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Quest Means Business
French President Determined to Defend Euro. Greek Prime Minister Says New Policies Will Aid Growth. ECB President Warns Against Complacency. No One Hurt in Small Blast at Davos Hotel. Tunisian Foreign Minister Resigns. Egypt on Edge. Nelson Mandela Hospitalized. South African Economy Moving Ahead Despite Devastating Strikes; Defending the Euro; Stop Saying Sorry?; Boeing's Learning Curve; Renault Spooked?
Aired January 27, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN HOST: "We won't abandon the euro," says President Sarkozy. On tonight's program, we have reaction from Greece's prime minster, we have the head of the European Central Bank, and we have Europe's top economic official.
Also, from Egypt, what is the likely outcome of the current turmoil? I'm Richard Quest. It's cold in Davos, but we have a warm hour together as I Mean Business.
Good evening. Bet against the euro, and you're bound to lose. Or, at least, that's what the president of France has been saying today. Nicolas Sarkozy says he is determined to defend the single currency. The French president says failure to do so would be cataclysmic for Europe, and he won't entertain the thought.
(BEGIN VIDEO CLIP)
NICOLAS SARKOZY, PRESIDENT OF FRANCE (through translator): I want to say something very simple to you. Which is that, be it Chancellor Merkel or myself, never -- and listen to me carefully, here -- never will we turn our backs on the euro. We will never drop the euro or abandon the euro.
And, so those of you who are, perhaps, less familiar with Europe than those of you who are European, there is something very important for you to understand. And that is that the euro spells Europe. Euro -- the euro is Europe, and Europe has spelled 60 decades -- or 60 years of peace on our continent. Therefore, we will never let the euro go.
(END VIDEO CLIP)
QUEST: "We will never let the euro go." Defiant words at a time when deep debts threaten to tear Europe apart from within.
Now, in Davos last year, my next guest, the Greek prime minister, said that, perhaps, Greece would manage to avoid assistance. Well, we all know that that did not turn out to be the case. So, first of all, Prime Minister, we have a lot to touch on. But should we believe the defiance of people like yourself and the president of France, that the euro will never be let go?
GEORGE PAPANDREOU, PRIME MINISTER OF GREECE: This is not only defiance, I think there's a very strong will, today, in Europe. There was, I think, a -- some months ago, where there was a discussion about two-year- olds or breakup, or some countries leaving. I think that discussion has ended, and we have all a strong will to defend the euro and do what is necessary to defend the euro. Which, obviously, we have some things to do.
QUEST: And yet, one survey that I saw this morning says, a lot of -- you saw this, it says, a lot of the people, there's a percentage of people, that believes by 2016 at least one or possibly more countries will have bailed out.
PAPANDREOU: Well, maybe people will believe things, but that's why we politicians are here, to put things on the right course. And there is the political will of our peoples and the leaders of the European Union, and to make sure that in 2016 and 2020 and on, the euro will exist and will be in there.
QUEST: The stability facility, which has been used as the buttressing of the whole bailout program, needs to be capitalized, greater capitalization. This is something that is going to be discussed quite soon at ECOFIN level. Your position?
PAPANDREOU: Our position is, first of all, we have, as you know, been given assistance, loan that we'll be paying them back. And we're on track with major reforms and changes. Everybody's been very happy with what we've done.
But if we want to have a wider stable -- stability in Europe, obviously, there are a number of issues that have to be dealt with. So, this is not linked to Greece. This is linked to --
QUEST: But what's a key issue that has to be dealt with, do you think?'
PAPANDREOU: I think there are a number of issues. First of all, yes, we as member states, as countries, have to be fiscally responsible. So, there's a question of responsibility there. If people have over deficits and debts, we have to see how we deal with this.
Secondly, there's the financial system, making sure that we've re -- it regains trust with regulation, whatever -- recapitalization, possibly, in some areas.
And thirdly, a strong -- it's called the EFSF, the fund -- a strong fund, so that it does have the capacity, if there is another crisis. But that's not the only thing. It should be able to be flexible enough to actually look at the bond market and look at the debt issues so that it could have tools and rules, if you like, to make sure that we have the arsenal --
QUEST: Binding tools and rules.
PAPANDREOU: Binding tools -- binding rules and flexible tools, I would put it.
QUEST: Right. Let's talk about the progress that your country's making. You have the most draconian austerity plan in place. It's hurting the Greek people. There are prospects of further measures still to come to try and get the deficit down. Are you comfortable with the progress being made?
PAPANDREOU: We have made very good progress, because we're on track, and I would say, even, beyond. We have cut the deficit by over 6.5 percent, which is a huge cut. Impressive, I've been told by many, that many -- very few countries have ever done this in the past.
We've changed our pension system, it's now a viable pension system, one of the most viable in Europe. We've changed our tax system, it's transparent, more effective, hitting tax -- tax evasion. Opening up professions, structural changes, which will bring in new growth.
QUEST: How much more can your economy take of this sort of pain? Because you're literally throttling it at the moment, aren't you? To try and get the deficit down.
PAPANDREOU: Well, some of this is pain, which, yes, because we had to cut things to cut the deficit, and we did cut it down. But the structural things we're changing are actually going to bring growth.
