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QUEST MEANS BUSINESS

China Lets Its Currency Slide; Dow Falls as Yuan Weakens; European Markets Lower; Shares of New-Look Google Take Off; Google Turns Itself Into Alphabet; ABCs of Alphabet; Fashion Industry Leader Fights Slave Labor

Aired August 11, 2015 - 16:00   ET

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


[15:59:55] (NEW YORK STOCK EXCHANGE CLOSING BELL)

RICHARD QUEST, HOST: What a difference 24 hours makes. Up 200 on a Monday, down 200 the day after. The market is very sharply lower. PG&E,

the utility --

(GAVEL POUNDS)

QUEST: Two, three. You win some, you lose some, on Tuesday, it's August the 11th.

China takes the markets by surprise. A radical new currency policy is rippling around the world from Beijing.

Think about it: "Letters" introduce you to Alphabet. Ho ho ho. Google's new parent company, we're going to talk about what Google actually

spells in the future.

And Greece agrees one more bailout. The issue, of course: who's paying what, and what Greece is giving up.

We have a busy hour together. I'm Richard Quest, and of course, I mean business.

Good evening. Fears of a currency war are brewing after China devalued its currency, the yuan, without any warning. The central bank

announced it's allowing the currency to depreciate nearly 2 percent against the dollar. Come and have a look and see how it's trading.

Now, bearing in mind that the yuan, or the renminbi, or the RMB, whichever you want to call it, trades within a very narrow 2 percent range

of a set rate.

And as you can see from January with one exception -- the numbers are deceptive, if you're looking. You're talking about a central rate of 1.62,

but you only go over to 1.63 and as low as 1.59, so these moves are fairly -- they're not as great as they seem on the chart.

But it hadn't fallen as sharply as it did today in more than 20 years, because as soon as the market opened and we opened this 2 percent

devaluation, there it comes, straight the way down. The People's Bank of China says all this is designed to give the market forces a bigger role in

setting the exchange rate policy.

However, it came as a total surprise to currency and equity and bond markets, and the Dow closed down more than 200 points. We'll give you the

final number in just a moment. It set off a series of events around the world, and this will show you how and why the yuan works.

Think of it this way, it goes like this: the yuan is getting weaker. As the yuan gets weaker, obviously, because of the map that you see behind

me, the rate of the dollar goes up ever more. A stronger dollar means that US exports become more expensive because you're converting more yuans into

dollars to buy the same US export.

But from the Chinese point of view, the Chinese exports become ever cheaper. It works in reverse as well, but today, the mechanism was this.

So, already, we see the dollar going up, exports potentially going down, Chinese exports going up.

And other currencies closely tied to the yuan are losing value. The Australian dollar, the New Zealand dollar, and the Brazil real, also they

fell. And the reason they fell is because it -- this shows you how it's all intertwined -- because they are commodity rich countries. Commodities

are generally sold in dollars, or priced in dollars. Same with the exporters.

You get the idea. The whole panoply of the economy moves, because now Chinese will be able -- is going to pay more for commodities, therefore,

they will buy less. Currencies are affected. US exports become more expensive. And the only big winner -- the only big winner, if you like --

is the Chinese exports, which of course, actually improve.

That's the mechanisms by which it all supposedly works. Jamie Metzl is a senior fellow at the Atlantic Council, a Washington-based think tank.

I spoke to him earlier and asked whether this was a beggar thy neighbor policy and why they decided to do it now.

(BEGIN VIDEOTAPE)

JAMIE METZL, SENIOR FELLOW, ATLANTIC COUNCIL: Certainly they've said that this is about rebalancing and aligning more with market forces, and it

could be, and we'll only know based on future actions.

It could be that this is about making their exports more competitive, and we know that their imports and their exports are down. But if so, you

would think that they would take a bigger jump. So, I think that there are all kinds of things people are saying now, and we're going to have to see

what happens going forward to really figure out what their motivation is.

QUEST: But is it your feeling that this sort of movement was necessary? Were there pressures in the Chinese economy that normally lead

one towards a devaluation?

METZL: There were those kinds of pressures, but the overall problem with the Chinese economy is that there are distortions everywhere. They

talk about letting the market work, but they don't trust the markets enough.

[16:05:06] And so, that's why they get all of these kinds of little bubbles and bottlenecks and problems. And so one way of addressing the

problem they have is shifting the currency valuation, but a better way is to start easing the capital controls and opening up the economy and let the

market do that, which is a much better way.

QUEST: A 2 percent devaluation is pretty immaterial in the grand scheme of currency transactions and trade. Why wasn't it more? Why are we

getting so excited over 2 percent?

METZL: Well, that's the big question is, is this about trade or not? If it is about trade, then 2 percent isn't that big of a deal. It doesn't

shift the competitive environment.

If it's about opening up the Chinese economy in some way, if it's about beginning to liberalize the cost and the value of the RMB, then 2

percent could actually be meaningful. We just don't know yet what the real motivations are of the Chinese leaders.

QUEST: Now let's talk about this from the other side of the world. Donald Trump has been commenting on it. Now, the US Republican candidate

called into CNN in the United States. "New Day's" Chris Cuomo asked Mr. Trump if he's ever used Chinese money in any of his business projects.

