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Major Outrage after Government Rams Through Pension Reform Bill; Protests Intensify Against Netanyahu's Planned Legal Reforms; Video Shows U.S. Drone Encounter with Russian Jets; North Korea Fires ICBM; Russian Military's Power Play Spells Trouble for Wagner Boss; Massive Hailstones Fall in Texas Thursday; European Central Bank Raises Rates by Half a Point. Aired 12-12:45a ET

Aired March 17, 2023 - 00:00   ET

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

KRISTIE LU STOUT, CNN INTERNATIONAL ANCHOR: Hello, everyone. I'm Kristie Lu Stout, and ahead right here on CNN NEWSROOM, anger both on the streets and inside France's national assembly after the government rams through an unpopular pension reform bill without a vote.

[00:00:42]

Plus, dramatic declassified video shows the moment a Russian jet buzzed a U.S. drone, seconds before their mid-air collision over the Black Sea.

And, another day, another multi-billion-dollar rescue of a troubled bank as the financial industry desperately hopes to avoid a wider market meltdown.

After weeks of strikes and rallies across France, the French president has pushed through an unpopular pension reform plan, igniting tremendous anger.

(BEGIN VIDEO CLIP)

(SHOUTING)

(END VIDEO CLIP)

STOUT: Clashes and protests broke out in Paris and other major cities. Demonstrators are furious over the retirement age being raised from 62 to 64 for most workers. Retiring at 62 with a full pension has long been a deeply-cherished right in France.

Union leaders are already organizing a new strike for next week.

(BEGIN VIDEO CLIP)

CATHERINE PERRET, LEADER WITH CGT UNION (through translator): Given the support from the vast majority of the population that has mobilized for weeks, the unions continue to independently demand the withdrawal of this reform with calm and determined actions. They've decided to call for a new day of strikes and demonstrations to be held on March 23. (END VIDEO CLIP)

STOUT: Now, the contentious reforms were supposed to be voted on by the national assembly, where the bill would have been defeated.

So the Macron government is using special constitutional powers to enact the bill. When lawmakers realized that their vote was being skipped, they jeered the prime minister.

(BEGIN VIDEO CLIP)

(SINGING)

(END VIDEO CLIP)

STOUT: And some even sang the national anthem at the prime minister, who delivered the news, came face to face with a backlash.

(BEGIN VIDEO CLIP)

ELISABETH BORNE, FRENCH PRIME MINISTER (through translator): I wasn't angry. You know, I was very shocked. It reflects the fact that a certain number of opposition groups do not respect their institutions. Some of them have said it clearly. They want chaos, in the assembly and in the street.

(END VIDEO CLIP)

STOUT: And there was chaos in some French streets as they filled with workers enraged over the government's tactics. CNN's Jim Bittermann has this report, from Paris.

(BEGIN VIDEOTAPE)

JIM BITTERMANN, CNN SENIOR INTERNATIONAL CORRESPONDENT: For weeks, the protests and strikes have continued, trying to stop the government from enacting changes in the French retirement system, changes which would raise the retirement age from 62 to 64 years old.

Thursday the French Parliament was meant to vote on the new law, which had already been passed by the French Senate. But before the vote in the lower house, Prime Minister Elisabeth Borne said the government had counted votes and realized that it would lose.

The prime minister went before the national assembly and announced that there would be no vote, that the law would be enacted by decree, something allowed by the French constitution, but something that further enraged the opposition.

BORNE (through translator): We cannot bet on the future of our pensions. This reform is necessary.

(SHOUTING)

BORNE (through translator): It's also because I am attached to our social model and because I believe in parliamentary democracy. (BOOING)

BORNE (through translator): It is your reform on Parliament text, fruit of the compromise between the two assemblies, a time ready to engage my responsibility.

BITTERMANN (voice-over): Outside the chamber where protesters had gathered, there was further outrage that went on for hours. The spontaneous demonstration that moved to Place de la Concord in central Paris and was finally broken up by police using a water cannon and tear gas.

The prime minister and her government now face the possibility of a no-confidence vote, which could bring down the government, if it succeeds.

And a French joint union committee announced plans for another round of strikes and demonstrations next Thursday to keep up the pressure on the Parliamentarians to vote against the government plan.

