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QUEST MEANS BUSINESS
Cyberattack Targets Global Corporate Giants; EU Hits Google with Record Fine; Facebook Reaches 2 Billion Users; Italian Finance Minister Says Banks Will Avoid Crisis; Arconic Shares Fall as London High-Rise Tests Continue. Aired 4-5p ET
Aired June 27, 2017 - 16:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] RICHARD QUEST, CNN HOST: The closing bell ringing on Wall Street, Dow Jones is down 87 points. Fiat/Chrysler ringing the closing
bell. I've got a good feeling, yes, look at that. A strong, robust gavel that's brought trading to a close on a day when the Dow is down, the best
part of 100 points. But it is Tuesday, it's the 27th of June.
Tonight, the cyberattacks, they are back. Some of the world's biggest companies are under assault as we speak. Google gets a record fine from
Brussels. Europe's competition commissioner speaks to us tonight. And it's Facebook's world. We're just living in it. Mark Zuckerberg
celebrates two billion users.
I'm Richard Quest, back in New York, where of course, I mean business!
Good evening, tonight a major international cyberattack is under way. Haunting some of the world's biggest companies. It's sudden, and it's an
outbreak of ransomware and it is targeting countries and government institutions across Europe. Leaving many governments and certainly
companies paralyzed and scrambling for security. There's no word on who is responsible for this. So, the countries that are involved that we know
about, Russia, Ukraine, Denmark, Germany, and the United Kingdom. You can see them on the map. They're all targets at the moment. The Danish
transport and energy giant Maersk, says its systems are down across multiple sites and businesses. The advertising group -- marketing group,
WPP is reporting several of its companies have been affected in the suspected attack. And in Russia, the major oil and gas company -- the
largest -- Rosneft is reporting a massive hacking attack on its servers. In its warning it could have led to serious consequences, unless it was
able to switch to back-up systems. Which apparently it was able to do. Jose Pagliery joins me now. How big and how serious?
JOSE PAGLIERY, CNN INVESTIGATIVE REPORTER: It seems to be pretty serious, because at the core of this is the fact that whoever is doing this, these
hackers are using a leaked NSA tool. It's a very powerful tool to break into these computers, infect one and then spread it across the network.
QUEST: This is back to the that leak that WikiLeaks reported --
PAGLIERY: Shadow brokers. Whoever that is. Some suspect it's the Russians. But whoever this hacking group is, shadow brokers, they leaked
this NSA tool and the tool is now being used by these hackers.
QUEST: I thought after the last one, the WannaCry one, I thought that loophole had been closed.
PAGLIERY: So, here's what's interesting, that hack was stopped because a low-level cybersecurity researcher managed to find some quirk in the code
to stop it. The real core of this is that this malware exploits a vulnerability. It exploits a hole in the software that Microsoft already
patched. Which means governments, companies, everyday individuals if they just patch their software, it fixes it. It prevents it.
QUEST: Are you saying this is only spreading so far and so fast because it's using a rogue loophole that for which an existing patch -- for which a
PAGLIERY: The fix exists.
QUEST: So, why haven't they done it?
PAGLIERY: Well, because systems are complicated. So, if you're a bank, if you are an energy provider, you're not going to hit a button and update
your entire system, because there's always a chance that a quirk, little bug in there somewhere, might make the system shut down, even temporarily.
That's unacceptable for a major bank. That's unacceptable for a hospital. But the fix exists and companies and governments aren't applying it.
QUEST: Let's look at the map again. Let's just look at the map as to where this is taking place so far. We don't know where it started.
PAGLIERY: That's correct.
QUEST: We can obviously Ukraine is heavily affected tonight. India is heavily affected.
PAGLIERY: Some suspect that it could have started in Ukraine. Because that's where a lot of the coverage began. When companies first started
reporting this, it was out of Ukraine. At first, some people suspected, well, if this this is in Ukraine, perhaps this is Russia, but then Rosneft
and other companies are also being hit by something similar.
QUEST: Is it still going on?
QUEST: Is it getting worse?
PAGLIERY: That's hard to tell.
QUEST: I mean, Asia is going to open up is a short few hours.
PAGLIERY: It's hard to tell. But here's the thing. This is a ransomware attack. Whoever is attacking these computers is demanding a $300 ransom.
And the way it works is by locking the computer. But they're asking everyone to send the money to a single bitcoin address. Bets by electronic
currency. That rogue independent electronic currency. They're sending it to one address.