Have a listen.

(BEGIN VIDEO CLIP)

DONALD TRUMP, US REPUBLICAN PRESIDENTIAL CANDIDATE (via telephone): I never use Chinese money, but I buy Chinese products because they keep

lowering their currency. And today, if you look in the newspapers, "The Wall Street Journal," the number one story is that they're lowing their

currency yet again, big league.

Because you know what? They're just destroying us. Our currency is going up, which sounds good, but actually, if you look at what it's doing

to our country -- and they're cutting their currency, they keep devaluing their currency until they get it right. They're doing a big cut in the

yuan, and that's going to -- it's going to be devastating for us.

(END VIDEO CLIP)

QUEST: Is he right? The market is down more than 200 points. Is he right? Is it devastating to the US exporters?

METZL: It's not devastating, but he does have a point about the relative currency valuations. Because the problem with China is that they

peg their currency, essentially, to ours.

And the dollar has strengthened so significantly over the last year or two that their currency has become very, very expensive, which especially -

- it doesn't affect them in relation to us, but Europe is actually their biggest market.

And so, they're in a way beginning to challenge their peg to us for their currency, because if they're expensive here and they're getting more

and more expensive to Europe, that's a big problem for them.

QUEST: Right. So, from the US exporters -- from Boeing, from GE --

METZL: Right.

QUEST: -- from all the big US exporters' point of view, they're right. He's right, Donald Trump.

METZL: Well, certainly it makes Chinese exports a little bit cheaper and imports into China by China a little bit more expensive. So, he's

right, 2 percent isn't huge, and that comes back to the issue of what is the real motivation here?

QUEST: What do you think the real motivation is. Answer your own question.

METZL: Yes. So, here's what I think. I think China benefits more from a stronger RMB than a weaker RMB, because when it's weaker, certainly

it helps exports. When it's stronger, it helps their reform program, they have a big problem with capital flight, and so a weaker RMB encourages

money to leave the country.

They're trying to qualify for special drawing rights with the IMF. If it looks like they're managing down their currency, that's going to make

that a lot more complicated. And they're trying to enhance consumption inside of China.

So, I think China on the whole, China has an interest in a stronger currency. And if it was just about exports, I think we would have seen a

bigger drop than what we've seen.

QUEST: In a word -- and I think I know the answer -- this doesn't affect the Fed's decision at all.

METZL: It affects it a little bit.

QUEST: Ugh.

METZL: But the real story here, just to end, is the problem is the distortion in the Chinese economy. There's all kinds of strange things

that are happening, because every resource in China is misallocated, and the primary resource that's misallocated is political power. Until they

address these distortions, there's going to be a lot of weirdness coming out of China.

(END VIDEOTAPE)

QUEST: Jamie Metzl. Now, China's currency bombshell turned stocks in the United States sharply lower for all those -- well, not -- almost from

the get-go, it was down. Off the worst in the lows of the day, but the Dow, having added 240 points, seen now most of it wiped off, 212 points,

down at 17,402.

From the floor of New York Stock Exchange, Alan Valdes, the director of floor trading at DME Securities. My word, sir, that's a bright -- a

nice, sharp, bright, jacket and tie.

(LAUGHTER)

QUEST: You're either in mourning for the currency or in celebration for the Chinese. Which is it?

ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: I tell you, it was a brilliant move by the Chinese, it really was. I mean, if you look

at their exports last month, they were down 8.3 percent.

And remember, exports account for 22 percent of their GDP, and like your other guest was mentioning, it puts them right in step with the IMF,

coming back to them down the road. So, it was a brilliant move by the Chinese.

[16:10:08] QUEST: Do you think that it's too simplistic to look at this just in terms of trade flows? Because a 2 percent ain't going to make

a huge amount of difference on an export and import base. There's more to this on a macro policy base.

VALDES: Yes, definitely. But also remember, I don't think there's any trader down here or upstairs that believes it's just going to be a 2

percent cut. We think this is just the beginning. So, we're going to have to see. This could go on for quite a while, and it definitely, like you

mentioned before, is going to hurt our exports big time.

QUEST: Is that what moved the market down 200 points today? What were the other factors that kept people talking?

VALDES: Well, it was basically all this Chinese -- the devaluation that kept the market lower. There were small things, but basically, it's

all about China today. That was it in a nutshell.

QUEST: And if we had to say -- the US -- I'm curious to know just before we move to the European markets, the US presidential election, the

Donald Trump factor, we heard Trump talking about China. Is the market at this stage at all concerned about any policies that they're hearing from

anybody, or is it way too soon to factor that in?

VALDES: Way too soon. I think Donald Trump did bring up some good points, especially talking points, but it's way too early. We've got a

year and a half. I don't think there's anything cementing those guys out there right now. So, that's a little too early.

But again, we're going to keep an eye on China because, like I said, most of us don't believe it's just a 2 percent, that it's going to add on

over the course of the next few months.

QUEST: Thank you, Alan. What a splendid attire to cheer up the day.

(LAUGHTER)

QUEST: Good to see you, as always. Thank you.

