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Chinese Stocks Suffer Steep Drop; High Hopes for Zimbabwe's New Leader; No Dialogue between GCC Countries on Oil Policy; Dollar Falls on Weak Inflation Fears; Search for Argentine Navy Sub in Critical Phase; Schulz Asked to Reconsider Alliance with Merkel; Aired 4-5p ET

Aired November 23, 2017 - 16:00   ET




RICHARD QUEST, CNN HOST: No trading on Wall Street for today because it is Thanksgiving in the United States. All the markets are closed. There's a

large parade with inflation of a different kind in New York. We will talk about that.

But global, trading is over for Thursday, November the 23rd.

Tonight: after decades of decay, the IMF wants immediate action to save Zimbabwe's economy.

Deal or no deal: Germany's president is trying to end the country's political crisis.

And a shocker in Shanghai: the Chinese market suffered the nastiest drop in months. I'm Richard Quest, live from Abu Dhabi where I mean business.


QUEST: Good evening from Abu Dhabi.

Ending decades of Robert Mugabe's rule was perhaps the easy part in hindsight. Now the IMF is warning Zimbabwe that massive reforms are needed

to fix the country's economy.

The warning comes on the eve of Emmerson Mnangagwa's coronation as president. Opposition leader Morgan Tsvangirai tells CNN's Christiane

Amanpour earlier that he faces an uphill battle.


MORGAN TSVANGIRAI, ZIMBABWEAN OPPOSITION LEADER: Let me say that knowing Emmerson Mnangagwa, his character, you will have to work very hard to

change his character so that he can define the future of the country and define his future as a democrat, as a reformer. That I doubt.

But at the same time, he knows that he cannot continue on the same path Mugabe's traveled and still expect the nation to respect him.


QUEST: Now the International Monetary Fund says three things are needed from Zimbabwe immediately and, of course, none of them are easy. First of

all, the country must reduce the deficit. The budget deficit currently stands 10 percent of GDP.

Then there needs to be structural reform. The true unemployment rate is estimated at 90 percent, just think about that. Just about everybody is

out of work in Zimbabwe at the moment.

And as part of the deficit reduction and structural reform there also needs to be dealing with the debt. And to do that they need to reengage with the

international community to access financial support.

Farai Sevenzo now reports on what one liberated township can expect from the new presidency.


FARAI SEVENZO, CNN NEWS CORRESPONDENT (voice-over): This is Highfields, one of Harare's oldest townships. Robert Mugabe and Joshua Nkomo, the

founding fathers of the ruling Zanu-PF, have lived here.

Now it's a stronghold for Morgan Tsvangirai opposition party, the Movement for Democratic Change. And life here is about survival. The jobs are

informal -- mechanics, market women, barbers and a great deal of unemployed, hustling.

It's now a traditionally opposition area Highfields. This is the room where Robert Mugabe's people did Operation Murabatsvina, which means clear

out the filth. And they razed people's houses on the pretense that they didn't have planning permission.

But the aim really was to smash the newly-formed Movement for Democratic Change, the opposition's support base. This is all over here.

Maxwell is one of those who had his home destroyed in 2005. The father of three used to be a bank manager. Now he, like so many others, has no job.

MAXWELL, HIGHFIELDS RESIDENT: All these years I've been working in the bank for 19 years as manager. (INAUDIBLE) I generally have nothing to do.

I mean you turn around.

SEVENZO: He is desperate for a chance to vote for change, freely and fairly.

MAXWELL: We must -- both of them, Mnangagwa, Tsvangirai, the must come together, work together, bring reforms to the election, election must be

done. (INAUDIBLE) It's unfair.

SEVENZO: Unfair because people are so euphoric. But right now incoming president, Emmerson Mnangagwa has the edge.

The boys at the barber shop are optimistic. In fact Nasha (ph), George, Mayesa (ph) and Archibald (ph) can't even believe --


SEVENZO (voice-over): -- they're allowed to speak to us.

They say Mugabe, if they'll be seen like this, they would have been beaten up for talking to us.

UNIDENTIFIED MALE: It's only that people wanted change. He does view that things will change. They wanted change.