[16:05:00] That's a junior thing. These aren't high-level hackers who said, send it to multiple addresses so we can launder the money and you
can't track it. No, these hackers are saying send it to one address. And the German email company that they were using to distribute the message,
that has let them down already. So, if you have your computer infected and you try to send money to them to unlock your computer, it won't work.
QUEST: So, is this the equivalent maybe -- they are clearly experts at knowing what they're doing in terms of ransomware.
PAGLIERY: In terms of spreading it.
QUEST: In terms of spreading it. But is this the equivalent of giving a child, a ballistic missile? They've sort of launched it off, but actually,
they're not really sure what's happening or where it's going or how they're going to control this ballistic missile.
PAGLIERY: If we're going to take that analogy, let's go ahead and take it. This is a high-powered weapon that got released from a government agency.
It got leak. Got into the wrong hands, and just about anybody can weaponize this. Just about anyone can use this. Companies and governments
need to fix their systems.
QUEST: Stay with me, because Leo Taddeo is the chief security officer for the software protection company, Cryptzone, and was the special agent in
charge of the FBI's New York cyber division, joins me from Dallas. Good to see you. Thank you. Give me some analysis if you would be as kind. Are
these novices who just struck lucky? Are they hard mafioso types who know what they're doing? What's your gut feeling here?
LEO TADDEO, CHIEF SECURITY OFFICER, CRYPTZONE: Well, it's definitely a group that has some technical capabilities. It's not easy to modify this
type of tool and make it as effective as this tool appears to be. You not only have to look at the talent set when you're looking for the people
behind this attack. But also look at the motives that they might have in conducting this attack. We've got a number of good indicators that it is
probably not simply a criminal scheme. I think the WannaCry attack that preceded this last month did not result --
QUEST: Do you see a connection between WannaCry and this?
TADDEO: Well there have been reports that some analysis of the tools shows a similar origin. And certainly, the way it has propagated and the way the
ransomware has affected its victims point to a similar set of tools and group behind it. But there's no conclusion to that until we get a full
investigation of the digital evidence and also any other evidence that might be available.
QUEST: Leo, you're an expert in this area. If somebody says 300 euros, 250 quid, a couple of hundred bucks, and you'll get your computer back.
Now of course, you know there's no guarantee about that. But arguably, it's the cost of doing business, I better pay, JIC, just in case.
TADDEO: Right, so the general advice from the FBI and other law enforcement agencies is for victims not to pay ransom. And the reason is,
that ransom goes into software research and development, malware research and development that makes this attack harder to prevent and harder to
counter the next time around. We don't want to fund the criminals' activities by pain ransom. The reality is businesses need to stay in
operation and in order to do so they sometimes need to pay the ransom to unlock the data in their systems. That results in a very practical
decision-making process where businesses either have to decide to pay or not pay and in many cases the practical thing to do is to pay.
PAGLIERY: It's worth noting two things, like I said earlier, the email address that these hackers were using to demand the payment is has been
shut down by the German company that managed that email. Even if you try to to pay, it won't work. That money won't get back -- the message won't
get back to the hackers. And there's a second thing. I've actually pulled the bitcoin address that all the money is going to. It's only received
$8,000. And so even if the attack is widespread across Europe, not a lot of people are paying this.
QUEST: Leo -- thank you -- finally, to you, Leo. We know that this is going to happen more often. We know that some people will pay because as
you say, they've got no choice. Is there an inevitability that this is just something we have to live with?
TADDEO: Well it's not inevitable. Companies need to do a better job of protecting themselves. In this case, my concern is that the attacked isn't
driven by a financial motive. That there may be some other nefarious cyber activity going on. And this is an attack created to distract us from the
real defenses that we need to put up.
QUEST: In a sentence -- Leo. Does this get better or worse in the next 24 hours?
TADDEO: I think it gets worse. For some companies that are unprotected. Other companies can maintain the status quo by disconnecting from dangerous
counterparts on their network.
[16:10:00] PAGLIERY: Right, but we've got to go back to this point. Microsoft released a fix for this on March 14th. It's June 27th.
Companies and governments need to update their networks.
QUEST: Ye, but I haven't updated my computer since -- thank you very much, Leo. Good to see you. Thank you, Leo. Good to see you, Jose.
And more on that for all of us. March the 14th.
Google has been hit with the EU's latest and largest fine against a U.S. tech company. The EU's Competition Commissioner says Google's
transgressions are worth $2.7 billion. Google not surprisingly, completely disagrees. Will talk about it after the break. QUEST MEANS BUSINESS.