VALDES: Thank you, Richard.

QUEST: Now, that surprise move sent most European stocks sharply lower as, indeed, it did with the New York market. The Greek market bucked

the trend, up nearly -- more than 2 percent, as Athens now says it's virtually a done deal towards securing another bailout. We'll be talking

about that at the half past of the hour when Bank of America Merrill Lynch will be with us to talk about how the deal with Athens might actually play

out.

In a moment, it's the Alphabet from A to Zed. We'll spell out the biggest overhaul in Google's history on QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: Shares in Google are on a high after he company announced the biggest overhaul in its history. You'll remember when you and I were here

late last night, just at the close of QUEST MEANS BUSINESS.

The stock is up more than 4 percent. Investors welcomed the decision to create a brand-new holding company. It's called Alphabet, and it will

own Google's core businesses, like web search, Gmail, and manage the less well-established Google ventures, like Life Sciences and Robotics in a

variety of separate units.

Now, this is not Google as we know it. There are a variety of ABCs that the company now calling itself into the various parts of the alphabet.

Paul La Monica is with me to put this into perspective. So, what exactly have they done? When we spoke last night, it was quite difficult to gauge

the whole thrust of what it is.

[16:14:58] PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Oh, people are still trying to figure it out. It is a bit odd. It's

unprecedented that you would have a company of Google's size essentially giving birth to its own parent. You now have Alphabet as this over-arching

corporate structure that owns Google, which Page and Brin will no longer run.

But then you have all the side projects, like Google X, which does things like driverless cars and the contact lenses that measure glucose in

your tears. You've got Nest, the smart home company, the smart thermostats.

There are a lot of moving pieces now that people knew Google owned, but we never had the transparency of how much money do they make? What are

they spending exactly on these items? Now we might get that.

QUEST: What does the market say was the driving force? We'll be talking to Shelly Palmer in a moment, who will put the idea that this was

Page and Brin wanting to go on a frolic. But what do you think is behind this? Is it the frolic?

LA MONICA: I don't think it's the frolic. If that were really the case, I can't imagine that they would have went out to Wall Street --

Google, that is, or Alphabet -- and hire Ruth Porat from Morgan Stanley to be their new CFO, who has impressed Wall Street by talking about cost

discipline and not going overboard.

So, I think what's going on with Google is that Page and Brin are now going to maybe do the more fun things as opposed to the stodgy search

engine, which is still a great business. But they still have to show some discipline, because if they don't, these gains today, those will be gone

the next time they report earnings.

QUEST: Right. But you see, here you've got the interesting part. You talk about next time they report earnings.

LA MONICA: That's still months away.

QUEST: Yes, but you're thinking in months. Page and Brin are thinking in decades.

LA MONICA: Oh, again, I --

(CROSSTALK)

QUEST: And that's the difference.

LA MONICA: Definitely. I mean, this really shows that Page and Brin are lucky in the sense that they founded this company, they own almost all

the controlling shares. They can do whatever the heck they want. They don't have to care about the short-term mentality of Wall Street.

And that's probably a good thing. You look at companies like Amazon, throw away the question of whether or not Amazon's overvalued, it probably

is, but Jeff Bezos doesn't run the company for the next quarter, he runs it for years and years out, and that's what these guys do, too.

QUEST: Which is exactly --

LA MONICA: It's admirable.

QUEST: -- what they said in the statement -- about this idea of it's all about the future, it's all about remaining relevant, it's all -- does -

- will the market give them time?

LA MONICA: Oh, I think the market will definitely give them time, because it's not -- remember, Google when they reported earnings just a few

weeks ago, investors loved it.

And it's in large part due to having this new CFO that I think people kind of view as almost like the new Eric Schmidt, the quote-unquote "adult

supervision" for Page and Brin. She's not going to let them go too crazy. But they're still going to have their fun, I think. They'll frolic, as you

point out.

QUEST: There'll be no frolicking on QUEST MEANS BUSINESS.

(LAUGHTER)

(RINGS BELL)

QUEST: Sir, thank you very much, indeed.

As you realize, it's Google, but it's not Google as we know it. Now, these are the ABCs of the company that is now calling itself Alphabet.

When you think about the split that's taking -- that's taken for, you've got P. Now, P is for the new parent company that provides the

structure that holds Google assets. The winners, like web search, Android, and the host of other moon shot projects that will exist.

Then you've got T, which is the transparency. The split aims to create a simpler company that's easier to understand. Now, that has please

investors, they are the I in our alphabet. Recently, many were getting worried about a lack of focus.

Throw in an S, because that's for Sundar Pichai, he is -- he was the company's product chief. He'll take the reins of the smaller search-

focused Google. And add in the L, Google's co-founder Larry Page becomes the CEO. Put it all together and you have the world SPLIT. And that's

because the Alphabet allows them to separate out.

But now we need to put this into perspective. Joining me, Shelly Palmer. We've heard the market perspective from Paul La Monica. Need you

now to give me the industry perspective on a split.

SHELLY PALMER, HOST, "SHELLY PALMER DIGITAL LIVING": Look. I think this was a big surprise to almost everybody. The pros are not incredibly

obvious right now, why they did this. There's a whole bunch of speculation, which I don't necessarily want to play in.