[00:05:03]

Jim Bittermann, CNN, Paris.

(END VIDEOTAPE)

STOUT: Now, protests intensified for another day in Israel against the government's plan to overhaul the judicial system.

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(CHANTING)

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STOUT: In Tel Aviv, Jerusalem and cities across the country, crowds packed the streets and expressed their discontent. Protesters say the planned legal reforms would weaken the country's courts and erode the judiciary's ability to check the power of the other branches of government.

Israeli Prime Minister Benjamin Netanyahu defended the proposed changes while in Berlin on Thursday for a meeting with the German leader.

Mr. Netanyahu insists the reforms are meant to bring Israel's democracy into line with Western democracies. Chancellor Olaf Scholz says Germany is deeply worried about Israel's legal overhaul.

(BEGIN VIDEO CLIP)

OLAF SCHOLZ, GERMAN CHANCELLOR (through translator): Prime Minister Netanyahu also informed me about the judiciary reform that his government is planning and which is also being discussed very controversially in Israel. As partners who share democratic values, and close friends of Israel, we are following this debate very closely with great concern, and I do not want to conceal this.

BENJAMIN NETANYAHU, ISRAELI PRIME MINISTER: The ideas that are presented in Israel as though this is a break with democracy, is not true. Israel was, Israel will remain a liberal democracy, not different and as strong, as vibrant as it was before, and as Europe is today. We are not going to deviate from that one bit.

(END VIDEO CLIP)

STOUT: Mr. Netanyahu shortened his visit to Germany, and he is facing growing pressure back home. Critics say the proposed judicial reforms from Israel's right-wing government amount to a constitutional crisis.

CNN's Hadas Gold reports from a student-led protest in Jerusalem.

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HADAS GOLD, CNN INTERNATIONAL CORRESPONDENT: We have now been at dozens of protests across Israel, another massive day of disruption and Israelis taking to the streets in the tens of thousands, protesting against this massive judicial overhaul plan by Benjamin Netanyahu's government.

We are here, actually, at a student protest at the Hebrew University in Jerusalem, and many of the (UNINTELLIGIBLE) -- what they see is the beginning of the end of Israeli democracy if this overhaul goes through.

At its core, this overhaul would not only allow the Israeli Parliament to overturn Supreme Court decisions. It would also drastically change how judges are appointed in Israel.

But supporters of the reform say that it's sorely needed, that it's been lacking for a long time. That will help rebalance the branches of the Israeli government.

Last night the Israeli president, Isaac Herzog, put out his own compromise proposal, warning that, if a proposal, if a compromise is not reached, the country could be on the brink of a civil war.

ISAAC HERZOG, ISRAELI PRESIDENT: I'm going to use a phrase I haven't used before. An expression that there is no Israeli who is not horrified when he hears it. Whoever thinks that the real civil war of human lives is a limit that will not reach has no idea. Precisely now, in the 75th year of the state of Israel, that the base is within touching distance.

GOLD: But the Israeli prime minister, Benjamin Netanyahu, flatly rejecting the compromise proposal, saying it doesn't do enough. And he says it would only perpetuate what he believes is the current problem with the judiciary.

Now the question will be, what will Netanyahu's government do next? Will they push forward with their very speedy unilateral action, trying to get it done within the next few weeks or potentially even few days, or will they possibly, potentially, soften their legislation just a little bit to help tamper down these very fervent emotions that we're seeing here on the streets of Israel?

Hadas Gold, CNN, Jerusalem.

(END VIDEOTAPE)

STOUT: Poland has become the first NATO country to promise fighter jets to Ukraine. Warsaw says it will supply four Soviet-era MiG-29 jets to Kyiv in the coming days. And the decision could put pressure on other NATO members to follow suit.

So far, they have been unwilling to send fighter jets to Ukraine, despite repeated pleas by Kyiv. The U.S. was quick to clarify it would not be swayed by Poland's decision, but Polish President Andrzej Duda suggested that those four jets are only the first step.

(BEGIN VIDEO CLIP)

ANDRZEJ DUDA, POLISH PRESIDENT (through translator): Literally, within the next few days, we will hand over, as far as I can remember, four aircraft to Ukraine in full working order. The rest are being prepared, serviced, and will be successfully handed over.