QUEST: Google says it is mulling an appeal after the EU handed the search giant a record $2.7 billion fine. Yes, that's 2.7 billion, Count the zeros
on the numbers. The European Commission is accusing Google of unfairly steering users to its own shopping platform. Now the regulators say they
will levy further fines, if Google doesn't change its behavior within 90 days.
Google says in a statement, we tried to give you what you're looking for, our ability to do that, well isn't favoring ourselves or any particular
site or seller, it's a result of hard work and constant innovation, based on user feedback.
Well not necessarily the view as seen -- well absolutely, the view as seen by the European Commission. It's worth putting this into the bigger
context though, this evening. The EU's fight with Silicon Valley has had some extraordinary results. And many blockbuster cases. So, for example,
if you were to search EU versus Silicon Valley or thereabouts, you'll see the fine for Facebook, of $122 million over the purchase of WhatsApp, which
said that the Facebook misled the EU officials about the integration of profiles. We talked about it on this program many times.
And then you've got -- what we're still going to be talking about because the appeal is going forward -- the $14.6 billion tax bill that the
commission has ordered Ireland to pay over what it says is illegal subsidies that were given to Apple to bring it in business.
Then you've got to be looking at the investigation of Amazon's e-book business and the contracts. Now, in this case it wasn't so much as a fine
as it won't force publishers to give best prices. And then you've got Microsoft and Google, caught up in the right to be forgotten, privacy
cases, where residents can ask for certain results to be removed. Putting this together, you see that the EU, in many ways is perceived as being far
more aggressive in these areas than say for example, the U.S. Department of Justice. European Competition Commissioner spoke to Isa Soares after the
result. Margrethe Vestager says the company denied consumer choice and denied firms the chance to compete.
[16:15:00] MARGRETHE VESTAGER, EU COMPETITION COMMISSIONER: One of the things that we have established is that there is a very close relationship
between this ability, and traffic. And traffic, of course, means click and clicks mean revenue. What we have proven is if you have the first and best
placement on the screen when you do a search query, well that this ability translates into traffic.
ISA SOARES, CNN CORRESPONDENT: What number is there that you can quantify how damaging Google's dominance has been?
VESTAGER: Well it doesn't work like this. That you can say that this is the number measured at in dollars or euros or something like that. What we
can say and what we have found and proven is of course that the Google behavior in being a dominant company in favoring their own services and
demoting rival services. Well, that has sort of deprived consumers of genuine choice. Also of innovation, because if you can always put yourself
a front, well, why innovate? And if there is a risk that you will never be found because you're average on page 4, why innovate? Therefore, there's
damage to competition and for consumers, to get sort of the full benefit of competition, genuine choice and innovation.
SOARES: So now Google has something like 90 days to comply. What does Google need to do? What do you want to see from Google in those 90 days?
VESTAGER: We have put out a very simple principle. To say well, within 90 days what you have to do equal treatment. So, you cannot put in place
something else, but your present behavior, that has the same effects. You have to do equal treatment, to make sure that you do to yourself as you do
to others. And I think it's very important that we do not go in and design a page or have an opinion on the design of any algorithm. That's for
Google to figure out how to adapt this into our business model. How to make this happen. Because I think this is one of prime competencies of
Google as a company. It is exactly to do this.
SOARES: And how do you make sure that it complies and it maintains that compliance. Will there be anything like an independent monitor to keep
tabs on Google?
VESTAGER: Yes, this will be monitored and we will have I think three reports per year, monitoring reports to see how is compliance doing. And
that we will do for five years. And the decision as such, well that is valid, as long as Google is a dominant company. Because the funding comes
from the fact that Google is dominant and if you're dominant, well then to some degree, competition in the market where you're dominant is weakened.
So, you get a new responsibility to make sure that competition in this market and other markets where your present is competition on the merits.
And that is of course what we will monitor and therefore, the decision is guilty as long as Google is a dominant company.
SOARES: You've said before this isn't an attack, this isn't an attack on any particular flag on going after an American tech giant. But do you
worry that President Trump sitting in his oval office with his message of America first that perhaps he will interpret this as an attack on American
VESTAGER: Well it isn't, this is just as well as the U.S., a union built on the rule of law. And our courts will hear nothing about bias. They
want the fact of the case, evidence, the case law. Our work has to stand up in court. So, there's in room for bias of any sort. The European
market, the European single market with the potential 500 million customers is open for business. And U.S. companies are more than welcome here. And
as you know, we congratulate them when they're successful. Only if they start misusing that and abusing their position, we take an issue with that
QUEST: It's not just the regulators that said this, the complaints came from some of the Rolls Royce names in tech. For example, Microsoft,
Expedia, Trip Adviser and Foundem. The fine stems from the complaints brought by these companies and U.S. companies. So, it's not just a fight
between the EU and the U.S. The names that you see here also complained, Microsoft later withdrew, incidentally. Also, you have Oracle, Yelp, News
Corp., all made complaints with support from other countries. And they signed the letters to the commissioner supporting decisive action.