Now, opening up, for example, the professions. This is -- it's considered that it could be a boon for helping the GDP four or five percent. The new investment laws --
QUEST: Right.
PAPANDREOU: Investing in areas like green energy, and so on. So, there are areas where we could see -- we can see that there's a very positive thing. And this is -- this is, I think, one of the things where, people ask me very often, well, are the Greek people supporting it?
Well, the Greek people were not supporting was only dealing with the debt. We are changing Greece for the better. We're making a better country, more competitive. I would say more just, also.
QUEST: As I lay in -- there'll be viewers watching who will say -- and I can hear them saying, "He hasn't asked him, 'Will Greece have to either devalue, default, or restructure the debt?'" I've seen your answers on this many times, but it's an opportunity for you to tell me. Do you -- or can you categorically say that's not on the agenda.
PAPANDREOU: Well, devaluation, obviously, is off the table because we're on the euro. But we are doing other things, in fact, to be able to become competitive with inside the euro.
Now, as far as restructuring is concerned, what we are saying is something very clear. We're on a track where we're going to be cutting our debt. It may go up a little bit, as we still have deficits the next day -- year or so. But, then, the primary -- we'll be getting a primary surplus. That means we'll be cutting our debt, and with growth, our debt will be cut.
Now, there is one thing that can be done, and this will be very important. The debt that we have accrued --
QUEST: Right.
PAPANDREOU: Or the loans we have gotten from the IMF and the European Union, they will be extended so that we can repay them in a longer term, and maybe even on better terms.
QUEST: But, the exist --
PAPANDREOU: This will be very important.
QUEST: But the existing debt that you came into the crisis with. You're not -- there's no plans to restructure that debt?
PAPANDREOU: Well, we are -- no, this is not -- this is not on the books. So, this is something which is not on our plan, it's not on our road map. And this is why we are talking about these other measures, which we think are enough to be able to make things sustainable.
Obviously difficult, but we have been doing our work, and we will be successful. And I think Greece will be, very soon, we'll be showing, just to give you one idea --
QUEST: Right.
PAPANDREOU: About these. In the last quarter, we had a 25 -- 20 percent increase in exports. Just one of the small signs of the positive things that are starting to happen in Greece.
QUEST: Prime minister, we'll meet again, hopefully in Athens, next time.
PAPANDREOU: Thank you. Yes, you're always welcome.
QUEST: Many thanks to you. Thank you. Now, the euro is fairly flat in trade at the moment. It's hovering at around $1.37. The currency has gained close to five percent in the past month. There is speculation that the ECB could soon raise rates, because inflation is moving at a worryingly fast pace.
Now, we know that the ECB has not only got very low rates, but also, of course, has its nontraditional methods. The president of the ECB, Jean- Claude Trichet, says he won't allow prices to rise unchecked. He says the bank will do whatever it takes to keep inflation under control.
When President Trichet joined me earlier -- it was still sunny, that's one thing. But we put it to him that there are still thoughts, sort of, that the light was failing. But perhaps not on our discussion on whether or not there were still substantial weaknesses in the euro zone.
(BEGIN VIDEOTAPE)
JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: Well, this is no time for complacency, that is absolutely clear. But let me tell you, nevertheless, that the real economy is giving signs that are encouraging.
Since the start of the recovery in the third quarter of 09, we had growth which was more and more obvious, and we were surprised, a little bit, on the upside, I would say month after month, and quarter after quarter. And the last indication I have, particularly on the survey and the PMI is encouraging. So, again, no time for complacency, but the recovery is now ongoing.
QUEST: And yet, at the same time, nontraditional methods still have to be used to support it. You are buying government securities of distressed sovereign debt, as well.
TRICHET: Well, let me tell you that I am in the perdu (ph) period.
QUEST: Oh!
TRICHET: So, why -- nothing that I will say should be interpreted in terms of future monetary policy --
QUEST: Right.
TRICHET: In our next meeting next week. Let me only say that the concept of our nonstandard measures is separated from the concept of standard measures, namely the interest rates. We are doing what we decided on the interest rates in order to deliver price stability in the medium run.
What we do on the nonstandard measures is there to permit an appropriate transmission of monetary policy. But again, no conclusion as regard our future meetings.
QUEST: Right. But are you now having to use nonstandard methods for the purpose, for example, of supporting liquidity in distressed sovereign debt? Basically, those countries that can't, you're having now to play a role of supporting the bond market for certain countries?
TRICHET: No. What we do in the nonstandard measures is entirely commensurate to help restoring more normal transmission of our monetary policy mechanism. Nothing else.
QUEST: Let us talk about the fiscal consolidation that's underway. You are quite clear, aren't you, Mr. President, that more needs to be done? And yet, the message is not filtering fully through yet.
TRICHET: More needs to be done at individual level. All European countries, all European countries of the euro area, have to do the job. They are all committed to do the job, and it is extremely important that they all are ahead of the curve and not behind the curve.
On top of that, we call for a very significant reinforcing of governments in the euro area. We called for a quantum leap in terms of governance of the euro area, both for fiscal policies and for, I would say, competitive indicators, surveillance of imbalances, and so forth.