(END VIDEO CLIP)

STOUT: MiGs were used by the former Soviet Union and its allies during the Cold War. The jets are already a staple of Ukraine's air force.

The U.S. military is assessing its drone operations in the Black Sea region after that encounter with Russian fighter jets earlier this week. It has also released new video that it says shows that the Russians are lying about forcing down the drone.

CNN's Natasha Bertrand has details.

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NATASHA BERTRAND, CNN CORRESPONDENT (voice-over): This is the moment just before a Russian fighter jet collided with the U.S. drone over the Black Sea.

The thick plumes of smoke, jet fuel being vented by the Russian SU-27 as it passes. We don't see the moment of impact, but here's the propeller of the MiG-29 Reaper drone undamaged, and here it is later, clearly damaged.

COL. CEDRIC LEIGHTON (RET.), CNN MILITARY ANALYST: It had to have been some kind of an impact. I don't think the -- you know, fuel spill on top of the -- on top of the aircraft, on top of the MQ-9, would have been significant. I don't think it would've caused that damage.

BERTRAND (voice-over): The newly-declassified footage appears to directly contradict Russia's claim that the aircraft did not make physical contact.

ANATOLY ANTONOV, RUSSIAN AMBASSADOR TO THE U.S.: There was no collusion. You see that. And the problem is that we did not contact to this drone.

JOHN KIRBY, NATIONAL SECURITY COUNCIL COORDINATOR FOR STRATEGIC COMMUNICATIONS: The Russians have been flat-out lying. Flat-out lying about their attempts.

BERTRAND (voice-over): The U.S. has not yet determined whether the pilots intended to directly hit the drone, forcing the U.S. military to crash the drone into the Black Sea some 80 nautical miles from land.

GEN. MARK MILLEY, U.S. JOINT CHIEFS CHAIRMAN: We know that the intercept was intentional. We know that the aggressive behavior was intentional. We also know it was very unprofessional and very unsafe. The actual contact of the fixed-wing Russian fighter with our UAV, the physical contact of those two, not sure yet.

BERTRAND (voice-over): But CNN is learning that the Russian pilots did not go rogue. U.S. officials familiar with the intelligence say the pilots were ordered to harass the drone by senior officials in Russia's defense ministry.

For now, the fate of the drone's wreckage remains unclear. The U.S. has no naval assets in the Black Sea that can readily retrieve it, and the Russians have already reached the crash site and recovered some small pieces of debris.

But the U.S. took steps to wipe the drone's software, officials tell CNN, making it highly unlikely that Moscow will glean any valuable from its remnants.

MILLEY: We did take mitigating measures, so we're quite confident that whatever was of value was no longer of value.

BERTRAND: CNN is also learning tonight that the U.S. military is conducting a review of its drone operations over the Black Sea, to better assess how to deconflict with the Russian fighter jets that are operating in roughly the same area.

However, there is not currently a moratorium on the drone flights in the region, because we are told that the U.S. actually conducted another surveillance mission using roughly the same kind of drone in approximately the same area of the Black Sea, just hours after that collision took place and between the Russian fighter jets and the U.S. MQ-9 Reaper drone.

Natasha Bertrand, CNN, at the Pentagon.

(END VIDEOTAPE)

STOUT: OK. For more analysis we're joined now by Malcolm Davis. He's a senior analyst at the Australian Strategic Policy Institute. He joins us from Canberra.

Very good to have you on the program. Good to see you.

The U.S. military has released this video of the Russian jet crashing into one of its drones over the Black Sea. This is less than a minute of footage that was released, even though the confrontation lasted much longer than that.

Malcolm, what strikes you about the video?

MALCOLM DAVIS, SENIOR ANALYST, AUSTRALIAN STRATEGIC POLICY INSTITUTE: Well, look, I think that the intercept was clearly aggressive and provocative. The very fact that the two SU-25 flew directly at the drone, releasing fuel, was designed to perhaps explode the drone by ingesting the fuel into the drone's engine and then causing it to catch on fire. That didn't work.