Joining me from Washington is Luther Lowe, Yelp's vice president for public policy.
[16:20:01] Sir, even you must have had an eye watering moment when $2.7 billion in fines from the commission was announced.
LUTHER LOWE, VICE PRESIDENT FOR PUBLIC POLICY, YELP: Great to see you again, Richard. So, we obviously are pleased with the European
Commission's actions here. We believe it's proportionate. We're eager to, there are certainly some additional details to be worked out in terms of
how this is actually -- the remedy is embraced and what other verticals will come into play. But this news today was welcome news in Silicon
QUEST: If we take the Apple tax case out of it. Because that's slightly different, of 14 billion. But this 2.7, is it a sizeable enough amount
that it sends the message. Or if you take a company like Google, which is a printing press for cash, it's not quite chump change. But it's not going
to hurt much, either.
LOWE: Let's be honest, 2.7 billion is sort of a speeding ticket for Mountain View. They have something I think like 90 billion in cash
reserves, most of it overseas. So, in some ways the commissioner might be doing them a favor by helping them with that cash burning a hole in their
pocket. I think more significant is the sort of cease and desist content of this ruling. Insuring that Google --
QUEST: Do you have confidence that that cease and desist will be followed through? Or will an appeal process be started? I get some examples
earlier. These cases go on for years and before there's any resolution and when resolution happens, often the issue is obsolete, anyway.
LOWE: In the case of the European commission, they have a tremendous amount of power at this point. They're effectively the judge, jury and
executioner and if Google is not in compliance within 90 days, they can start levying these fines. And some of this is not necessarily sort of
pending appeal. And so, Google did not announce that they were appealing today. I think that signals they are keeping all their options open. So
keep in mind, there are two additional cases, the AdSense case, the Android case. So, the Commissioner Vestager has a tremendous amount of leverage
here and hopefully Google will do the right thing and restore consumer welfare and competition in the markets.
QUEST: Is the commission -- the European Commission, doing basically the heavy lifting on regulatory issues that other governments, for that I
suppose I could say, the Department of Justice iin the United States. I could point to Asia and the Japanese equivalent, or the Chinese equivalent.
The commission is leading the way. Would you agree?
LOWE: Without a doubt, all these U.S. complainants had to sort of pack up their suitcases and fly to Brussels and do meetings with the European
Commission. All this started at the Federal Trade Commission in Washington where I am. And the FTC under President Obama ultimately, against the
staff recommendation, which later leaked to "The Wall Street journal," gave Google a clean bill of health.
Now what you're seeing is that European consumers are poised to enjoy better protections than U.S. consumers. I think that creates a forcing
mechanism for other global enforcers, be they in Brazil. Be they back in Washington. And I think by the way, regardless of party they're part of.
Whereas there's some assumptions that a Republican administration might be a bit softer on antitrust enforcement. I think the fact that the White
House was silent today on this speaks volumes.
QUEST: Luther Lowe, always good to have you on the program. Thank you.
LOWE: Thank you so much -- Richard.
QUEST: We'll talk more about this. Thank you for joining us. Here's a statistic. Two billion people. 2 billion people now use Facebook every
month. That's more than a quarter of the entire population of the globe, that's the globe, 7-plus, two billion monthly users. The social networking
has faced criticism for its handling of news and disturbing videos that are streamed live. And yet despite this criticism, Facebook continues to
conquer the world. Just last week Mark Zuckerberg told CNN, exclusively, that the company is now focused on building communities rather than only
(BEGIN VIDEO CLIP)
MARK ZUCKERBERG, CEO, FACEBOOK: For the last decade, our mission has been to make the world more open and connected. And we've been really focused
on these ideas. Giving everyone a voice and helping to connect people especially with their friends and family. And I no those are really good
thing. And working to keep doing them. We're definitely not done with that mission yet. But now I just feel like we have a responsibility to do
more in the world.
(END VIDEO CLIP)
QUEST: Mark Zuckerberg talking there about the responsibility to do more in the world. And if you think that's just pap and pablum, well, you look
at these numbers again.