QUEST: That's a political question, isn't it? Governments have to take a political decision to cede more authority to the center.
TRICHET: It is clearly the responsibility of the executive branches, and we are calling every institution, every authority, to be up to its responsibility. We are responsible for monetary union, and we trust that we are faithful to our mandate. We deliver price stability in line with our definition. Governments have to be up to their own responsibility, governance of fiscal policies and macro policies.
QUEST: Do you believe that we are ahead of the curve now?
TRICHET: I would say it is all the methods that we have for all authorities, without exception, being ahead of the curve. It has to be proved. You cannot take it for granted. It has to be proved.
QUEST: And what is your biggest worry, now, as you look -- because, obviously, there's only so much -- now, monetary policy will take care of itself. At some point, and I'm not inviting you to speculate, but at some point, rates will rise to more normal levels. That much is an obviousness of it all. But as you look forward to the risks ahead, what are they? The main risks.
TRICHET: Again, the main risk is to practice benign neglect, to be complacent. As soon as things are going better, to forget that we had to cope with a very, very demanding crisis. Very, very exceptional circumstances. So, we have to draw all the lessons. And even if we are in recovery, which is ongoing, even if we see, of course, the final for markets to be calmer than they were before, we should not be complacent.
(END VIDEOTAPE)
QUEST: The president of the European Central Bank, Jean-Claude Trichet, who actually leaves office in October, so the jockeying to replace him is well and truly underway.
Now, yesterday was Tunisia, today Egypt. Egyptians may be on the eve of a pivotal day of protest, and they'll have an internationally-known opposition leader on hand.
(COMMERCIAL BREAK)
QUEST: Security here was tested today when a small device shattered the peace. No one was hurt in an incident at the Posthotel Morosani. The little blast broke a window. Police are investigating. The former president, Bill Clinton, is due to attend a party at that hotel tonight. A spokesman for the World Economic Forum told us the explosion was caused by a firework.
Tunisia is still struggling to settle on an interim government. In the past hour, state media announced that the foreign minister had resigned. Kamel Morjane was part of the old government before the former president was removed from power. Many protesters have argued the new government should sever all ties with the old regime.
I spoke to the former UN secretary-general, Kofi Annan, about the situation in Tunisia and in Egypt.
(BEGIN VIDEO CLIP)
KOFI ANNAN, FORMER UN SECRETARY-GENERAL: These are signs that there are -- there's need for serious changes in these countries, and the leaders have to take that on board and respond appropriately.
We need to be careful that some leaders may think it's time to clamp down. You give an inch and you'll be overwhelmed. That approach will not work. It's gone beyond that, and I think they need to find a way of working out changes that are required.
(END VIDEO CLIP)
QUEST: In Egypt, anti-government protesters are getting ready to make a major statement. On Friday, skirmishes spread around Suez. The talk was a possible large protest being planned. The opposition leader Mohamed ElBaradei has arrived in Cairo, having promised to join demonstrators. Many are angry at Mubarak -- President Mubarak's economic policies.
The benchmark exchange briefly suspended after it fell sharply. It ended the day down more than 10 percent. Now, that's down 20 percent for the year so far. The entire region is a powder keg of social unrest, with more trouble in Tunisia and Yemen. John Defterios joins me to put this into some perspective.
What's happening, now, in Egypt has -- I mean, Tunisia was one thing.
JOHN DEFTERIOS, CNN CORRESPONDENT: Yes.
QUEST: But Egypt is another league.
DEFTERIOS: Yes, in fact, nearly ten times the size, in terms of population. There's two ways to view this. You could rally everybody in Tunisia, because there was nine million people and more connected to the internet.
Security forces took a pretty heavy hand in Egypt, as you know, with 850 arrests over the last 24 hours. So, the president is trying to calm matters, and he's using a fairly forceful hand, shall we say, with the police and military to calm things down.
It's hard to get people to talk on camera right now, Richard. But my text messages are flying in from Egypt, and I spoke to some bankers here in Davos to get an honest assessment. One said today, and this was very surprising, 50-50 chance that President Mubarak survives this process after 30 years in power.
QUEST: 50-50?
DEFTERIOS: 50-50 chance.
QUEST: Now, this is -- to a certain extent, this is informed speculation by people in the know, obviously.
DEFTERIOS: Yes.
QUEST: But that's quite extraordinary. Is the situation made much more volatile and much more likely for change with ElBaradei going back?
DEFTERIOS: Well, ElBaradei didn't have a lot of clout going in. But if you join forces with a rally, and you're a Nobel winner, and you go back into the country, it's a whole different game entirely. So, the next 24 hours are going to be very important, because Friday's a rally day, if you want to bring people together.
The messages have been disseminated, and I understand the turnout's supposed to be very strong. But that, again, a little bit of speculation from the outside.
I think it's worth pointing out -- and let's take a look at a graphic here. The poverty levels in Egypt, right? Number one, this is the number of people living below $2 a day. Egypt is at a rate of 18.4 percent. Richard, this was 40 percent going back six, seven years ago.
Yemen, where the trouble has spread, and this is why, 46 percent of the population lives below $2 a day. And Tunisia at 12.8 percent. So, a lot of progress reducing the poverty level, but the information hasn't been able to flow, and not a lot of political reforms, as well.