And then, you see that SU-27 coming in, releasing its fuel, and then it crashes into the drone. I think that the U.S. military commentator was correct. We don't know whether that pilot intended to collide with the drone or whether it was simply sloppy flying on the part of that pilot.

But essentially, it is a provocative, aggressive act on the part of the Russians that was designed to, essentially, send a warning to the U.S. to back off in the Black Sea, even though that drone was flying in international airspace.

STOUT: Got it. So this action was aggressive. It was provocative. But whether or not the Russian action was deliberate or accidental, that remains an open question.

DAVIS: That's correct. I think that -- I think the Russians knew what they were doing in that intercept. So we might never know what the intentions of that Russian pilot were.

But clearly, we do understand the intentions of the Russians in general in that region, in the sense that they sought to provoke and challenge a U.S. military asset in international airspace.

STOUT: Yes. Meanwhile, Poland is sending four Soviet-era fighter jets to Ukraine. What can you tell us about these assets?

DAVIS: Well, essentially these are MiG-29 Fulcrums. Their old aircraft, so they're certainly not cutting edge. But I think what's important about that is that Poland is essentially breaking down the dam against supplying Ukraine with more advanced combat aircraft.

The Polish side is saying this is the first of more aircraft that are coming.

[00:15:15]

And I think that what it does is it increases pressure on the U.S. and its allies to think about the F-16s going to Ukraine. Because those F- 16s will be far more capable than the MiG-29s. They would give the Ukrainians the ability to essentially strike deep into the Russian rear, particularly in terms of attacking their logistics and their long range fires, and have some charts chance of defending Ukrainian airspace against the sort of drone threats that Ukraine is facing now. So I think that it's an important political step by Poland to supply

those MiG-29s. What comes next, hopefully, is the supply of much more capable F-16s.

STOUT: Yes, it's an important political step. It's deeply symbolic. But do you think it will move the needle in terms of -- in terms of the war effort? The jets will boost Ukraine's air defense, but will they be decisive?

As you said, they will break the dam. Will this break the dam to bring in more assets that will be decisive in the war in the favor of Ukraine?

DAVIS: Well, we've already heard some movement there in terms of the Western decision to supply tanks -- main battle tanks to Ukraine. The fighters are clearly next on the agenda.

The Ukrainians have been asking for ATACMS missiles, which would give them a much deeper strike capability, using HIMARS. I do think that what's happening is that the United States and Europe basically have Ukraine's back. The Biden administration is saying for as long as it takes.

But there's real concern, also, about avoiding escalation into a wider war if the U.S. and its allies were to provide more capable weapons to the Ukrainians.

The challenge is that, if they don't provide those weapons, then it's going to make it more difficult for the Ukrainians to actually decisively win this war.

And the greater risk is you end up with a stalemate that actually benefits the Russians because they can claim a victory. They have a chance to then rebuild their forces to go again in two or three years' time and to launch another war, or to be able to, essentially, menace NATO's Eastern frontier elsewhere.

So I do think that the Biden administration and NATO need to recognize that there needs to be a decisive victory by Ukraine in this war, and we need to push forward towards that, rather than simply giving the Ukrainians the bare minimum that they need in order to essentially hang on by their fingernails.

STOUT: Malcolm Davis, we'll leave it at that. Thank you so very much, indeed, for joining us here on the program.

Now you're watching CNN NEWSROOM coming to you live from Hong Kong. But up next, another U.S. regional bank is facing a crisis in confidence. Why it's losing customers, who's coming to the rescue. All that just ahead, right here on CNN.

An alarming new report suggests that a North Korean missile could reach the United States in just 30 minutes. We have more on that, as well, ahead.

(COMMERCIAL BREAK) [00:20:30]

STOUT: Welcome back. North Korea confirmed what was initially reported by South Korean and Japanese officials, its launch of an intercontinental ballistic missile on Thursday morning.

These images released by state media appear to show leader Kim Jong-un overseeing the operation accompanied by a child believed to be his daughter.

The ICBM was fired into the waters off the east coast of the Korean peninsulas, according to officials in South Korea and Japan.

No, it is the fourth such ICBM launched from Pyongyang in less than a year. Chinese scientists have simulated a North Korean missile attack on the United States. The study found that it would take about 33 minutes for an ICBM to reach the U.S. if the American missile defense systems failed.

