take out up to $130 that will have to last some of the week. To prevent a run on the banks, the banks are now

closed to normal businesses and they are expected to remain that way for at least the rest of the week.

The week-long bank holiday is not just hitting pensioners. Earlier I spoke to Constantine Michalos, the president of the Athens Chamber of

Commerce, the chief executive of an industrial exporting company. Mr. Michalos, I wanted to know, Mr. Michalos, well how difficult are things for



CONSTANTINE MICHALOS, PRESIDENT, ATHENS CHAMBER OF COMMERCE: If you've got a manufacturing company in this country, you need to import your

raw materials. As a result of non-function as far as the Greek companies are concerned of the so-called target two - electronic remittances - and

that is the overall European umbrella that regulates these payments. Although you may have the funds in your bank account, you cannot transfer

it to your supplier abroad.

[16:55:04] QUEST: Are you having a problem with that?

MICHALOS: Absolutely. On a personal note, yes I am having an - a - such an - a - problem. On the second - on the home front, if you've got a

trading business, you are collecting cash, whatever's left of it, on a daily basis, but you cannot possibly deposit it to the bank.

So there's people running around with cash that cannot be utilized simply because you can't make payments because cash payments are not

allowed - you need to make them through the bank.



QUEST: Tonight's "Profitable Moment" from in front of the Parliament Building in Syntagma Square. Any hope that somehow the Greek government

was finally going to let sleeping dogs lie, well that went right out of the window today with the prime minister's decision - first of all to accept

the European proposals and agreements and then to say the referendum will go ahead but he was asking for a no vote.

If you'd thought that somehow Athens had come to a standstill, well not really. Business is carrying on, people are out and about selling

corn, thank you. The reality is everybody is now trying to work out what did the prime minister mean with his moves today?

Was it just somehow a negotiating strategy against the European partners or was perhaps it designed for domestic political consumption? It

doesn't really matter. For the next 48 hours, the people in this country will be riven between the yes and the no, the left and the right, all

basically fighting for the heart and soul of the country.

And that's "Quest Means Business" for tonight. I'm Richard Quest in Athens in Greece. Whatever you're up to in the hours ahead on this

glorious evening, I hope it's profitable. I'll see you here tomorrow.