UNIDENTIFIED MALE: Here in Zimbabwe right now, it seems to be a bit simpler.


UNIDENTIFIED MALE: To discouraged the mistakes of this old man.

SEVENZO: And then everything is better now?


SEVENZO: These schoolgirls tell us they also believe the future is suddenly brighter with Robert Mugabe's departure. Still, it's in areas

like these -- poor, ignored and proud where the real test of change will be measured.

UNIDENTIFIED MALE: I think it's OK. But in the meantime, people (INAUDIBLE).

SEVENZO (voice-over): Farai Sevenzo, CNN, Highfields, Harare.


QUEST: So that is the size and scale of the problem in microcosm as seen from just one town.

Eddie Cross is an opposition MP and economist and he's in Harare, joins us via Skype.

Andy, first, there we see just in that one report the magnitude of the individual problem but the IMF put it in terms of deficit, debt and foreign

exchange on the dollar.

Is it all doable?

EDDIE CROSS, ECONOMIST: Yes, it is, providing they make the necessary political changes that really enable us to reengage with the international

community. and I think that's the first priority for the new president.

And if he doesn't address that and the conditions for political engagement with the West, particularly with the Western leaders, are pretty tough.

He's going to have to guarantee a return to democracy and as quickly as possible he's going to have to implement the constitution we adopted in


He's going to have to restore the rule of law. He's going to have to recognize freedom of association and freedom of speech. And this is a tall

order for the new president.

QUEST: That's, if you like the political part. And if I understand what you're saying and you are an opposition MP from that point of view, a

politician from that point of view. But the economics, the raw economics of cutting the budget deficit of dealing with relations with the African

Development Bank and others and from just dealing with debt, that is going to impose more austerity -- austerity's the wrong word because in Zimbabwe,

it's just about recession and collapse anyway.

But there's going to be more homeownership.

CROSS: Our economic problems are so severe that no solutions can be found without massive international assistance in our terms. The deficit, for

example, we started in 2013 after running a surplus, a fiscal surplus for four years; the new incoming government under Robert Mugabe then boosted

the expenditure and the economy shrank.

And the consequences are that last year our budget deficit was 8.5 percent of our GDP. You mentioned the estimate of 10 percent this year. I think

it's going to be more like 15 percent this year, $2.2 billion with revenues of only 3.8. That is totally, totally unsustainable.

And the result is that our domestic debt now exceeds our external debt by quite a wide margin. And we're probably now at 200 percent of our GDP in

debt. And this is something that's got to be addressed and addressed urgently.

QUEST: Right. And then you have the currency question, whereby the bond note, which were nothing really more than a central bank printing of money

through the back door, since they weren't properly backed by hard currency, that requires you to go back to a strict dollarization policy with all that

that implies as well.

CROSS: The root cause of our monetary problems is our fiscal deficit. What happened is we converted our cash balances into money in the form of

pieces of paper, treasury bills, all sorts of other forms of paper, and overdrafted the reserve bank, for example.

And this has drained our cash reserves. In 2013, we probably had about 15 percent of our total bank deposits in cash. Now it's 1.4 percent. And at

that level, there is simply --

CROSS: -- no cash In the market for trading purposes.

So the volume of electronic trades in our economy has multiplied many times in the last 18 months.

QUEST: Eddie Cross, we will talk more about it as the IMF gets involved and we will need your guidance and assistance to help us understand what is

taking place. Thank you, sir, for joining us tonight.

Former finance minister of Zimbabwe fears if his country implodes, its biggest neighbor will suffer. Zimbabwe and South Africa share a border.

It's a long one, 225 kilometers. Ten diabetes (ph) urging South Africans not to distance themselves from the events of the past 48 hours.

Eleni Giokos is our business correspondent in Africa, joins me from Johannesburg.

At the moment, the view from Johannesburg in terms of economic assistance or at least willingness, how would you describe it?

ELENI GIOKOS, CNNMONEY CORRESPONDENT: Well, South Africa's always been very willing to help Zimbabwe, in fact, so willing that even the Mugabe

regime got the support in some way from the South African government all those years.