And then there's the sociological issues, which are Google's just been demoted inside its own company. Like, the Google search world has been

demoted. It says my two parents, Larry and Sergey, don't think I'm cool anymore. They're going to go play with cool stuff. I --

(CROSSTALK)

QUEST: Is that what this is about? I mean, let's have a look at the statement in a second. Let me -- we'll need to --

PALMER: I don't know if that's what it's about or not. I'm saying if you were interpreting this, you're saying what does the industry think?

I've heard from all of my friends today, it's been all that anyone's wanted to talk about.

QUEST: Really?

[16:19:56] PALMER: So, everybody's saying, well, gee, maybe search isn't cool anymore. We do know that Google is a very mature company,

Google Search, and we do know that some of their companies inside of Google are very immature and very young. And also have really long time horizons.

QUEST: Right.

PALMER: So --

QUEST: Paul was there. This what they wrote. "We've long believed that over time, companies tend to get comfortable doing the same thing.

You need to be a bit uncomfortable to stay relevant." I want you to talk about that.

PALMER: Look, outside your comfort zone, you know you're doing something right. You're pushing it as hard as you can push it. All of us

try to do that every day. They used to have a culture where 20 percent of your time was supposed to be spent on something that you just wanted to do

that you were passionate about.

Clearly Larry and Sergey are passionate about all kinds of things. They'd like to extend life forever. They want to end death. They have a

company that's all about just never dying. They have a company about self- driving cars. They have a company about keeping the temperature in your house OK and collecting data about it.

Oh, yeah, and they have a little search engine that happens to be, I would humbly submit, one of the most important companies in the world.

QUEST: Right, but --

PALMER: So, you know --

QUEST: But they put all the profitable bit --

PALMER: Yes.

QUEST: -- into Google. YouTube, Android, Chrome, Google Maps. Any one of those companies, as they -- as Page says, any one of them is a

billion-customer company --

PALMER: Yes.

QUEST: -- in its own right.

PALMER: Yes, absolutely. There's no question about it. And -- so, look. You have to think about this I think in a little longer term than

even we can today. Somebody really smart sat back and said, hey, I have an idea. Rather than granular reporting, the way Amazon does, let's split the

company up.

Will we see tracking stocks later? Will we see flexibility in spin- offs? There's any number of things we might see. But I don't think we can see them today.

QUEST: So, finally, I'm going to ask you -- and I'm going to ask you, @RichardQuest is where you can answer this question -- "We've long believed

that over time, companies tend to get comfortable doing the same thing. You need to be a bit uncomfortable to stay relevant." Have you been

uncomfortable to stay relevant?

PALMER: Every day.

QUEST: Oh, I don't believe you.

PALMER: Every day. We try to push the envelope every day, we try to work on something new every day. We go into downtime --

QUEST: Uncomfortable?

PALMER: Yes. Right -- we're to the edge of what we think we understand. Because if you're always doing what you think you know or

you're sure of, never works out.

QUEST: Thank you, sir. Don't touch the bell. Thank you.

(LAUGHTER)

QUEST: Now, as we continue, it's QUEST MEANS BUSINESS.

(BEGIN VIDEO CLIP)

KATIE FORD, FOUNDER, FREEDOM FOR ALL: It's just so shocking. It is out of our consciousness.

(END VIDEO CLIP)

QUEST: How the former head of Ford Models uses lessons she learned in the fashion industry in the fight against human trafficking.

(COMMERCIAL BREAK)

QUEST: There really is nothing more important that we do on QUEST MEANS BUSINESS than our work with the Freedom Project. And tonight, we

want to highlight a foundation working to stop the cycle of modern-day slavery at its very source.

Freedom for All is a non-profit run by Katie Ford. She's formerly the chief executive of the very famous Ford Models. In her years running one

of the world's top modeling agencies, she acquired a set of skills that are still serving her well, and she explained to CNN's Clare Sebastian why it

was now so significant to put them into practice.

(BEGIN VIDEOTAPE)

FORD: This is Kristin.

CLARE SEBASTIAN, CNN PRODUCER (voice-over): Model manager, CEO, anti- slavery activist.

SEBASTIAN (on camera): So, tell me how you started in your work against trafficking, because it was quite a transition that you made.

[16:24:58] FORD: What happened was the UN asked me as a business leader to speak at a conference on human trafficking. And when I heard how

people are trafficked, it was parallel to how we scouted models around the world.

She's from Yugoslavia, and she'll have her second show season here in March.

SEBASTIAN (voice-over): Katie Ford was CEO of Ford Models for ten years, a company her parents founded in 1946.

FORD: It was a very serious business. It had over $100 million in revenue.

SEBASTIAN: Today, her businesses is no less serious.

FORD: The hope that a model has for a better life is the same thing as a field worker who comes here from Mexico or somebody who works in

construction.

SEBASTIAN: From her Manhattan home and traveling all over the world, she runs her foundation, Freedom for All, working to stop modern-day

slavery at its source. She also supports victims of forced labor.