Will Ripley reports.

(BEGIN VIDEOTAPE)

WILL RIPLEY, CNN INTERNATIONAL CORRESPONDENT (voice-over): In the skies near Japan, F-15s on the hunt for a suspected North Korean intercontinental ballistic missile, capturing what could be it last seconds in-flight.

In this rare video, released by Japan's military, experts say the burning object resembles a ballistic missile boost rocket reentering the atmosphere, flying for about an hour at hypersonic speeds.

TIANRAN XU, ANALYST, OPEN NUCLEAR NETWORK: If there is no interception or the interception fails, an ICBM launched from North Korea would take a little bit more than 30 minutes to reach the homeland U.S. And also depending on if it's the West Coast or the East Coast, it will take slightly more time.

RIPLEY (voice-over): Chinese scientists simulated a North Korean nuclear attack. According to the "South China Morning Post," the simulation shows 33 minutes from the time of launch to the time of impact if U.S. missile defenses fail to shoot down the ICBM.

MIKE PENCE, FORMER VICE PRESIDENT OF THE UNITED STATES: Missile defense begins here.

RIPLEY (voice-over): For years, U.S. leaders have reassured the public.

UNIDENTIFIED MALE: The nation should be very confident.

RIPLEY (voice-over): And America's allies.

DONALD TRUMP, FORMER PRESIDENT OF THE UNITED STATES: Easily shoot them out of the sky. RIPLEY (voice-over): Missile defense systems can keep them safe. But

virtually all ballistic missiles travel at more than five times the speed of sound. Sometimes faster.

LAURA GREGO, SENIOR SCIENTIST AND RESEARCH DIRECTOR, GLOBAL SECURITY PROGRAM: It's been described as hitting a bullet with a bullet, trying to hit a warhead.

UNIDENTIFIED MALE: Three, two, one, ignition.

RIPLEY (voice-over): A report last year finding America's missile defense system, the nation's best, perhaps only line of defense, only succeeds about half the time.

UNIDENTIFIED MALE: If North Korea were to fire nuclear-armed ICBMs at the United States, we cannot be sure that our missile defense system would prevent the deaths of millions.

RIPLEY (voice-over): A U.S. Missile Defense Agency report last year said, "The missile defense system has demonstrated a measured capability to defend the United States, deployed forces and allies from a rogue nation's missile attack."

But that rogue nation has a fast-growing arsenal. Kim Jong-un's military is mass producing ICBMs. He knows a barrage of ballistic missiles could be too much for the U.S. to shoot down.

Will Ripley, CNN, Taipei.

(END VIDEOTAPE)

STOUT: And returning now to Ukraine, where the leader of Russia's Wagner mercenaries is facing a harsh reality check.

Yevgeny Prigozhin has built an image of a maverick who's pushing back against incompetent and corrupt Russian military brass, but, as Melissa Bell now reports, that strategy appears to be backfiring.

(BEGIN VIDEOTAPE)

MELISSA BELL, CNN INTERNATIONAL CORRESPONDENT (voice-over): Wagner fighters at an industrial plant inside Bakhmut. They are making very gradual advances, but at huge cost.

This soldier says Ukrainian forces have vast amounts of ammunition, and are heavily shelling the area.

"We can't even raise our heads," he says.

Wagner has been trying to take Bakhmut for two months, and may now be running short of fighters. Its boss, Yevgeny Prigozhin, has lashed out at the Russian defense ministry for starving his men of ammunition.

UNIDENTIFIED MALE (through translator): We need the military to shield the approaches. If they manage to do so, everything will be OK. If not, then Wagner will be encircled together with the Ukrainians inside Bakhmut.

In his latest social media post, Prigozhin praised honest Russian soldiers but claimed, quote, "unprofessional scoundrels and intriguers crushed these modest guys and began to push them around and humiliate them."

[00:25:09]

Yet another jibe at the military hierarchy in Moscow. Prigozhin has accused the defense ministry of incompetence and corruption, and compared his own almost continuous presence in Bakhmut to the notable absence of Defense Minister Sergei Shoigu.