[16:25:06] You see two billion monthly users, 7 billion people in the world and you turn to Jeffrey Cole who is with me. Jeffrey is from the Annenberg
Center for the Digital Future at the University of Southern California. Don't know why you're on the East Coast where it's probably cold, but not
maybe at the moment. Two billion, you predicted at some point in the future that there will be a decline in users.
JEFFREY COLE, DIRECTOR, USC ANNENBERG CENTER FOR THE DIGITAL FUTURE: We predicted what I said on this show about eight years ago was the social
networks like a nightclub, when the nightclub becomes too popular, the uncool kids stop showing up and the worst thing that can happen is your
mother walks in. so, we predicted they would lose their supremacy as a teenaged social network and they have.
QUEST: Into who?
COLE: Initially we saw 2013, we saw Tumblr, that's long gone, now clearly Snapchat. When Snapchat here's me talk about this, they smile. And then I
say the same thing is going to happen to you. But we did say eight years ago, continue to grow, I said it on this show.
QUEST: You did?
COLE: It would continue to grow and it would survive forever as the phone directory to the planet.
QUEST: The phone directory into this planet at 2 billion. I mean, with 7 billion -- look at the numbers going up -- It launched in 2004. It goes
public in 2012, two billion over the last 13 years. Where does it go?
COLE: Let's give them their credit. It's more impressive than 2 billion out of 7 billion. Because 1.3 billion people on planet, the Chinese can't
QUEST: Good point. Well done.
COLE: Reaching -- it gets more impressive than that -- reaching 2 billion out of 5.7 billion. But that includes people who are not on the internet.
So, if you really look at about 3.2 billion people on the internet. Facebook is reaching 2 billion of them. Pretty amazing.
Last September, Elon Musk's SpaceX, one of his rockets blew up. What was on top of it was a Facebook satellite that was designed to bring Facebook
to some of the places that couldn't get it.
QUEST: When Zuckerberg talks to building communities, not just connecting people, do you see this as a major strategic variation in or is it just the
sort of thing somebody who might have a political career in the future.
COLE: He's certainly acting like somebody we has a political career in the future. I think it's a natural extension of what Facebook is. I really
believe he means what he says. He really does want to connect the world. Now keep in mind, Google --
QUEST: I'm going to stop you because I want to ask you one question before were out of time. Of the three biggies, Google, Amazon and Facebook, which
worries you most.
COLE: The one that should worry everybody the most is Amazon. Amazon wants to take over the world. Is doing a pretty good job of it. Wants to
put everybody out of business. Has a three-prong plan that's working brilliantly. I think everybody should be nervous.
QUEST: You'll come back and talk about that again?
COLE: I'd be delighted to.
QUEST: And will be delighted to have you as always, Jeffrey. Wonderful to always have you.
As we continue tonight in our conversation, U.S. Republicans have delayed the vote on a controversial health care bill. Say the bill still needs
work after too many Senators refused their support. That's a very polite way of saying they were going to lose. The details after the break. It's
QUEST MEANS BUSINESS.
[16:30:55] QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment.
When Italy's finance minister tells me there is no crisis ahead for the country's banking system. And shares in the company linked to the cladding
of the Grenfell tower fell for the second day in a row. As we continue, this is CNN and on this network, the news always comes first.
Computer hackers are hitting companies and government agencies around the world with a massive cyberattack that appears to be under way at the
moment. Targeting international energy and shipping and communications firms and Ukraine seems to be especially hard-hit. The source of the
attack isn't clear yet. In Washington, the senate is delaying its vote on the health care bill until after the July 4 recess. A majority leader
Mitch McConnell says he wants to make changes to the bill after facing opposition from his own party. The measure has no Democratic support.
A new U.S. State Department report lists China as one of the worst offenders in human trafficking. The U.S. Secretary of State Rex Tillerson
and Ivanka Trump spoke about the annual Trafficking in Persons report, it cites forced labor, forced begging and sex trafficking as reasons for
A German apartment building is being evacuated over fear it could catch fire. The 11-story and its 86 flats are located in the western city of
Wuppertal. A spokesman said the structure's facade is highly flammable. It follows of course what happened in London just two weeks ago in the fire
that killed dozens of people.
The controversial U.S. health care bill might be on hold for now, but the Republican senate leader says the party is still optimistic a deal can be
(BEGIN VIDEO CLIP)
SENATOR MITCH MCCONNELL, (R-KY), MAJORITY LEADER: This is a very complicated subject. I remember how challenging it was for the Democrats
when they were enacting this back in 2009 and 2010, a big, complicated subject. A lot of discussions going on and we're still optimistic we're
going to get there.