QUEST: And when you look at what governments and organizations expect from this and what they are looking for?
DEFTERIOS: This is a very important point. I spoke to John Lipsky, who's a deputy managing director of the IMF. Now, of course, he doesn't want to talk about politics, of course, because that's not their game. Five years of reforms, he admits, that process started a little bit late. But he is concerned whether the structural forms will continue. Let's listen in.
(BEGIN VIDEO CLIP)
JOHN LIPSKY, DEPUTY MANAGING DIRECTOR, IMF: What we hope for is that the structural reforms are put in place at an appropriate pace to produce sustained good growth that benefits the broad population.
DETERIOS: The other thing I wanted to talk to you about on this front, though, technology. It's helped these countries garnering investments, even for outsourcing. Productivity's been boosted up. But at the same time, it introduces information flow for Twitter and Facebook. There's two sides to technology, and it's fostering a lot of change at a much faster pace.
LIPSKY: Well, but from an economic and financial point of view, this adaption of an importation of advanced technologies, when appropriate, of course, does provide the possibility of -- let's call it leap-frogging over older technologies -- can produce really notable productivity gains that help sustain strong growth and help bring benefits to the population. So, managed well, this is very good.
(END VIDEO CLIP)
DEFTERIOS: That's interesting, now. John Lipsky's talking about introducing technology to boost productivity and to, obviously, get investment in for call centers. But the other side of that, can you manage the information flow. And the answer that we've seen in the last two weeks, no, through, say, Twitter and Facebook. That technology is unblockable.
QUEST: Tomorrow's a critical day. You'll be here.
DEFTERIOS: Yes.
QUEST: And you'll be, hopefully, joining me tomorrow evening --
DEFTERIOS: OK. Sounds good.
QUEST: When we'll talk more about it. QUEST MEANS BUSINESS, we are live in Davos this evening for you. And South Africa likes being the big shot, but has Africa's biggest economy got the chutzpah to take on the bigger boys of the emerging world. We'll be talking to South Africa's finance chief next. Good evening.
(COMMERCIAL BREAK)
QUEST: I tell you, it was blisteringly cold. Beautifully sunny, but blisteringly cold in Davos today. Now, we're live at the World Economic Forum.
Some -- bringing you some news. Nelson Mandela is in hospital, and we're keeping an eye on his condition. The 92-year-old anti-apartheid leader and former president -- excuse me -- was last seen in public at last summer's World Cup in South Africa.
The Mandela Foundation says his life is in no danger. South Africa's ruling party is asking the country to stay calm. Mr. Mandela entered a Johannesburg hospital on Wednesday, described as routine tests.
South Africa's finance minister, Parvin Gordhan, talked with me a short time ago about Mandela's condition.
(BEGIN VIDEO CLIP)
PARVIN GORDHAN, FINANCE MINISTER, SOUTH AFRICA: I've been here when all of this happened and, according to the family, he's there for some checkups. But that he's in good spirits.
(END VIDEO CLIP)
QUEST: Now, that was our part of the discussion, if you like, on Mr. Mandela's condition. Which in many ways was the most important information to bring you this evening. But when we turn our attention to economic matters in South Africa, you'll be aware that South Africa is just about to join the BRICS. It's been invited to be the "S" at the end of the word.
Finance Minster Gordhan is flying the flag for the South African future, and is pleased that his country is now B-R-I-C -- S.
(BEGIN VIDEOTAPE)
GORDHAN: Sometimes size matters and sometimes it doesn't. I think at other times, you've got to look at representivity. And so now you have the African continent as part of the, let's call it east-south-stroke-north alliance that's developing.
It's an acknowledgment of new and emerging political and economic realities. It gives us access to conversations on a multilateral organizations about financial stability, how you match growth with development, and the shape in which multilateral institutions begin to emerge in.
QUEST: So, do you consider becoming -- I mean, you're already G-20. Do you consider becoming BRICS to be important?
GORDHAN: I think it's always important to have a platform where you can have a commonality of ideas on the key issues that face both Africa and the globe more generally. And being able to share those ideas within the BRICS context, more specifically, but also the G-20 more broadly, as well. I think it's quite crucial.
QUEST: We need to turn to your own economy. Devastating strikes that's wreaked havoc on the economy and on the reputation of the country. How far has South Africa gone to repair that damage and the economic damage?
GORDHAN: Our feet are still moving, our heads are still in place, and we're still a working democracy. So, the strikes are part of a democratic climate and part of a democratic society. These things will happen. We have to overcome them, we have to patch up whatever differences there were.
Our economy is growing more than three percent, hopefully, this fiscal year and the next year. We have come out of the recession in more ways than one. We're looking at a new growth path that will reshape our economy in the next five years and create jobs in South Africa amongst many other things.
QUEST: What is that new growth path that you're looking at, though? Because one of the things that always surprises me, of course, is the number of automobiles, for example, that is manufactured. The manufacturing sector in South Africa. It's not just a commodity-based economy.
GORDHAN: Manufacturing is significant, particularly in the motor industry, where large numbers of cars are made in South Africa but exported. But petrol chemicals is another example of the manufacturing sector.