But now Yevgeny Prigozhin, once a Kremlin ally and nicknamed Putin's chef, is a man under pressure. He recruited tens of thousands of men from Russian prisons, but they've endured horrendous losses, as many as 80 percent, in some units.

He's dredging Russian sports clubs for recruits, and his more experienced units are stretched as they try to encircle Bakhmut.

Western analysts think that Prigozhin has fallen into a trap laid by Shoigu, a trap designed to weaken both Wagner and its boss. Just when Wagner most needs the support of the Russian military around Bakhmut, it's curiously absent.

Russia's elite, piling on the gruff, outspoken oligarch. Commentator Alexey Mukhin (ph) accused Prigozhin of political ambitions and said he was an incompetent commander, adding, "He has exposed the Wagner fighters to a major risk of encirclement from the expected counterattack."

The Kremlin has long tolerated Prigozhin as Vladimir Putin's licensed disruptor. But if Wagner is decimated in an unsuccessful bid to take Bakhmut, he might find himself out in the cold.

Melissa Bell, CNN, Lviv.

(END VIDEOTAPE)

STOUT: You're watching CNN NEWSROOM. We're going to take a short break. More news in a moment.

(COMMERCIAL BREAK)

STOUT: All right, welcome back. You watching CNN NEWSROOM. I'm Kristie Lu Stout.

Now the death toll from Cyclone Freddie has jumped to almost 326 in Southern Malawi. Rescue crews have been forced to use shovels and their bare hands to search for those trapped in the rubble.

Officials say a number of roads and bridges have been flooded or cut off entirely. More than 292,000 people have been displaced.

There is severe weather across a large portion of the U.S. to tell you about, as well. Tornado watches have been issued for portions of Texas, Oklahoma, Arkansas, and Louisiana. Nearly 3 million people are impacted by the watches.

And dangerous hail, possibly as large as tennis balls, also in the forecast, along with strong winds. CNN's Derek Van Dam with the latest.

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[00:25:03]

DEREK VAN DAM, CNN METEOROLOGIST: They say everything is bigger in Texas. And apparently, that includes the size of the hail that falls from the sky. Just get a load of this comparison picture.

This is coming out of the greater Dallas-Fort Worth region, just West of Fort Worth. That's a clementine, and that is a three-inch hailstone. You certainly don't want to be under that when it falls from the thunderstorm cloud, right?

These are the reports coming in from the National Weather Service. Just really impressive hailstones that fell from Fort Worth to Weatherford, as well as Mineral Wells, two and a half to three inches.

That's the size of the hailstones. There was also 12 reports of wind damage, 49 reports of hail damage in particular. But the National Weather Service highlights some of the larger hailstones that were reported. Those are two inches or larger in diameter, and there was actually nine reports of that. And you saw a picture of just that, a moment ago.

Now there's still the potential of severe weather as this line moves Eastward overnight, so heads up Shreveport to Lake Charles. But this is an area that will see the line of storms move through the overnight hours and into the early morning hours on Friday across the Gulf Coast region.

Here it is on our forecast radar. The showers and thunderstorms kind of picking up some of that moisture, maybe perhaps a little bit of circulation from the Gulf of Mexico.

But they start to peter out as you get into the middle of the day on Friday, and really, we just focus our attention on precipitation, though, along the entire Eastern Seaboard.

Here's your chance of severe weather for Friday. Damaging winds, can't rule out a tornado. Although the risk is not as high as what we experienced on Thursday. Panama City, Mobile into New Orleans, that 38 Corridor right around the Florida Panhandle has the potential for some strong to severe weather.

Look at the rainfall totals across that region; could see one to three inches locally.

And we're anticipating some snowfall across the Great Lakes. In fact, lake-enhanced snowfall possible across the Upper Peninsula into portions of Minnesota, as well as Wisconsin. So look out for 6 to 12 inches of snowfall across that region.

Back to you.

(END VIDEOTAPE)

STOUT: All right. You're watching CNN NEWSROOM, coming to you live from Hong Kong. We'll be back right after this.

(COMMERCIAL BREAK)

STOUT: Welcome back. Now, turmoil in the U.S. banking industry has spread to another regional bank, but help is on the way.