(END VIDEO CLIP)
QUEST: Uncertainty over the health care bill, follows the IMF's own concerns about policy. Cut growth forecasts in the United States and it is
the lack of clarity in the Trump agenda that is partly to blame. Cuts growth to 2.1 percent from 2.3 percent. Which had been raised in earlier
in the year. And the IMF says details are still undecided on Trump plans to boost the economy. The report says the low and middle-class Americans
would bear the brunt of budget cuts, CNN's Lauren Fox is on Capitol Hill. We take the IMF's numbers, we are a long way of Donald Trump's 3 percent or
4 percent in terms of growth. This issue of health care will not go away and will not be put to bed easily, will it?
LAUREN FOX, CNN CONGRESSIONAL REPORTER: Certainly. I think one of the developments is this delay is another marker of uncertainty in President
Donald Trump's domestic agenda here in the United States and without being able to pass this health care bill, it makes moving on to something like
tax reform even harder. That's been a top agenda item for president Trump. He said tax reform is how he gets some of that big growth and I think if
we're stalled on health care it makes it very difficult to move forward.
QUEST: For those of us who watch from afar and our viewers who sort of dip in to the congressional goings-on, how much trouble is this health care
bill in tonight?
[16:35:00] FOX: It's in a lot of trouble and here's why, the Republican party is divided there are conservative members who want more Obamacare,
regulations repealed. And more moderate member who is argue that some of the cuts to Medicaid and some of the facts that there isn't enough money,
for opioid addiction coverage, maybe detrimental to Republicans going forward. There's a major divide in what Republicans want and conservatives
want are on tote opposite sides.
QUEST: There's already been a bill passed by the house so whatever the senate's bill looks like would have to be reconciled with the house bill
which could itself be a bonanza.
FOX: Why this bill is stuck in the senate there are many questions, even if it gets out of the senate, whether or not the house and the senate can
come together to pass a bigger bill. Every step along the way this is very difficult for Republican leadership. It's not clear that they're going to
be able to pass a bill and ultimately, it's not clear whether or not president Trump will be able to move forward on his domestic agenda.
QUEST: If we remember the failure of the health care bill the first time around. He basically said it's over, we move on. I'll rephrase my earlier
question -- how much trouble, is the president's wider domestic agenda in tonight?
FOX: Well I think what we will see were over the next week Republicans will come together to see if there's some tweaks to the health care bill
they can make and Mitch McConnell will let his members go home for the fourth of July recess. They may hear from some of their constituents very
frustrated that a bill wasn't passed. I think the seven-day recess will be very important here.
QUEST: Helping us understand the machinations, thank you.
U.S. stocks fell after the health care delay was announced. The numbers, show us the numbers, Chris? The Dow closed .5 percent off. The NASDAQ
also closed in the red as Google's parent Alphabet fell by more than 2 percent. European stocks fell on Tuesday after comments from the European
Central Bank, President Mario Draghi caused the euro to rally. He used more optimistic language to describe the Eurozone economy, saying only a
considerable stimulus was needed, rather than a very substantial one. When is considerable more than very substantial? It depends. Italy's finance
minister said the country was playing by the rules when he rescued two regional banks this week. Decision to save the banks led to concerns that
Italy had side-stepped severe banking regulation, that was designed to stop taxpayers bailing out banks. Pier Carlo Padoan said Italy was playing
PIER CARLO PADOAN, FINANCE MINISTER, ITALY: Well first of all, it's not a bailout. Second, the operation of domestic liquidation came as a
consequence of the decision of ECB, the SSM and the SRB, the Single Resolution Board, no conditions apply to a resolution. So, the domestic
liquidation procedure came in and we have -- acted accordingly to the rules of domestic liquidation, and to the state aid rules as well.
QUEST: Is it your view that the, the normal way of resolving these issues should be under the resolution mechanism that was put in place a few years
ago, specifically designed to insure pain is suffered by those bond holders and shareholders?
PADOAN: The way you call is pain is part of the deal. And in fact, there will be some pain in terms of shareholders and senior bond holders and
junior bond holders, so this is the part of the spirit and part of the implementation of the rules.
QUEST: Before we move on to another area. You then categorically deny in a sense, sort of the nod-wink-wink suggestion that basically Italy has
pulled a fast one here?
PADOAN: Italy has behaved according to the rules. It has also protected savers, retail savers, it is protecting an economy which is the size of the
Balkan, Baltic countries and Slovakia, altogether. We're not talking about pulling the string here. We're talking about protecting the economy by
liquidation which implies that the failed banks are being held over to a major Italian strong and robust bank.