Shandra Woworuntu now runs one of Ford's partner organizations. A survivor of trafficking, she came to the US looking for work and found

herself forced into prostitution. Her mission with projects like this cooking class is to give survivors of trafficking the life skills they need

to move on.

The very recent victims of trafficking she works with did not want to be filmed. Those who have now moved on were willing to tell us their

stories.

JUDITH OLAH, TRAFFICKING SURVIVOR: When I arrived, this Hungarian man picked me up in the airport, took me to his apartment in Long Island, and

he demanded all my money.

EMILY WATERS, TRAFFICKING SURVIVOR: Before long, I realized that this guy was a temp and it was him and then it was others, and then it was

others. And before I knew it, I was involved in trafficking.

FORD: It's just so shocking. It is out of consciousness. I think when people hear survivors' stories, that they will be more motivated.

SEBASTIAN: Katie Ford says she watched as her parents changed the fashion industry. It made her believe she can do the same here.

SEBASTIAN (on camera): You're going to keep going with this indefinitely?

FORD: Until it ends. Which I hope is in my lifetime.

SEBASTIAN (voice-over): Clare Sebastian, CNN, New York.

(END VIDEOTAPE)

QUEST: Of course, the CNN's Freedom Project, you can find that online at cnn.com/freedom. All through this week, we'll be looking at the

different ways companies and businesses are doing their bit to improve.

The talks on Greece are set for Friday, and this time, the difference.

(COMMERCIAL BREAK)

[16:30:02] QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. Greece makes a debt deal and will now

find out the price it pays to get the cash.

Donald Trump says he'll whine until he wins. He may not have much more whining to do.

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

New details are emerging from the investigation into the downing of flight MH17 over Eastern Ukraine. International prosecutors say parts that

could have come from a surface-to-air missile have been found close to where the plane was shot down.

They say it's too soon to know if the new find is linked to the crash.

(BEGIN VIDEOCLIP)

FRED WESTERBEKE, DUTCH CHIEF INVESTIGATOR ON MH17: We are not 100 percent sure at this moment so that's why we are a little bit cautious in

the conclusion that the weapons experts were - who have been - looking at these parts.

They say, well, it probably is a Buk system -- Buk missile system -- and, well, further investigation we are going to do now is to establish

that for sure.

(END VIDEOCLIP)

QUEST: Turkey's president is vowing to go after Kurdish militants until, in his words, "not one single terrorist remains." Turkey's

intensifying airstrikes against the PKK after a series of deadly attacks against security forces. The PKK has claimed responsibility for one attack

- a bombing in Istanbul.

Iraq's Parliament has unanimously approved major anti-corruption reforms. The proposals call for the elimination of some senior government

posts including that of the deputy prime minister and vice president.

Prime Minister Haider al-Abadi has introduced the reforms after weeks of protests against corruption.

The U.S. presidential candidate Donald Trump admits he is a whiner and says he'll keep whining until he wins. In an interview with CNN, Trump

addressed a range of issues including his controversial remarks about a female journalist.

Trump touted his record in dealing with women, claiming if he's elected he will take care of women like nobody else can.

(BEGIN VIDEOCLIP)

DONALD TRUMP, U.S. REPUBLICAN PRESIDENTIAL CANDIDATE: I have many women executives and I've always had. You know, when I was back in the

construction days - the big construction days - I had women in charge of big developments -

TRUMP: Do you pay them what you pay the men?

TRUMP: (Inaudible) do that. So I was very, very pro-women many years ago and I've found they're incredible executives.

REPORTER: Do you pay the women at the top of your organization the same way you pay the men?

TRUMP: Yes, I do. Absolutely.

(END VIDEOCLIP)

QUEST: Japan has restarted its first nuclear reactor since the 2011 Fukushima disaster. Reactor number one at the Sendai plant was given the

green light after final safety checks.

Anti-nuclear activists say the government's ignoring the risk of catastrophic seismic and volcanic events. There are also concerns that the

reactor is too old.

It took a very long time, maybe six months, but they got there in the end.

(BEGIN VIDEOCLIP)

EUCLID TSAKALOTOS, GREEK FINANCE MINISTER, VIA INTERPRETER: Yes, there are one or two small issues but we are almost there.

(END VIDEOCLIP)

QUEST: One or two small issues and the Greek bailout deal - bailout number three - has been done. After a 23-hour marathon session, Greece has

a new deal. Spain's prime minister says there will be a meeting on Friday to approve it.

Ahead of that, Greece's Parliament must pass the package of reforms that the government's promised to deliver. It should mean Greece secures

enough emergency cash to make crucial payments to the ECB on August the 20th.

So, what does this deal actually do (RINGS BELL)? It says limits on Greece's budget deficit for the next three years (RINGS BELL. The

government's promising to deregulate certain labor laws like its collective wage bargaining rules.

There's more (RINGS BELL). The finance ministry says banks will get more funding later this year as part of a major recap program.

Thanos Vamvakidis is the managing director and head of European Foreign Exchange Strategy of Bank of America Merrill Lynch.

There's - all right, Thanos, there's something a little bit weird about this deal because part of the money immediately goes back to pay the

bridging loan of two -- three or four -- weeks ago.