The stuff of quiet diplomacy, even during the -- through the years of hyperinflation, of course, got a lot of scrutiny from the international


The big question is, what is South Africa going to do now that you've got this coup that's not a coup; you've got Emmerson Mnangagwa coming through

as the interim president and then you've got Jacob Zuma, who is also head of the South African development community.

And he's also got a lot of responsibility in that regard. And whether the region is going to accept this. So these are a lot of questions, Richard.

But it comes down to the economic impact as well. Zimbabwe is spilling over into South Africa and the spillover through the years has been

economic refugees and it's estimated that almost a quarter of a million Zimbabweans are living in South Africa, a country that already has very

high unemployment.

So that has brought its own sets of problems to South Africa because we share such a long border.

QUEST: But, Eleni, the issue of what our previous correspondent was just - - guest was talking about, Eddie Cross, this idea of needing help from neighbors but only -- but the price for the help is a return to full

democracy, a returned to the 2013 constitution, a return to managed -- your properly managed economy and the rule of law.

Will South Africa put pressure on Mnangagwa to do that?

GIOKOS: That's an interesting question. They didn't really put pressure on Mugabe to do that, did they?

And that's the big problem, that South Africa has always stood on the sidelines in some way because it's taken this diplomatic stance. As I

mentioned, but, Richard, right now, this is the time where the region can pull together to show that they do want Zimbabwe to move forward. It's

going to benefit the region and I think it's going to benefit South Africa if Zimbabwe, its neighbor, finally gets growth going again.

If they have a strong neighbor, it's a strong regional story to tell. International investors, already South Africa is backing to keep investors

here. We're backing to convince them of our story of why we're in the right place to put your money.

And if you've got Zimbabwe strengthening, that's also going to help. South Africa might help Zimbabwe in terms of money. We know the IMF is talking

about financial assistance. The region could assist as a whole but it's going to put those processes in place for it to happen.

QUEST: Eleni Giokos in Johannesburg, thank you.

So to China, where the stock market rally has run out of steam quite dramatically. Worries about debt have sent investors seeing red. We're

going to be in Beijing after the break. It's QUEST MEANS BUSINESS tonight. We're live from Abu Dhabi on Thanksgiving.





QUEST: No trading on Wall Street because of Thanksgiving, Turkey Day, in the United States. The markets will reopen tomorrow, Friday, (INAUDIBLE).

Now in China perhaps they wish it to be the odd session, well maybe no session at all.

They certainly have plenty little to be thankful for. The Shanghai composite tumbled more than 2 percent. CNN's Andrew Stevens is in Beijing.


ANDREW STEVENS, CNN ASIA PACIFIC EDITOR: Beijing's campaign to get a grip on the soaring levels of debt in China is starting to spook investors in

China's stock markets. It is called deleveraging in China. It's attempts by Beijing to try to take the air out of the massive credit bubble that has

been growing and growing since the crisis back in 2008.

The authorities make it more and more difficult to borrow money; interest rates are on the rise and, as interest rates rise, so do bond yields as

well. So the cost of borrowing in China at the moment, according to the benchmark rate, is at a three-year high.

On top of that, Beijing has introduced other measures to stop lenders getting to consumers, including small online lenders, whoo give money to

many investors who play the stock market.

There are now restrictions on that sort of practice. The result to all this, investors are worried that this deleveraging will hurt the economy.

They don't have the money anymore to invest in the market and we saw a selloff today, down 3 percent for the blue-chip CSI 300 index.

But it's not being seen as a general route here, nothing like we saw back in 2015-2016 . In fact, this comes just a few days after Morgan Stanley,

the U.S. broker, issued a big report on why it was, quote, "still "bullish on China.

There still may be a few more legs in this selloff but at this state, there is certainly not the panic that we witnessed in China in the past -- Andrew

Stevens, CNN, Beijing.


QUEST: (INAUDIBLE) 52-year high and at next week's OPEC meeting, CNN's emerging markets editor John Defterios is with me at the moment.

Look, the whole OPEC question, before we get into where prices are going, since I'm in the region, gives me an understanding of where we stand vis-a-

vis Qatar and what they call the blockade, what the others call the embargo of the country.

JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: Well, I'm glad you brought it up because it's often not talked about. Today we're six months into this

economic embargo, which is led by Saudi Arabia, the UAE, Bahrain and Egypt.

The challenging thing for this, Richard, is that it becomes the new normal. Everybody got very used to the status quo. Now even those major members

like Saudi Arabia and the UAE privately say Qatar is now insignificant in terms of the impact on their economies.

I'm sure Sheikh Tamim, who's 37 years old and the emir of Qatar, wouldn't see it the same way. It is hitting Qatar Airways, as you know, causing 20

percent of the traffic. But they've gotten used to this new normal as well. They've reached out to Iran and Turkey; they have supplies coming

in. They have a $340 billion (ph) sovereign fund.

They've burned through about $50 billion already. But that cash burn has slowed down. Now I think you take a step back, you're here in the Gulf

states, the GCC, it's awful because there is no governance. It's slammed its economic embargo in; there is no discussion --



DEFTERIOS: -- I think it is irrelevant at this stage. We have never even heard from the secretary general since the crisis broke out six months ago.

QUEST: Right, now on the question of OPEC, of course, since they're all around the table at OPEC, there is an OPEC meeting and what does OPEC do?

Is it -- the elephant in the living room, everybody just walks around and nobody actually says, (INAUDIBLE) the Qatar problem.

DEFTERIOS: In fact, let's --


DEFTERIOS: -- start with the GCC, those six Gulf states and then build out. You have three members against Qatar -- Saudi Arabia, the UAE and

Bahrain -- you have two that neutral, Kuwait and Oman and then the isolated Qatar, which has gotten closer to Iran and Turkey.

But what I find fascinating, having been on the ground here for seven years, is that oil and gas usually stays out of the purview of politics

entirely. There are no shipments being held back from Qatar's, particularly those supertankers going to Asia; 35 percent of the gas that

comes here into the UAE comes from Qatar.

There is no discussion of cutting that oil at all. And when it comes to OPEC --


QUEST: -- percent of the UAE's gas --


DEFTERIOS: -- comes from Qatar --

QUEST: -- directly?

DEFTERIOS: -- directly on the Dolphin (ph) pipeline project goes to 2030. And I've talked to both sides. And so there is no discussion of bringing

gas into the equation and cutting it off.

Qatar needs the revenue; the UAE needs the gas. They just leave that on the side --


QUEST: The fact citizens can't go to each other's country.

DEFTERIOS: Is that extraordinary or not?

It is extraordinary and when it comes to the politics within OPEC --


DEFTERIOS: -- a little bit. But the politics being driven here is really about Saudi Arabia and Russia. Khaled al-Fala (ph) is the oil minister of

Saudi Arabia. Russia's minister is Alexander Novak (ph). They're calling the game right now. They produce 20 percent of the oil around the world.

And so they -- internal politics of the GCC are not (INAUDIBLE) into the OPEC agreement, which is working right now.

QUEST: But if you take, for example, the events of this week with Saad Hariri, with Saudi Arabia and --

DEFTERIOS: -- going back to Lebanon, are you?


QUEST: -- it was last night's discussion. But I'm trying to put it into total context of the mess that exists with the Hariris and now with Qatar

and the question of OPEC next week.

DEFTERIOS: Yes, I don't see an issue here. We have strains between Saudi Arabia and Iran. That is for sure. But again, this does not spill into

the politics of OPEC. We have an OPEC/non-OPEC agreement being driven by Saudi Arabia and Russia right now.

Richard, we've seen an $18 rally since the end of June, a particularly strong rally over the last three months. Nobody wants to spoil the party.

You add those tensions to the equation, it's firmed things and you have that pipeline in North America go out, which has given a nice lift here in

the last three days.

QUEST: Good to see you, sir.


QUEST: Thank you for coming in --


DEFTERIOS: Yes, nice to see you.

QUEST: Now to New York and the Thanksgiving Day parade, the balloons of inflation that everybody could rally around, everybody enjoyed this bit of

inflation but price inflation, that's nowhere to be found.

The dollar fell sharply after the latest Fed minutes. The FOMC members said they remain concerned about weak inflation -- no weak inflation there

-- they fear prices might not reach their 2 percent inflation target anytime soon.