San Francisco-based First Republic bank is getting a $30 billion infusion that's meant to head off a crisis of confidence. A large share of uninsured deposits prompted many customers to pull their money from First Republic.

Silicon Valley Bank and Signature Bank had similar problems earlier this month, but a group of major U.S. banks, including Citigroup, Wells Fargo, and Bank of America, are coming through with a lifeline for First Republic.

Trading in the bank's stock was halted several times on Thursday, due to the volitivity. But it ended the day up more than 10 percent after news of the rescue plan.

Our sources say that the U.S. treasury secretary, Janet Yellen, helped arrange the $30 million infusion.

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[00:35:02]

JANET YELLEN, U.S. TREASURY SECRETARY: Our banking system is sound in that Americans can feel confident that their deposits will be there when they need them. This week's actions demonstrate our resolute commitment to ensure that our financial system remains strong.

(END VIDEO CLIP)

STOUT: Now despite the turmoil in the banking sector, European regulators are moving forward with another interest rate hike meant to fight inflation.

The European Central Bank has announced a half point increase just a week before a decision on interest rates from the U.S. Federal Reserve.

The official ECB policy statement says it is raising rates because inflation is projected to remain too high for too long. More now from CNN's Clare Sebastian.

(BEGIN VIDEOTAPE)

CLARE SEBASTIAN, CNN CORRESPONDENT: Despite the recent turmoil in the financial markets, and despite this decision coming on the same day a major European bank, Credit Suisse, was forced to borrow more than $50 billion from Swiss Central Bank, the European Central Bank stuck to its guns, going ahead with the half percent rate rise it explicitly telegraphed last month.

Why? Well, the EBC president, Christine Lagarde, was very clear. Inflation at 8 a half percent in the Euro barrier (ph) is too high, and they are not seeing enough progress on bringing it down.

They are, however, she said, closely monitoring the financial markets, keeping a close eye on whether banks tighten lending. They have other policy tools, she said, to tackle that while fighting inflation at the same time.

CHRISTINE LAGARDE, EUROPEAN CENTRAL BANK PRESIDENT: I believe that there is no trade-off between price stability and financial stability. And I think that, if anything, with this decision we're demonstrating this.

We are addressing the price stability issue by raising interest rates by 50 basis points, which is what we had intended. And because inflation is projected to remain way above our target and for too long.

And separate from that, we also are monitoring market tensions. We stand ready to provide any kind of additional facilities, if needed.

SEBASTIAN: Well, stocks in Europe closed higher Thursday on the back of that. Credit Suisse gaining 19 percent, reversing most of Wednesday's losses, despite lingering questions about whether the credit line from the Swiss Central Bank is enough, or whether it might end up being taken over.

European banks, overall, though, were mixed. Investors here in Europe, just as in the U.S., worried that still more problems could come to light.

Clare Sebastian, CNN, London.

(END VIDEOTAPE)

STOUT: Now, joining me now from Sydney, Australia, Chris Weston is head of research with Pepperstone and joins us now. Thank you so much for joining us here on the program.

CHRIS WESTON, HEAD OF RESEARCH, PEPPERSTONE: Thank you.

STOUT: Let's first talk about First Republic. It got this $30 billion dollar lifeline from America's biggest banks. We just listed them earlier: JPMorgan, B of A, Morgan Stanley, et cetera.

Why did these banks have no choice but to act here?

WESTON: Well, first of all, I mean, the fact that they've all acted together as one to save a smaller bank, I think, is -- is quite old-- school in nature in itself and we haven't seen that for a while. So I mean, it's quite reassuring to see that situation.

But also, you know, they want to know that the global importance, the systemic banks, are ring fenced. And by -- by shoring up the capital in these banks, it does feed back into them.

And ultimately, we've got the terms of the loan that are going to come through. But ultimately, it's the big banks that are going to benefit from this. We are seeing migration into Bank of America. We're seeing migration into JPMorgan, into the big banks. The stronger become stronger. Depositors aren't fleeing at these banks.

So ultimately they're benefiting from this, but it's nice to ring fence, you know, those systemic banks, as well.