And another part of it goes to pay the ECB on the 20th of August. So how much of it's left for what needs to be done?

THANOS VAMVAKIDIS, MANAGING DIRECTOR, BANK OF AMERICA MERRILL LYNCH: This is indeed the case, a lot actually almost too fair. It's (AUDIO GAP)

the new program will go to repay previous loans and more so (ph) the rest will go to recapitalize the banks.

Greece will not see much new money, but this is also good news because you need to reprofile the debt in order to give the time to the country to

implement the necessary reforms and avoid default.

[16:35:12] QUEST: Right, but this deal does not reprofile any debt yet, does it? Because under the sort of German opposition, they've got to

do this deal before reprofiling takes place.

VAMVAKIDIS: That's true. In a way, by approving the program Greece gets new loan to repay the ECB, the IMF to repay some short-term loans.

The actual reprofiling (ph) of the vast share of the loans which is from the rest of Europe, is supposed to take place after the agreement of

the first program review. Which means most likely in the best-case scenario, early next year.

So, yes, it's positive that we have a deal, but let's not forget we are just at the beginning and implementation would be the most important

thing.

QUEST: Alexis Tsipras has - I mean - if you read back to that first agreement all the things about island He. wanted the VAT restriction or

limit on the islands to be maintained, he wanted farmers to have special treatments, all these various things. How many things has he had to give

up?

VAMVAKIDIS: Well, the agreement from as far as we know includes 35 prior actions and this is just in order to approve the program.

Then this is a three-year program. It includes between $85 to $100 billion of new official loans to Greece and we believe is going to include

very strict conditions. More importantly, --

QUEST: But -

VAMVAKIDIS: -- this program will include all the structural reforms that the previous programs failed to implement.

QUEST: So finally, the - on this point because everybody to a person seems to agree - I know you agree - that some form of debt reprofiling is

essential. But here's the issue - the longer they don't reprofile and the burden of debt remains, the more difficult it is even with the structural

reform to get out of the mess.

VAMVAKIDIS: Yes indeed but the solution is actually debt relief conditional on reform implementation based on fiscal targets that are

realistic. This is how an ideal program will look like. This means that both sides need to compromise. The Europeans need to come up with numbers

that make sense for Greece and Greece finally has to implement the necessary reforms.

QUEST: Good to see you, Thanos. Thank you for making sense of it.

VAMVAKIDIS: Thank you, Richard.

QUEST: You will help us understand our way through the various machinations in the days and weeks ahead.

On the Greek island of Kos, tensions between police and newly-arrived migrants have started to boil over. The clashes broke out after 2,000

people were told their immigration papers would be delayed. Syrians fleeing from the civil war - Kos - you can see these very nasty scenes of

fisticuffs and beyond.

The - from Syria to Kos is their best hope to get through to Europe and the situation there right now looks nothing like was promised to many

of them.

(BEGIN VIDEOCLIP)

MUHAMMAD SNAREEL AWAND (ph), SYRIAN MIGRANT: I can't see we are in Europe, I see we are in third-world countries. No toilets, no water.

People have been waiting for more than ten years - ten days. What can I say? Is this Europe? If this is Europe, we're going back to Syria.

QUEST: Thousands of migrants managed to make the long journey from their point of arrival in Calais in Northern France. One Syrian man told

me - told CNN - he crossed ten countries in hope of reaching the United Kingdom. Now he finds himself living in squalor, stranded in a makeshift

camp. Kellie Morgan reports.

(BEGIN VIDEOCLIP)

KELLIE MORGAN, CNN JOURNALIST: A Syrian father of two shows us where he sleeps in Calais' so-called "Jungle." These are his only belongings -

so different to what he had.

ABU MOHAMMED, SYRIAN MIGRANT, VIA INTERPRETER: I owned my house in Braukba (ph), also one in Damascus. I had a happy life.

MORGAN: Now Abu Mohammed, which is not his real name, says he lives in fear of both the Syrian government and ISIS.

MOHAMMED, VIA INTERPRETER: Our home is destroyed. We spent a year with Darsh (ph). It was difficult life, we escaped from them. There were

too many restrictions, even religion. They have harmed religion. For them, it's just a cover.

MORGAN: Raqqa remains the de facto capital for the Islamic State in Syria and is a regular target of coalition airstrikes.

MOHAMMED, VIA INTERPRETER: (Inaudible) today, our children have lost their smile. They only know fear, the sounds of bombs, explosions. Today

they live in terror.

[16:40:08] MORGAN: Abu Mohammed fled Damascus on July 1st in the hope of finding sanctuary for his family who remain in Syria. He crossed into

Lebanon and a day later arrived in Turkey where he stayed for two weeks before boarding a boat in Isthmia bound for Greece.

After four days in Athens, Abu Mohammed crossed into Macedonia where he took a train to Serbia before walking to Hungary. From there, the

journey was by car through Austria and Germany. He then boarded a train to France, arriving in Calais 28 days after he left home.

MOHAMMED, VIA INTERPRETER: When we left Turkey, we got lost at sea for around seven hours. We nearly drowned several times. On the road from

Hungary, we encountered gangs, bandits.