Now in a new speech, the Fed chair, Janet Yellen, called the inflation outlook very uncertain. Although she believes inflation will rebound. And

weak inflation could force the Fed to slow the pace of rate hikes next year. Market still expect a hike next month.

Persistently low inflation could be the Grinch that causes investors to lose confidence in the markets. And there was plenty of inflation in the


Paul Donovan joins me now, the global chief economist at UBS in London, who has written his own book on the question of inflation.

We -- the Fed doesn't really give a satisfactory understanding on reason why there is this lack of inflation at the moment.

PAUL DONOVAN, UBS: There's two things here. So the first thing is that there isn't a lack of inflation. There is plenty of inflation out there.

Most U.S. inflation numbers are within 0.1-0.2 percent of their 20-year averages. It's normal inflation.

But the problem you've got is that with the economy firing on all cylinders, people expect inflation to be a bit above that. (INAUDIBLE)

problem is trying to explain what's going on with inflation in language that politicians can understand. That's always a tricky problem.

QUEST: What is going on then?

Why does it -- if you take, for example, the U.K., where inflation has taken off although it will come back down again and, arguably, you can find

a Brexit reason for that and currency devaluation reason.

But if you take the U.S., which has got 2-2.5 percent growth, low unemployment, why hasn't inflation taken off?

DONOVAN: Well, it has. It has taken off in certain areas. So parts of the economy is seeing inflation. But part of the problem is a lot of the

U.S. inflation numbers aren't driven by market forces. A lot of U.S. --


DONOVAN: -- consumer price inflation has got nothing to do with the laws of supply and demand.

The largest single item in U.S. inflation is a housing measure called owner's equivalent rent. No one, absolutely nobody in the United States.

zero people pay owner's equivalent rent. It is an entirely made-up number. Statisticians in a dark basement office in the Bureau of Labor Statistics

come up with this figure.

Now there is good reasons why they do that but it's not a market-driven number. And we've got all sorts of distortions in the inflation figures

which are pushing down on the data this year. But there is no guarantee the push down next year.

QUEST: OK. So in that scenario, do you believe the Fed, as the minutes suggest, is right, the FOMC, to move in December or near as possible with

the prospect of three more hikes next year?

DONOVAN: Absolutely. I think December, certainly, and two or three rate hikes next year, very good idea. The Federal Reserve has faced rising

inflation issues -- not inflation has been spatty (ph) -- it has been creeping up. So it's right and appropriate that they're maintaining some

moderate tightening starts.

Now we've got to remember the Fed's not trying to control inflation right now today. The Fed is trying to control inflation in 12 to 18 months'

time. If they sit there and do nothing, if they allow real interest rates to drop, then they could be facing a bigger inflation problem in 2019.

So I think it's right and proper that they tighten.


DONOVAN: One issue that we've got with the Fed --



QUEST: Go ahead. Go ahead, please.

DONOVAN: The one issue with the Fed, we've got -- after February, when Yellen retires, we've got four vacancies for governors of the Federal

Reserve. And that means that there are only three governors on the rate setting committee, the FOMC. That puts the regional Fed presidents in a

majority. This is not what the founders of the Fed intended.

And the regional Fed presence tend to be a bit more maverick in terms of some of their views. So it does make forecasting for the Fed a bit more

tricky next year.

QUEST: And briefly, finally, with the unwinding of the balance sheet that's going on or that's now going, albeit at a very low level, that is an

implicit tightening of policy as well. So it's a real double whammy, while maybe not a full throttle, when you've got rate rise and you've got a

tightening of the balance sheet is wound off.

DONOVAN: Well, what you've got to remember with the balance sheet is the Fed is not doing this on a whim. The Fed's balance sheet is money supply.

What's been happening is money demand, demand for cash, is coming down.

And so the Fed is responding to this reduced demand for money by reducing supply. That's what a good central bank is supposed to be doing.

QUEST: Grateful to have you, sir, thank you very much indeed, Paul Donovan.

DONOVAN: Thanks.

QUEST: Joining us is the man who wrote a book on inflation and talking, making good sense about it. So thank you.