But the manufacturing sector still needs to grow. We need to make more things, we need to make them more competitively, and be able to sell them to the rest of the world, as well.
Now, what's interesting is that this is part of a global pattern. America is saying the same thing. They want to revive their manufacturing industries, as well. So, it's part of a global pattern.
QUEST: Is it a zero-sum game? You can't all grow your manufacturing bases.
GORDHAN: That's why the G-20 is crucial. That, ultimately, what we need to do on the currency issues, on the manufacturing issues, on the growth path that we develop, get organizations like the IMF to play a coordinating role, use the framework agreed upon in Pittsburgh, where the leaders, with talks of a framework were strong, sustainable, and balanced growth. And give it some meaning and content so that we don't run into each other in the wrong kind of way.
(END VIDEOTAPE)
QUEST: South Africa's finance minister talking to me earlier. Now, his religious ministry's reaching to more than 100 countries around the world. Joel Osteen and his wife join "Piers Morgan Tonight" for a spirited discussion. Best-selling author Osteen is often called a preacher of the prosperity gospel. His views on wealth might surprise you. It's "Piers Morgan Tonight," which is 30 minutes from now, after QUEST MEANS BUSINESS.
But we have a lot more from this crew and me, because when we come back, we'll be QUEST MEANS BUSINESS and update you on what's happening in the business world.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN, and on this network, the news, of course, always comes first.
Egypt is bracing for reevg -- reinvigorated anti-government protests on Friday after weekly prayers. There have been demonstrations around the country this week, calling on President Hosni Mubarak to step down. Opposition leader, Mohamed ElBaradei, has returned to the country and said he will participate in Friday's protests.
The Tunisian foreign minister has resigned from the country's interim government, according to Tunisia's state news agency. Kamel Morjane was a holdover from the government of the ousted president. Protesters have been demanding the new interim government remove all traces of the old regime.
A string of deadly bombings rocked Baghdad on Thursday. They killed at least 51 people and wounded more than 120. A car bomb killed 48 people at a funeral in a Shiite neighborhood. Three other bombs around the Iraqi capital took three more lives.
Europe stands at a crossroads as it struggles to deal with the debt crisis. In the weeks ahead, key decisions must be made on whether to boost the size of the stability bailout fund, whether to increase regulation and on growth versus austerity.
Olli Rehn is the European commissioner for economic and monetary affairs.
When he joined me earlier, I asked him if he's satisfied with the speed of the work being done.
(BEGIN VIDEOTAPE)
OLLI REHN, E.U. ECONOMIC AFFAIRS COMMISSIONER: Well, I would have preferred to see results already earlier. But we have to also understand that these difficulties is in the member states and it's a matter of democratic politics. We have to combine, say, how to act in the marketplaces and take into account our citizens' concerns.
QUEST: You see, that's now the big concern, isn't it?
I mean Tunisia is and North Africa is some way away. But the issues of rising food prices, high unemployment, they are the similar issues that are bedeviling many countries in the union, particularly the Southern European ones that are going to bear to the brunt of austerity?
REHN: That's correct. But at the same time, these countries have taken very bold decisions and their programs are on track. And, for instance, in these days, Spain is taking very courageous and determined measures in order to reform its labor markets and its pension systems.
QUEST: In very blunt terms, Commissioner, do you think that European or Union -- Eurozone countries can avoid further bailouts?
Are you expecting to have to go to the aid of another country?
REHN: I think it's not necessarily useful if I were to start speculating or trying to be a clairvoyant in this regard. What matters is that each country does what it has to do, especially the vulnerable countries, will intensify this consolidation and structural reforms. And, at the same time, at the European level, we take such decisions that show that we are, indeed, ready and able to do everything that is needed to safeguard financial stability in Europe...
QUEST: And...
REHN: -- and safeguard growth and (INAUDIBLE).
QUEST: If we look at the stability -- the facility that has been -- the facility that has been put in place, there are plans to bolster it. Most countries seem to accept that to keep its AAA rating, it still needs to be bolstered.
But the truth is it's going to be difficult to do that, isn't it?
The negotiations are underway.
What hope have you got that that will come to quick resolution?
REHN: I'm quite confident that this will come to a -- a conclusion. We move further in February and we conclude the work in -- in March. It's sometimes difficult for the markets to understand E.U. politics and policy- making. I understand that, but the nature of things in the European Union is that it sometimes takes time to move the convoy (ph), but then when it moves, it stays on course. And that's what we are now doing.
QUEST: Finally, not a Eurozone member, but a -- a crucial economy in Europe, the U.K., which has had the most dreadful economic numbers in the last quarter. You saw those numbers. And yet the U.K. is the poster child for austerity measures.
Is there not a warning for that you and others need to be careful of?
REHN: I think we should not go too far reaching conclusions on the basis of -- of data of -- of, say, one month or one quarter. And the U.K. may not, in that regard, be the poster child in the euro area. We have many countries who have engaged in -- in fiscal consolidation already, before the U.K.
But it's important that the U.K. continues fiscal consolidation and, at the same time, furthers growth enhancing measures.
(END VIDEO TAPE)
QUEST: Olli Rehn, the European Commissioner.