MORGAN: After traveling more than 5,600 kilometers, this is not the destination Abu Mohammed envisioned.

MOHAMMED, VIA INTERPRETER: Here at the camp, we sleep on the ground. There's nothing else. They offer us only one meal a day. Some charities

offer us some help, nothing else. We have to queue up for the bathroom. You have to be there on time between 12 to 3 p.m. or you miss out.

MORGAN: Like hundreds of other migrants, he still hopes to get to the U.K., just 33 kilometers across the English Channel. So close yet still so

very far.

MOHAMMED, VIA INTERPRETER: I'm not worried about my own life, but I'm worried about the future of the young children who need education.

Education is important, especially for Muslims. It is the path to Paradise.

MORGAN: A path that, for now, remains closed. Kellie Morgan, CNN Calais, France.

(END VIDEOCLIP)

QUEST: Now in just a moment we look at Iran which has been starved of capital for so many years. Now with the prospect of sanctions being

lifted, there are companies waiting to do business and, crucially, Iran is open for (inaudible).

(COMMERCIAL BREAK)

QUEST: Israel's president has a message for U.S. Republican lawmakers who paid a call on him ahead of next month's vote on the nuclear deal with

Iran.

Reuven Rivlin who's on the right there says he's deeply concerned - his words - about the agreement which he says will further destabilize a

chaotic region. And he welcomed the Republican delegation which is led by the California congressman Kevin McCarthy.

Where Israeli leaders and some U.S. lawmakers have their doubts, Western companies are looking keen to get into Iran.

In Germany Volkswagen, Daimler, Siemens - all appear ready to work with the government in Tehran. And by some estimates, German exports could

quadruple to $11 billion a year.

[16:45:08] Iran's state news agency says Tehran wants to buy planes from Airbus which of course is based in France. And some reports say even

the U.S. heavyweights Apple and McDonald's are looking with interest at the new Iranian market.

You'll recall negotiators reach a landmark deal last month to limit Tehran's nuclear activities in return for lifting international oil and

financial sanctions. Since then, the Western companies there are literally queuing up to improve their contacts and their contracts.

CNN's John Defterios reviews who's in the position to cash in.

(BEGIN VIDEOCLIP)

JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: When people talk about the potential of Iran, it's usually in the context of proven oil and gas

reserves. But Western companies are seeing this country as one of the last big emerging markets that have scale.

The Middle East and North Africa represents a market of over 350 million people, bigger than the United States, and Iran makes up 77

million, or a fifth of that.

It's also a young, educated population - 60 percent are under the age of 30 with a desire for Western goods. With that size and youth, it's

potentially a good consumer market.

But those in Iran are saying we should start viewing it as a strategic industrial hub.

RAMIN RABII, CEO, TURQUOISE PARTNERS: If sanctions are fully lifted and Iranian companies can access best technology in the world, funding from

outside and there is a lot of potential for growth. The market is there and Iran can turn into an industrial production hub for the whole region.

DEFTERIOS: Rabii said the key Iranian industrial sectors have 20 to 30 percent spare capacity so there's room to grow.

Now let's take a look at some of the sectors. Iran is now ranked as the fourth largest cement producer in the world, it's the largest steel

producer in the Middle East and also the largest automaker in the region as well with output of a million vehicles.

But this is an economy that shrunk 20 percent due to sanctions and it's starved for capital - the telecom, healthcare and transportation

sectors are in need of investment.

Iran's minister of transport at the recent Paris Airshow said the country may order 400 jets over the next decade. As a means of comparison,

Emirates Airline based in Dubai has an active fleet of 235 jets.

Even the airport infrastructure needs a big upgrade.

RABII: We definitely need better airports and as soon as the exer (ph) Tehran International Airport, you realize that for a country of 80

million, for a city of 12 million, the airport needs to be much larger and modern in terms of infrastructure.

DEFTERIOS: Universally, no one says Iran is an easy market to tackle and it's still not clear at this stage how fast sanctions would be lifted

if a deal is signed next month. Jon Defterios, CNN Abu Dhabi.

(END VIDEOCLIP)

QUEST: If you've just joined us, a reminder of our main story tonight which of course is a very sharp fall in the Dow Jones Industrials, down

some 212 points at $17,400.

Major stocks like Apple are down sharply. Apple's off best (ph) more than 4 percent in after-hours trading - on the trading of the day. And

this is reason why there has been so much dislocation and turmoil today.

The decision by the people - the Central Bank of China - to enforce a devaluation of just 1.9 percent - 2 percent of the yuan. But you'll see

the trading range that the yuan had during the course of the year.

This is the devaluation now and the fear of course is what this will do to importers - or exporters - into China and this will of course make it

a much stronger economy for Chinese exports going out.

Not surprisingly, the market has absolutely been clobbered - not just in New York but also in Europe.

Now he has upset the Hispanic community, he's riled a large number of women, he's even taken on Fox News. Donald Trump says don't expect him to

start saying - or to stop saying - what he thinks. Now Mr. Trump.

(COMMERCIAL BREAK)

[16:50:48] QUEST: All right, stating the obvious, Donald Trump isn't your conventional candidate for U.S. president - we both know that.