Now there's new political urgency in Germany. The president in Germany holds talks with the main opposition leader and the goal is to break the

deadlock in Berlin. We'll talk about that as QUEST MEANS BUSINESS continues tonight.





QUEST (voice-over): Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment with the head of the African Union tells us

(INAUDIBLE) country shares some blame for the rise of Libya's slave trade.

And Jack Dorsey (INAUDIBLE) takes us to Iowa, where technology is helping one city get back on its feet. You'll see that report as we continue

tonight for all of it.

This is CNN and on this network, the facts always come first.



QUEST: The crew on the missing Argentinian submarine is urgently running out of oxygen and thereby running out of time. The last contact was made

on November the 15th 268 miles from the coast. The experts say it can survive, the submarine can survive 7-10 days; 44 crew members are on board.

The search area is hundreds of miles -- you can see, just from the sheer size of it -- and numerous militaries are helping, including Uruguay,

Chile, Brazil, Peru, the United States and the U.K.

NASA has also sent in aircraft. The submarine on its way to a basic model platter (ph) in Argentina. That's where we find our Stefano Pozzebon, our

correspondent, to talk us through.

Let's start, Stefano, with the noise that some say was an explosion.

Are the Argentinians confirming that it was from the sub?

STEFANO POZZEBON, JOURNALIST: Not precisely, Richard. What we're being told this morning, the news of the day, what the Argentinian navy has said

today is that the (INAUDIBLE) detected these noise on the morning (ph) (INAUDIBLE) morning, where -- when the San Juan last made contact with

(INAUDIBLE) here in Marta Plata (ph), where I am. And it said that this sound, this particular noise came from the same area when -- where the

submarine was at that time.

And they're saying and this noise does not have a biological source and they say that is consistent with an explosion.


POZZEBON: It could lead to an explosion. That news, that particular news was enough to change completely the drama here in the base in Marta Plata,

where I'm standing; where in the past 5-8 days relatives and friends of the 44 crew members have come and gather to wait and hope for their relatives

to come home safe and soon.

Today that -- the drama has changed completely and most of the relatives are now embracing for what will be the most terrible news of their lives --


QUEST: Assuming that this is from the sub, does it narrow down dramatically the area where they would be searching?

Because, God forbid, even if it is an explosion, they've still got to go down and find this submarine if only to recover the remains for the


POZZEBON: Possibly, absolutely definitely there will be an effort to try and recover what's left in the worst-case scenario, if they'll confirm

(INAUDIBLE) just focus on this search operation.

As you said, it's a massive strange of seas (ph) and (INAUDIBLE) bigger as the country of Spain on the stormy sea of the southern Atlantic Ocean, as

the -- as 2,000 meters below sea level. That's 2 kilometers down at the bottom of the ocean.

it is still not sure whether the boats and the vessels that these international flotilla has brought together to try to scan and rescue that

stretch of sea will be even able to access what's left of the San Juan is indeed the worst news is confirmed. But at the moment, here in Marta

Plata, nobody is confirming, nobody is saying those words and everybody is still uncertain and waiting for the next words from the Argentina navy --


QUEST: Finally, Stefano, the -- I'm assuming that any form of political differences, geopolitical differences between countries are being put to

one side and all nations involved here are working to one goal.

POZZEBON: Absolutely. We are seeing the interest and the offer of help ,Richard, from countries as different as Russia and the United States, the

United Kingdom is not an easy customer here in Argentina. Argentina has been at war with London for the islands -- the Falkland Islands (INAUDIBLE)

and, indeed, here around me, I see memorials (INAUDIBLE) that was in 1982 Falkland Islands war (ph).

Well, Britain has come forward and brought vessels and aircraft to try and search these -- the submarine and especially the 44 crew members so we can

definitely say that any geopolitical (INAUDIBLE) has been brought on the side and every possible effort has been brought forward to find those 44

people and bring them home safely, if it's still possibly, Richard.

QUEST: Stefano, please stay with the story for us. At the moment, there is more to report, come back immediately so we can have an update. Thank


Now to Germany, where the president has met with the SPD's Martin Schulz, former leader of the parliament, of course, European, Parliament, of

course, to find a solution to the political crisis.

