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Quest Means Business

Interview with Kelly King; Interview with Klaus Baader;Goldman Exec Slams Company; Goldman Strikes Back; Author of Book on Goldman Sachs Agrees With Criticisms; US Stocks Flat; Nobel Prize-Winning Economists Urge Obama to Support Europe's Carbon Tax; Airline CEOs Oppose Carbon Tax; Britannica Ends Print Edition

Aired March 14, 2012 - 15:00   ET

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

RICHARD QUEST, HOST: "Toxic and destructive." One man's attack on Goldman Sachs.

It's a Nobel cause and, tonight, a twist in the EU carbon tax tale.

And Britannica rules the web. Encyclopedia stops the presses after more than two centuries.

I'm Richard Quest. Of course, I mean business.

Good morning. This morning, I should say. Good evening. This morning, he was just another Goldman Sachs executive. Tonight, Greg Smith is the most famous unemployed banker in the world. He quit his job and then, Smith fired off an extraordinary set of parting shots aimed squarely at the management of a firm that he now says has completely lost its way.

Smith wrote an article, and op-ed piece, in the "New York Times," in which he said the environment at Goldman is as toxic and destructive as he has ever seen it in his 12 years at the company.

He goes on and says, "the entire firm as geared around getting as much money as possible for clients." And look at this. "Not one single minute is spent asking how we can help clients."

If that wasn't bad enough in this excoriating attack on Goldman Sachs, he goes on to say Sach's managing directors supposedly referred to clients as "muppets" on numerous occasions.

Now, Goldman Sachs has replied already and says Greg Smith is wrong. It says it can only be successful, the company can only be successful if its clients are successful, too. It does admit to having faced some challenges and says the employee satisfaction is high.

A memo released by the chief executive, Lloyd Blankfein, and the president, Gary Cohn, said, as you can see, "In a company of our size, it is not shocking that some people could feel disgruntled." It goes on to say, "We are far from perfect, but where the firm has seen a problem, we've responded to it seriously and substantively."

Goldman's reaction echos exactly what Goldman's chief exec Lloyd Blankfein told Christine Romans back in April 2010. He admitted then people didn't always trust the company's motives.

(BEGIN VIDEO CLIP)

LLOYD BLANKFEIN, CEO, GOLDMAN SACHS: We'll survive only by putting our clients first and the interests of the broader community first.

But there certainly is a rise in the suspicions that something is broken here, and that we just don't have those old standards, and we're going -- we have -- the industry and Goldman Sachs have a lot of work ahead of itself to make the kinds of changes, not just to convince people, but to make the kinds of changes that the -- that are warranted from the lessons of the last several years.

(END VIDEO CLIP)

QUEST: That was an interview in 2010 of Lloyd Blankfein. Now, William D. Cohan is a former investment banker, the author of "Money and Power: How Goldman Sachs Came to Rule the World," and William joins us now from New York.

Is the Goldman Sachs of Mr. Smith's letter, Greg Smith's article, is that the Goldman Sachs that you recognize in part?

WILLIAM D. COHAN, AUTHOR, "MONEY AND POWER": Richard, I'm afraid to say that it is the Goldman Sachs that I recognize. I didn't work there, obviously. I worked on Wall Street for 17 years. I wrote a book about Goldman Sachs.

Goldman Sachs has been in and out of trouble its whole existence. Goldman Sachs has been, frankly, putting its own interest before its clients long -- for a long time.

Even ever since the Great Depression, when it created something called the Goldman Sachs Trading Corporation, where it made millions of dollars and cost its clients hundreds of millions of dollars. So, this is nothing new.

QUEST: Right. But so what is new is, post-Abacus, post-Great Recession, there had been a feeling that culture may have changed. But if what Smith says is right, it's in the DNA to basically regard the client as the muppet.

COHAN: Well, it's certainly in the DNA to put Goldman's interest before its clients. Unfortunately, that is true. And by the way, I think its clients understand that. I don't think there's any secret about that. The clients don't like it.

But you're dealing with, frankly, a cartel on Wall Street, where there are very few options for clients nowadays, and it's gotten even worse as a result of the financial crisis, when you've lost Bear Stearns and Lehman Brothers and Merrill Lynch is not what it used to be.

And so, if you want to dot he kinds of trading and investing and deals that Goldman Sachs does, you have no choice but to go --

QUEST: OK --

COHAN: -- to Goldman Sachs to do it.

QUEST: So, will they be -- come on, let's, men of the world, we all are, men and women of the world we all are -- will they be at all concerned by this broadside from a young whipper-snapper disgruntled, perhaps, in London?

COHAN: Yes, this is Goldman Sachs's worst nightmare because they just think that they've spent the last year getting beyond all this.

Don't forget, as you pointed out with Abacus, they were sued, then Senator Levin flogged them for 11 hours in front of a congressional committee in April of 2010. They've been trying to lay low and put all this bad news behind them.

And then, out of the blue, they get blindsided by Greg Smith, and it's their worst nightmare. They cannot stand this. They were hoping to get beyond it. And the fact of the matter is, they may not be able to get beyond it until they address this very important aspect of their culture.