STOUT: Got it. Meanwhile, we heard from the U.S. treasury secretary, Janet Yellen, who told Congress that the U.S. banking system remains sound. You know, policy makers are saying this current situation is different from the financial crisis in 2008.

You said that this lifeline that First Republic just got was able to sort of draw a line between the big banks and the more wobbly ones. But then you've got that data that came on on Thursday, showing the banks are seeking a record amount of emergency liquidity. So what's your read on that situation?

WESTON: Yes, we put this new facility as well, the term funding facility, and we saw only $11 billion been tapped from that. It will be interesting to see how banks fare next week when we get the data for that one. One suspects it's going to be a lot more.

You know, the banks in terms of funding if the athletes that are the concern. The big metric in the banking world, of course, is the capital tier one ratio subtracting for the and realize losses that we are getting from these, bonds which will be over soon, everyone so hear the banks, especially the small, ones in the tier one ratios, that capital one assets and adjust to the losses there.

[00:40:03]

And that's where the big problem is. Ultimately, these banks have got an asset liability mismatch, which the regulators should've picked up before. And ultimately, these banks are having to go to the Federal Reserve for that funding.

STOUT: Yes. Everyone's looking at the banks, especially the smaller ones, as you put it. It's been a week since Silicon Valley Bank collapsed. Which bank could be the next one?

WESTON: Well, I don't think it's going to be a Swiss one. You know, we're looking at Europe. We're looking at the U.S. We're looking at, yes, as I say, I think the market is doing the numbers at the moment at the common -- common equity tier one ratio, adjusted for the unrealized losses.

There's a number of banks that are on people's radars. One suspect that depositors are already leaving.

I think it was JPMorgan who put out reports at the tidal (ph) end of last year into the beginning of the year, showing this metric. And that's when deposits started fleeing from Silicon Valley Bank. And that's when the management sold out, effectively.

And that's when the regulators should've ticked up. But at the seized (ph) banks that everyone's looking at, saying, should I hold my deposits in there, we know that, yes, they've provided us with the roadmap of how deposits are going to fare under this new system, but not everyone's protected.

Some of these deposits, if we see further failing banks, may have to go to Congress. So smaller banks could continue to fail. So if people who are depositors will have to wear a higher premium for wearing those deposits, but they've already probably migrated across now.

STOUT: Yes. And also, just one more question. We've got to talk about inflation. That's yet another concern. You know, the ECB has delivered a rate hike. All eyes now on the U.S. Federal Reserve, its policy meeting next week. What will the Fed do next?

WESTON: They're going to raise 25. I mean, I think what needs to be shown is there's a map. And it will be someone that the Fed have got.

There's two -- there's two levers that are in place. One is that the dual mandate that the Fed have, and that is obviously, price stability and inflation and for maximum employment.

And that means that they're going to continue using interest rates as that lever to tackle that problem.

The balance sheet, on the other hand, is what they're using for this instability in the financial sector, the liquidity issues that have been arising.

We've already seen the Fed's balance sheet increase this week by $400 billion. It's not quantitative easing. Its credit going into the system.

At the same time they're going to be using interest rates to continue to try and quash inflation. They go to 25, in my opinion. The market's pricing at about 20 basis points there.

The question is, is what happens towards the end of the year. We're into the second half. We're pricing (ph) quite an aggressive rate hikes.

Which I'd probably suggest is open a door to something a bit more systemic. And I don't think we're going to see a systemic crisis coming out of the banking situation.

STOUT: I really hope that's the case. A lot of uncertainty. A lot of concerns about just how severe this is. Chris Weston, thank you for your insight and your reassurance. Take care. Now, bottled water. It has been one of the world's fastest-growing

industries over the last decade, but a new report out from the United Nations says that it could lead to environmental disaster, generating tons of pollution and threatening groundwater supplies, as well.

This report found that about 85 percent of plastic water bottles end up in landfills or in the ocean in the year 2021 alone. The industry generated some 600 billion plastic containers, resulting in about 25 million tons of plastic waste.

The report also found that groundwater extraction could impact the availability of clean drinking water in some areas.

I'm Kristie Lu Stout. I will be back at the top of the hour with more CNN NEWSROOM, but first, you've got WORLD SPORT. That's starting right after the break. Keep it here.

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