Now, as you can tell, we're in full swing at the World Economic Forum. If it's happening in the economic and business world, it's happening right here -- or at least the players are here.
Here are some of the big stories coming out in the past 24 hours.
George Soros says the U.K. could be heading back toward recession and warned the British government over its austerity plans, saying Prime Minister David Cameron's deep spending cuts are unsustainable.
Indonesia's president has joined the chorus of leaders calling for action on food prices. Susilo Bambang Yudhoyono warned riots could follow if food inflation went much higher.
And another oil deal -- Rosneft got struck on the sidelines. Exxon Mobil joining forces the with Russian company. They'll be focusing on searching for oil in the Black Sea.
Business news that was announced here at Davos.
When we talk about the bankers, they're certainly here in Davos. The parties are back. And, really, so is a lot of the finesse.
When we come back, the Barclays chief seemed to think that, really, sorry is no longer the hardest word.
(COMMERCIAL BREAK)
QUEST: We're all about the new reality here in Davos. In the United States, they are, of course, still just picking through the remnants and the post-mortem of the crisis and the recession.
The official U.S. inquiry report -- finance -- financial report -- says the crisis could have been avoided, any notion it came out of nowhere is rubbish, warning signs were ignored or discounted. The Bush and Obama administrations both get criticism for failing to rein in Wall Street. One factor that also takes the blame -- basic human weakness.
The report says a systemic breakdown in ethics helped to pull us into the mire.
Barclays picked up the pieces of Lehman Brothers' collapse during the crisis.
The chief executive, Bob Diamond, is standing by his belief that bankers should be done saying sorry.
Bob Diamond joined me this morning, before the report into the U.S. crisis came out, so I wasn't able to take him to task on that.
However, when we look at Barclays' performance, it was important to know how he was balancing the bank.
(BEGIN VIDEOTAPE)
BOB DIAMOND, CHIEF EXECUTIVE, BARCLAYS BANK: What it's really shown is during a very, very difficult time on the financial crisis, the diversity of income, the diversity of funding sources, the diversity of deposits, during the worst of the crisis, Barclays was the beneficiary of deposits from China, from India, from Japan, from all around the world.
So in terms of financial stability, it real -- it really showed its strength.
QUEST: Some people say, of course, that the bank has now become lop- sided between the retail sector or the retail branches in the U.K. and elsewhere and this behemoth that you've taken on in New York, the old Lehman Brothers, and that the tail is now wagging the dog.
DIAMOND: Well, I take that as a compliment, that our investment bank, Barclays Capital, is operating so well. In fact, post the Lehman acquisition, we're now number two in the U.S. in M&A, number four globally, a position we couldn't have hoped for before.
But the goal is balance. And I think what we want is we want to have a retail and commercial banking operation that's balanced alongside our investment banking operation.
QUEST: So you've got some way to go to get that at the moment. The tail is wagging the dog.
DIAMOND: Well, not really, because if you go back two years, in the early stages of the financial crisis, we were three quarters retail banking and a quarter investment banking. And in this environment, it's been the only way around. And it's good to have that balance.
QUEST: How...
DIAMOND: But the growth opportunities, which I think is what you're getting at, in our retail bank, in Western Europe, in Africa, those are great opportunities for us to continue to growth and invest.
QUEST: How concerned were you with the GDP numbers in the U.K.?
I mean, obviously, they were worrying. The weather was blamed.
DIAMOND: You know, maybe it was the weather, but here's the strategic significance of those numbers. There's never been a time when it's been more important for confidence, to get confidence in banks and the private sector because what's clear, given the program that the prime minister and the chancellor have implemented, that the growth has to come from the private sector.
QUEST: My final question...
DIAMOND: Yes, sir?
QUEST: -- do you regret the banks should stop apologizing comment?
Even if you don't regret it, was it wise to say?
DIAMOND: Well, I think so. But if you recall, Richard, what the comment was, is that the time for apology and remorse needs to be over. All banks made mistakes. We made mistakes and I made mistakes. But today, what's important is jobs and economic growth. What's important today is to pass the mantle to the private sector and get economic growth and job creation going. And I think the time for remorse should be over.
(END VIDEO TAPE)
QUEST: Bob Diamond joining me this morning here in Davos, the chief executive -- the new chief at Barclays Bank.
In the markets, there has been very little movement on the Dow Jones a day after it hit 12000.
The S&P 500 went over 30000 for the first time since August '08. Those are the numbers, just up 11. But the market still is managing to hold 12000 on the nose.
The weather in Davos is only getting nicer over the -- the next few days, so I'm told. That's not my assessment.
Pedram is at the World Weather Center.
We have a clear, bright, sunny day. So I can tell you tonight, it's jolly nippy.
PEDRAM JAVAHERI, CNN METEOROLOGIST: Oh, that's how it sets up. And, you know, you've got to keep in mind, Richard, that snow is a great coolant. So when the sun shines on it in the afternoon hours, actually, it doesn't absorb any of it at the surface, that it reflects all that energy back up.
So, yes, will have clear skies. We'll get you cold temperatures tonight and then tomorrow the sun comes out.
But the temperature is going to have a hard time getting above freezing. Even at best there, by Saturday, we're looking at one below to 12 below in the overnight hours. A little bit of a warming trend, if you're optimistic there, but we're still looking at cloudy skies for the next couple of days.