[16:40:00] QUEST: If we look at the Italian banking system overall now. Are you comfortable that the worst may be over? Or is it still going to
require considerable vigilance.
PADOAN: Socially we made a lot of progress. If we look back 12 months or so, huge progress has been made, both in terms of addressing critical
class, such as the medical banks, but also showing how the system can find market solutions with no state intervention like the unit credit
recapitalization of 13 billion this is also a consequence of structure reforms of the banking sector over the past two to three years, so I'm
optimist that we're going in the right direction, and I am confident that there will be no maiming crisis points looking forward.
QUEST: One other area I want to ask you about. The question of euro clearance or the clearance of euro funds, and whether or not you believe it
is reasonable or practical that London continues to be the major euro clearance center after Brexit. Or do you subscribe to the view that this
mechanism, this clearance should move to a euro-denominated country?
PADOAN: Well I think that after Brexit is defined, and I hope soon there will be new opportunities for the, for the European financing industry,
financial industry to relocate at least some of its functions away from London and to other financial capitals of Europe. Including Milan by the
QUEST: So, it's not reasonable that London could still hold the monopoly on euro clearance?
PADOAN: We could discuss whether it's a monopoly or not. But certainly, with Brexit in place, there will be new opportunities for segments of the
financial industry to relocate that might involve euro clearance as well.
QUEST: The fire at Grenfell Tower and the analysis that buildings up and down the United Kingdom revealing the risk is very real.
British Prime Minister Theresa May is calling for major national investigation in her words, into the use of potentially flammable cladding
on buildings that are up and down the United Kingdom. So far investigators are focused on whether it was the cladding that fitted to the Grenfell
Tower acted as the accelerant helping the fire spread right the way through the building. You have seen obviously pictures of the fire itself.
Clearly that does appear to be the case.
At least 79 people died that number is going to rise. Residents of buildings with similar cladding have been evacuated from their homes.
Samples of cladding from 95 buildings, 32 areas of the U.K. have all failed fireproofing tests.
[16:45:00] And it is believed there could be more than 600 buildings, similarly clad in the United Kingdom. So, Claire Sebastian is with us.
100 percent failure rate on this cladding. But here's the issue. I know you've been looking into detail. The company that made the cladding.
Never suggested or said, did they that it was suitable for buildings like Grenfell Towers.
CLAIRE SEBASTIAN, CNN MONEY CORRESPONDENT: No. They suggested the opposite, this is a company called Arconic, it used to be called Alcoa,
Arconic manufactures this type of aluminum composite cladding, this has a plastic or polyethylene core. They put out brochure last year this
company, where they show that they manufacture three types of this cladding, there's a bond P.E., there's a bond F.R. with a fire-retardant
core, for buildings above 10 meters, above 30 meters you want a higher fire retardant.
QUEST: So, what we have here. Very clearly, they are suggesting a discrepancy or difference buildings of 10 meters, 30 meters and 30 meters
above, and that should have been used. I understand that the P.E. --
SEBASTIAN: The polyethylene.
QUEST: The polyethylene was used --
SEBASTIAN: On Grenfell Tower.
QUEST: And the issue here, now the company has said what?
SEBASTIAN: Well we asked them about this. They said they did supply this. But they also say we were not involved in the installation of the system,
nor do we have any role in any other aspects of the buildings refurbishment or original design. This is of course a very complicated set of companies and materials that
went into this. And also, crucially they said that while we provided the general parameters for potential use at university, we sold our products
with the expectation that they would be used in compliance with the various different local buildings codes and regulations and that's crucial, because
there's a discrepancy around the world about what's legal and what isn't.
QUEST: It's got so complicated. This company has now decided not to sell P.E. --
SEBASTIAN: High rise. For any high rise.
QUEST: Any building or just high rise?
SEBASTIAN: High rise. Is defined as different things, in the U.S. it's defined as 40 feet and above. They say regardless of the building codes
that are in place, recommendation still stands. This is a recommendation from the company, not a building code.
QUEST: Lets go to the map where we see how many buildings we're talking about here. These are all parts of the United Kingdom. And of course, we
don't know what else might be elsewhere in the world.
SEBASTIAN: They there are 600 they think might be affected in the U.K. A building evacuated preemptively in Germany today. I asked the New York
Buildings Commission what they say, they say monitoring the investigation, but this kind of cladding is not used in New York.
QUEST: I guess the question becomes the liability in this case will be who knows where. The bill -- the cladding shouldn't have been used, the
company said they didn't advised it to be used. The designers will say it met the regulation. How much of an entangled mess are we looking at?