The main opposition leader is under pressure to open discussions with Angela Merkel on a coalition government. Ms. Merkel has said she will

prefer new elections over a minority government.

The German markets held steady over the past week. The DAX was down slightly then it lost 1 percent on Wednesday.

Julian Reichelt is the editor-in-chief of BILD Digital. He joins us via Skype from Frankfurt.

Julian, always good to have you, to have your interpretation to help us understand.

Look, why won't the other lot get in coalition, in a grand coalition, with Angela Merkel and put this together?

What has stopped them from doing that which they have done for the past few years?

JULIAN REICHELT, BILD DIGITAL: Well, Richard, first of all, Happy Thanksgiving to you and your viewers.

QUEST: Thank you.

REICHELT: What has stopped the Social Democrats here in Germany was a desperate move for power by the chairman of the Social Democrats just

minutes after the election results came in a few weeks ago.

Back then it was clear that the results for the Social Democrats were horrible and that the only way, the only path to political survival for

Martin Schulz, the chairman of the Social Democrats, was to exclude that at least when you got, exclude another grand coalition and send the signal to

the base of his party that his party will now go back to opposition to --


REICHELT: -- basically recover from the grand coalition with Angela Merkel and they expected that Angela Merkel will have the political strength to

form what we here call the Jamaica coalition with the Green Party and the Yellow (INAUDIBLE).

That then fell apart and suddenly Martin Shultz found himself in the position that he's now being asked to do what he excluded only a minute

after election results came in. And if he doesn't do it, he will be basically blamed for not taking responsibility in some sort of leadership

for the country.

So either he will choose what he excluded or he will choose -- being considered --


REICHELT: -- who didn't stand up to his responsibility.

QUEST: Well, hang on.

Why would Schulz get the blame and not Merkel?

Because I can also see an argument that would say he's perfectly entitled to say I'm not going into that coalition. I don't like the way it's gone;

whereas she could make more compromises to bring the Jamaica coalition to existence.

REICHELT: Well, the Jamaica collision now is done and there -- as from everything we know, no way back. There is no way that, you know, she will

pick up negotiations for that coalition again.

So, no; the choice basically is between the grand coalition and new elections. Now Merkel knows what desperate situations Shultz is. And she

knows that Schulz wants to stay in power in -- as the chairman of the party (INAUDIBLE). He has to come. Merkel knows that and that is why -- you

know, she just wait for him to come and, believe me, he will come in the next days.

QUEST: Julian, good to see you, sir. Thank you. We appreciate it. Thank you.

European markets had a mixed day. London fell after (INAUDIBLE) warning from British gas owner Centrica. Paris and Zurich saw modest gains. In

Helsinki, Rovio plunged 22 percent. The Angry Birds maker and the price is now below its IPO price of last month.

Slavery auctions in modern-day Libya -- it was a shocking report by CNN, tweaking a response by leaders across the continent. Exclusively you're

going to hear from the African Union on their response.




QUEST: An Ivorian government minister says CNN's exclusive reporting on slave auctions in Libya is like an electroshock. His comments come as the

Ivory Coast repatriates migrants who are living in Libya prior to the report.


UNIDENTIFIED MALE (through translator): It is true that several times we have denounced this unacceptable situation that our migrants are living in,

in Libya. But the fact that this TV channel made it public and spoke about it --


UNIDENTIFIED MALE (through translator): -- about the black trade, about the slavery trade, it was like an electroshock.


QUEST: The African Union hints to CNN that Western countries are partly responsible for migrant slave auctions in Libya saying the country's in

total chaos after removal of the former leader, Moammar Gadhafi, by countries that, in his words, "didn't follow up."

The chairman of the African Union spoke exclusively to CNN's Jim Bittermann.


MOUSSA MAHAMAT (PH), CHAIRPERSON, AFRICAN UNION (through translator): All the heads of state in Africa and Africa as a whole have denounced these

acts, which are completely unacceptable. I have taken various measures. I have sent the commissioner of social affairs to Libya to talk with the

Libyan government and express our indignation and to see what measures should be taken.