But a pretty board area of high pressure beginning to develop and set place across much of the northern portion of Europe right now. And there's going to be the steering pattern here for the weather at least the next couple of days.
And that storm system across portions of Portugal and Spain slowly going to begin to push eastward. As it does, temperatures certainly cold enough to support snow showers for the next couple of days in and around the higher elevations on into Eastern Spain. But blustery conditions all around. But the pilots out there, they know how to deal with this. So very little delays, at least for much of Europe and the northern tier of it the next couple of days as this storm system begins to push in toward the east. Again, heavy rainfall is certainly possible in and out of portions of the Mediterranean Region, out there toward the higher elevations of the Alps, going to see some of those snow showers falling. But very minimal. At best, they're looking at perhaps five, 15 or so centimeters, for the most accumulations in some of those higher elevated regions.
Now, talking about what's been happening over the Middle East and also the Southwestern Asia region, some pictures coming out of
Heavy rainfall over the past 36 or so hours. And I have some video, also, to share with you out of Saudi Arabia, the water there taking over a lot of the cars. And if we have the video for you, we're talking about some of the heaviest rainfall they've seen in many years. And you've got to keep in mind now, Jeddah doesn't expect too much rainforest. Their annual average is about 70 millimeters. And reports say they could have picked up over 100 millimeters in just three hours.
Again, very poor drainage systems out there because they don't get much rainfall. And you can see what has happened out there.
And the forecast for generally looks to improve. And Jeddah is home to some four-and-a-half million people. So it's a large scale populated region there. And, again, areas just south of the city there hit very hard with the heavy rainfall, very poor communities just south of the city.
And there are some hills right along the eastern edge of the town there that also have seen very heavy rainforest and that topography typically enhances the rain.
But it looks like most of it -- and, again, that being Jeddah right there -- most of that rainfall has all tapered off. But out there toward the Persian Gulf on into northern portions of, say, the UAE and also Qatar. Some rainfall possible in the next 24 or so hours. That works its way toward Southern Iran. And that looks like it's going to be here, minimal, again, the next couple of days. But it looks like Saudi Arabia finally has begun to see things taper off -- Richard.
QUEST: Many thanks, Pedram.
Pedram at the World Weather Center.
The -- the heat from the desert to the cold of Switzerland, where we are live tonight in Davos. And from here, when we come back in a moment, two of the biggest names in cars and planes -- the transportation world learning about mistakes, learning about new curves and getting on with business.
In a moment, Boeing and Renault.
(COMMERCIAL BREAK)
QUEST: Boeing says it still expects to deliver the 787 Dreamliner to its first client, A&A, by the third quarter of this year. The executive vice president of the company has always said that mistakes have been made. And now, of course, the chief executive agrees.
Interestingly, Jim Albaugh told me Boeing has lost a lot of inside knowledge over the last 20 years, knowledge it's had to rebuild.
I asked Jim Albaugh whether or not he was getting a bit annoyed at the way things had gone with the 787.
(BEGIN VIDEOTAPE)
JIM ALBAUGH, EXECUTIVE VICE PRESIDENT, BOEING: Well, I don't know that we're annoyed, Richard. I mean we at Boeing always push technology. We always make a very capable airplane. And I think we over stretched this time with some of our technologies. And I think we didn't completely think through the supply chain that we put in place. I think we've been able to address the technology issues. We've pulled some work back from the supply chain. We're doing it internally.
I think we're on the final stretch here. And we're back in the flight test program and we hope to deliver in the third quarter.
And when it's delivered, this is going to be an airplane that's going to change the world. We're changing the world that airplanes are built and we're going to change the way people fly.
QUEST: And you're changing the way, though, Boeing now has to redeem, because, obviously, I -- I'm sure, within the company, you are pulling this thing apart to see what you could have done.
ALBAUGH: Well, obviously, whenever you have an issue, you want to learn from it. We're doing a variant of the 787-8, the 787-9. We're doing more of the work inside the company. We want to make sure that we don't lose control, like we did on the 787-8.
QUEST: The -- are these major infrastructure projects like the 78 and the -- the 74-8 Intercontinental, are they simply so vast and complex now that there's an -- that there's an inevitability about the -- the process?
ALBAUGH: I don't think they -- I don't think it has to be.
QUEST: I'm sorry?
ALBAUGH: I don't think it has to be inevitable that we have issues. I mean we have learned a lot of lessons from those programs. But we need to have a little more discipline up front. We need to mature the technologies better. We have to look at these programs through, I think, clear glasses in terms of what we have to do before we launch them.
You know, I'm very confident, as we go forward, we can learn from these mistakes and we can be successful going forward.
You have to realize that we hadn't done a major development at Boeing since the 777. You know, that was 20 years ago. We had lost a lot of the institutional knowledge. We have got a lot of institutional knowledge now. We've trained 12,000 to 14,000 engineers on how to do it right.
QUEST: So, will you be using those -- you -- you -- it -- that's a gift in answer to my next question, Jim.
Will you be using that now to rebuild the 737?
ALBAUGH: Yes.