SEBASTIAN: Entangled is the perfect world, because don't really have the aluminum panels in the cladding, you have the insulation. Now also removed
from sale for high rise buildings. That was manufactured by a U.K. company called Celotex. There's also the design, there was the original design of
the building, don't forget the cladding was added during a refurbishment in 2015. This is all highly entangled and there was the fridge/freezer that
the fire and the police services say started the fire. So, there is a lot still untangle we are in a very early stage.
QUEST: Nobody could ever assume that a fridge-freezer fire would have led to something like this.
SEBASTIAN: The cladding on the exterior is a key focus.
QUEST: Thank you. Keep watching, more to come.
United States is pushing to resolve a dispute between its gulf allies. Secretary of State Rex Tillerson has met Qatar's foreign minister a few
moments ago. Qatar is facing a list of demands from its neighbors.
[16:50:00] (COMMERCIAL BREAK)
QUEST: U.S. Secretary of State Rex Tillerson meeting the Qatari foreign minister. The meeting comes after top U.S. lawmakers says he'll block
foreign military sales to gulf countries, until the dispute with Qatar is resolved, that would include a $110 billion arms sale to Saudi Arabia.
Michelle Kosinski is at the State Department. The problem here is that the other GCC countries, largely believe they were given a nod and a wink by
president Trump to do what they have done.
MICHELLE KOSINSKI, CNN SENIOR DIPLOMATIC CORRESPONDENT: Yes, I mean when we go back to when this started, when it was first announced and the
surprise sweeping announcement that Qatar was being shut off, Qataris had to leave these other countries, we saw that tweet from President Trump.
Like he was 100 percent behind this seeming like he was taking credit for it from his trip to the middle east. When he spent a lot of time talking
to these countries. But then you know, we hear from the State Department, it was just last week the first categories that all was not well. And this
is the most explicitly spelled it out.
A State Department spokesman said we're left with a simple question, were the actions really about their concerns regarding Qatar's alleged support
for terrorism? Or were they about the long-simmering grievances between and among the GCC countries. That is as far as the State Department has
gone to say hold on here. This this is a bad situation. Now they're just saying some of the demands that the countries have put on Qatar are going
to be difficult for Qatar to meet.
QUEST: That's the point, Michelle, those demands, Rex Tillerson said they should be reasonable and actionable. And Qatar has said they're in abuse
of its sovereignty. So, does Tillerson see himself as an honest broker here, who can try and bridge a gap? Or is he just trying to keep, do
whatever he can?
KOSINSKI: It is such a difficult situation that it's evident in virtually everything the state department says, aside from what I just read to you,
they will say very little. They won't even characterize these demands in any way. Just saying well some of them will be difficult for Qatar. In
the meantime, they're having all of these conversations. But you mentioned that now the chairman, who is a Republican, of the Senate Foreign Relations
Committee has said hold on here, we're not going to sell any arms to any of these GCC countries, and he has the power to block that. Until this
dispute is resolved. The unspoken words there are, resolved to the U.S.'s acceptability standard. We don't know how much exactly the U.S. and Qatar
are going to accept from these demands. I think it's pretty clear at this point shutting down Al Jazeera and all of its affiliates and all of the
media outlets that Qatar funds is not going to be acceptable.
[16:55:00] QUEST: Michelle, you've got your work cut out for you over the next few months as this one rumbles on. Thank you.
Now before we leave you, download our show as a podcast, all the main prefectures have it. And you can listen to it at CNN.com/podcast. Don't
forget the news as well. We'll have a Profitable Moment after the break.
QUEST: Tonight's Profitable Moment. On this show, we have shown you the complexities and the various undercurrents taking place within the tech
sector. For instance, we told you how Facebook now has two billion users, but at the same time, we've reported how Google has been fined $2.7 billion
by the European commission, over mis-selling of ads and the way in which it prioritizes ads that you see. And then at the same time the professor from
the economics school talks about how Amazon is the biggest threat because Amazon wants to take over just about every aspect of your life.
And you'll be aware of course, Amazon only a couple of weeks ago into its foray into supermarkets, by buying Whole Foods, what you see is this
extremely complex confluence of events of these vast companies that are moving into every aspect of our lives. Now we can sit and moan about it.
We can say what should be done about it regulators are fining, some are restricting. But at the end of the day, which has to admit what's taking
place with Google, Amazon and Facebook is simply downright fascinating. And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest back in New
York. Whatever you're up to in the hours ahead, I hope it's profitable.