He's refused to rule out running as a third party candidate if he fails to get the nod from the Republican party. His comments on everything

from immigrants to women sparked fury, and speaking to CNN's Chris Cuomo earlier, he says he won't stop complaining.

(BEGIN VIDEOCLIP)

TRUMP: I do whine because I want to win and I'm not happy -

CHRIS CUOMO, CNN ANCHOR: Are whiners winners?

TRUMP: -- when I'm not winning. And I am a whiner and I'm a whiner and I keep whining and whining until I win.

(END VIDEOCLIP)

QUEST: Oh, dear. He may whine until he wins. He may not have much to whine about. Two new polls show him leading the Republic field in New

Hampshire and Iowa - two key primary election states.

CNN's political director David Chalian joins me now from Washington. David, first of all, before we talk about his whining, what's been the -

what are polls showing following the debate?

DAVID CHALIAN, CNN POLITICAL DIRECTOR: They're showing a couple of different things . First of all vis-a-vis Donald Trump, Richard, we're

showing as you just noted continued dominance atop the field in both Iowa and New Hampshire, -- Iowa more significantly so.

We see him in Iowa for the first time overtaking Scott Walker who had been leading there for much of this year. So we see some growth from - on

that side.

In New Hampshire, we see his number coming down a little bit from previous polls and a little bit closer to the competition, most recently

we've seen him sort of doubling Jeb Bush in New Hampshire and now it's a bit -

QUEST: Right.

CHALIAN: -- closer there. But the point is, Richard, he is atop the polls in both of these lead-off states.

QUEST: Are you surprised, bearing in mind the controversy surrounds him and particularly the less than tasteful views and comments - whether or

not he was being vulgar or not is irrelevant - but about - over the weekend?

CHALIAN: I think I'm done being surprised by Donald Trump's success here. None of the rules of politics seem to apply to him right now.

What we think is controversial seems to just embolden his supporters. And watching him at the debate Thursday night and the comments that came

afterwards, I kept thinking to myself - 'Well, if you're a Donald Trump supporter, why are you going to leave him now?'

You are attracted to this kind of brash, bombastic, speak-from-the-hip kind of style. That is what is bringing you into the fold of the Trump

candidacy and I just don't see anything he's done that is going to send those folks away.

Remember, he is only getting about 20 percent - one in every five Republican voters. It's just that in a field of 17 candidates, that's all

you need to be at the front of the pack.

QUEST: OK, so you've covered more than your fair share of presidential elections. There is a - you know - he's peaking very early

and a lot of air's gone into the balloon. And I wonder eventually the balloon explodes and the peak - I mean, I mixed me metaphors - but you know

what I'm saying here -

CHALIAN: (LAUGHTER).

QUEST: -- he cannot keep this level of interaction up.

CHALIAN: Well, that is certainly the hope of the Republican establishment because they are very concerned about potential damage he

might do in the long haul, whether he's the nominee - which I think many in the party still think is unlikely - or whether someone else is the nominee

just throughout this process of being in the race.

I do think at a certain point, for Donald Trump to actually win, he has to convert his campaign from one of vague generalities into more

specific policy plans, and more importantly, the professionalization of the campaign - getting on balance in all the states, getting some professional

polling into the operation to test messages and of course getting up on the air with advertising.

QUEST: I'm going to challenge you, David!

CHALIAN: Yes.

QUEST: I'm going to challenge you.

CHALIAN: Challenge me.

QUEST: You have just put in place an entirely traditional, conventional theory -

CHALIAN: (LAUGHTER), yes.

QUEST: -- and you're doing it against a non-traditional candidate.

CHALIAN: That is true. I take your point and I take your challenge. I just don't know of a way for you to go into all of these states when it

actually comes time to the voting when Iowa kicks this off next February 1st and to collect the delegates that you need to collect in order to

actually win the nomination.

[16:55:13] QUEST: All right.

CHALIAN: There are - there are - mechanics to this process and we have not seen Donald Trump's campaign partake in those at all yet.

It's serving him well right now, I just don't know if that will allow him to go the distance.

QUEST: It's all about logistics. Sir, thank you very much. As I said, we're going to need you in -

CHALIAN: Thank you.

QUEST: -- in the months ahead. Don't go too far away. Thank you very much.

We will have a "Profitable Moment" after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." When were you last uncomfortable? When you were you last taken out of your comfort zone?

Remember, "We've long believed that over time companies tend to get comfortable doing the same thing. You need to be a bit uncomfortable to

stay relevant." That's what Larry Page said when it came to redoing Google.

And it set me thinking. If you look at what that company has done - from Android to Chrome to YouTube to Google Maps, to the life sciences

division - everything is about being uncomfortable.

Oh, of course it's easy to be uncomfortable if you've got billions in the back pocket, but that's not the point. The point is in our own

individual lives, we can all make ourselves - ourselves - not letting other people do it - making ourselves a little bit uncomfortable.

And so tonight when did you last make yourself uncomfortable? And that's "Quest Means Business" for tonight. I'm Richard Quest in New York.

Whatever you're up to in the hours ahead, I hope you're unprofitable and uncomfortable.

END