QUEST: You've said you're not going to re-engine. If you don't re- engine, that either means you leave it as it is or you rebuild and redesign.
ALBAUGH: Well, Richard, you really don't expect me to announce a new program on CNN today, do you?
And we're not. You know, right now, we really haven't decided what we're going to do with the small airplane. You know, I've made the -- the statement before that we can't find a compelling reason or a compelling business case to do the 737 re-engine, but it's still something we're looking at.
I think it's very possible we could do a new airplane, though.
QUEST: All that's tantalizing. You've given me the tantalizing answer.
But so you -- but you're not -- you're not -- you are not ruling out a new plane?
ALBAUGH: We're not ruling it out. I think there are really three things we're looking at -- a re-engine, continuing to improve the 737, next generation, and we could continue to do that, and then, ultimately, do a new airplane some time toward the end of this decade.
(END VIDEO TAPE)
QUEST: Jim Albaugh, the president and chief executive, of course, of Boeing, talking to me about the 787, the 737, the 747. And we'll wait to see which other seven may come along later.
Shock but no awe from the mind that runs Renault and Nissan over alleged corporate espionage involving electric cars. Three executives got fired when Renault smelled a corporate rat.
Today, here in Davos, I asked Renault's chief, Carlos Ghosn, if the situation is affecting the way he's running the company.
(BEGIN VIDEOTAPE)
CARLOS GHOSN, CEO, RENAULT AND NISSAN: What I'm doing is protecting the company, protecting Renault and protecting the lines.
Is it going to affect our offensive?
No. The cars are going to come on time. Nothing changed with all our strategy about, you know, rolling out the six electric cars in 2011 and 2012.
QUEST: Which country was it?
GHOSN: France.
QUEST: That was doing the spying?
GHOSN: No, I think -- it's taking place in France.
QUEST: Right.
GHOSN: So there is absolutely -- no, I'm not going to make any comment. We're going to get the prosecutor do its own inquiry and then we'll -- we'll share the results. Obviously, we're -- we're collaborating with them, we're very transparent, giving them everything we know. Let them do the inquiry.
QUEST: How annoyed were you -- let's talk about you personally -- when you found out about it?
GHOSN: Look, frankly, I was shocked, particularly by the way it was - - it was happening. I knew that the fact that we were investing a lot of money and we objectively have an advance in electric cars that this would attract a lot of attention from many -- from many people. But I was shocked. At the same time, it was not a total surprise.
QUEST: The -- the stakes are high now, aren't they, as we shift from the internal combustion engine to whatever hybrid or electric vehicle comes down the road?
GHOSN: Yes. The stakes are high, but you know what, we've been investing on the zero emissions and the electric cars since 2006. And the scenario which is unfolding was the scenario that we were betting would unfold, which means an oil price approach $100 and, you know what, the U.S. economy still is not roaring up and the European economy is still not roaring up.
So you can expect high energy prices for the foreseeable future. So this is going to support a lot the electric cars.
QUEST: The LEAF has received a claim. The sales are low, but production is also low, as you're building and ramping up production, isn't it?
When do you expect to get to sizeable production?
GHOSN: Oh, by, you know, mid-2001, we're going to be ramp -- we are ramping up production.
QUEST: Right.
GHOSN: 2011 is going to be a good year for, you know, getting more volumes. We have already more than 25,000 orders for the LEAF. We have more than 250,000 hand Razors globally for -- for the LEAF. We have a capacity installed already of 50,000 cars. So you can count that these cars are coming to the market while we are building more capacity, particularly in the United States.
(END VIDEO TAPE)
QUEST: That's Carlos Ghosn, the chief exec of Renault-Nissan.
And now some Tweets from the top -- the top people who have sent messages here.
London's mayor, Boris Johnson, who is doing his part in Davos to promote the 2012 London Olympics, has Tweeted: "Telling everyone in Davos about our great games. Only 18 months ago, not too late to sign up and get involved."
I saw Boris out in the snow earlier.
George Papandreou, the prime minister of Greece, who was on this program earlier, said: "If last year's Greek statistics were, as they say, the shortest joke, we are now one of the most transparent countries in the EU."
Finally, Jeff Joerres, the CEO of Manpower, sent this message: "Talking to business leaders it's clear, talent is to become the key competitive differentiator for business success in the human age."
When I come back in just a moment, we'll have a Profitable Moment when we'll consider some of these economic problems around Europe.
QUEST MEANS BUSINESS with (INAUDIBLE).
(COMMERCIAL BREAK)
QUEST: And tonight's Profitable Moment.
While many have predicted the failure of the euro, the currency is here to stay, so says the French president, Nicolas Sarkozy. Tonight on this program, the president of the ECB, Jean-Claude Trichet, has warned not enough is being done by governments to strengthen their economies.
And the prime minister of Greece still says no to vote (ph) or renegotiation.
It's all part of a European agenda that's so complicated, it's a sure sign that there are many major uncertainties in the world economy.
But one thing that everybody seems to agree on here, rarely has there ever been a moment after a recession when so many countries are in such different positions.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in Davos.
Whatever you're up to in the hours ahead, I do hope it's profitable.
"PIERS MORGAN TONIGHT" just ahead after the headlines.
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