QUEST: And the final point, then, does become, William, if they do address this aspect, and they do change their ways, then they're no longer the Goldman Sachs that you rightly say clients may not like but still go to.

COHAN: Well, there is a chance -- I don't want to be that totally cynical, but there is a chance that if they change their behavior and remember one of their first principles, which was put clients first, then they may be able to regain some of their lost luster.

I wouldn't put that -- that's not a forgone conclusion that they won't be able to do it, but they've got a lot of wood to chop if they want to do that. They may not care about being a leader on Wall Street anymore, but if they do, they need to solve this problem, and they need to solve it fast.

QUEST: And we're glad that you came in to make sense of it for us tonight. Thank you very much, William Cohan joining us from Washington tonight.

Goldman was one of the top 15 banks that passed the Federal Reserve's stress test last night. Alison Kosik's at the New York Stock Exchange. Before we get into the minutia, Ms. Kosik, of the day's events, am I right that this is what everybody's talking about on the street?

ALISON KOSIK, CNN CORRESPONDENT: Oh, yes. It definitely is the talk of the floor here at the New York Stock Exchange. Even you see it in the stock price. Goldman Sachs's share is down a little over three percent. Part of that is investors showing their displeasure over what they read in that "New York Times" article.

And we're getting sort of different -- different sides to this, when you ask some of the traders here. Some traders give it high-fives for it, others saying, hey listen, you could have handled this in a more appropriate manner and a quieter manner other than plastering it in the newspapers.

But not a whole lot of surprise. A big shocker, Goldman Sachs in the market to make money. Business is business. That's how it's done here on Wall Street --

QUEST: All right.

KOSIK: -- so, not such a huge shocker that Goldman Sachs takes that stand.

QUEST: Business is business. We need you to update us on the business. The numbers, please. How do we stand tonight? I -- I've been on my travels, actually, I was in New York, and I noticed while I was gone, you flirted shamelessly with 13,000 and actually went above it.

KOSIK: Yes. Yesterday, it was the last hour of trading yesterday. Sure. You know, the bulls really took charge. The Dow surged 200 points. Definitely not the story today. If you look at stocks right now, Dow is flat, only up about 2.5 points. It doesn't look like it'll be six in a row today, unless, of course, we end that two points higher. The NASDAQ, S&P 500 are in the red.

I think what you're seeing is investors taking a little bit of a breather after that huge run-up that happened in a matter -- in a span of an hour yesterday, when JPMorgan Chase announced its dividend, and then, of course, with the anticipation of the Fed announcing those results of those stress tests. Richard?

QUEST: All right. Alison, good to see you. Nice to see Alison Kosik in New York.

When we come back in a second, it's a voice of -- chorus of criticism and those against support. In a moment, we'll speak to a Nobel Laureate who's urging Barack Obama to back Europe's aviation carbon tax. In a moment.

(COMMERCIAL BREAK)

QUEST: Europe's controversial carbon tax for airlines has finally found some international support. Twenty-six US economists, including five Nobel Prize winners, are urging Barack Obama to back the Emissions Trading Scheme in a letter that they sent. The scheme applies to all planes which take off or land in the European Union. It was a fairly strong level of support for the scheme as such.

Christopher Sims is one of the Nobel prize-winning signatories. Professor Sims joins me, now, from Princeton University in New Jersey. Thank you, sir, for joining us.

When I read the letter, what you're agree with, if I understand it, is the concept of pricing carbon in a market environment. But what the -- but do you approve of the way the EU has unilaterally introduced this?

CHRISTOPHER SIMS, NOBEL PRIZE-WINNING PROFESSOR OF ECONOMICS, PRINCETON UNIVERSITY: Well, there have been attempts for years to make an international agreement on pricing carbon for aviation, which have not born fruit, and the European Union has said that they would be happy to adjust their proposal if there could be an international agreement.

And I think that this may be a good way to put some pressure on the international organization to begin thinking seriously about moving forward.

QUEST: Because this is the argument that basically says -- the commissioner says is nobody else was doing anything, so we had to do it. If we didn't do anything, we'd have all sat --

SIMS: Yes --

QUEST: -- around talking in a talking shop.

SIMS: Yes, that's the argument.

QUEST: So, what is it about --

SIMS: And I think there's some --

QUEST: What?

SIMS: I think there's some --

QUEST: Go ahead.

SIMS: I just -- I think there's some validity to that, and I think that the reaction of the Obama administration should be to push for more action in the international organization, not to simply oppose the EU initiative.

QUEST: If the Obama administration has to decide whether to support he Europeans or oppose it because it is unilateral, it's not bilateral or multilateral, what would you urge them to do?

SIMS: I would say support it at this point. But at the same time, move to try to get the international -- to get an international agreement.

There is some time. This EU initiative will have rather small effects initially, that will escalate up over the next several years. And so, in the meantime, it should be possible to negotiate less unilateral arrangements.

QUEST: Finally -- what is it about the pricing of carbon in a market environment that makes it the best way to deal with the emissions rather than a more regulatory cutting emissions regime? Why do prefer a market- based system?

SIMS: Because a market-based system makes incentives for private sector people to take initiatives to find more efficient ways to do transportation or to shift between modes of transportation so as to economize on carbon. And you don't require bureaucrats to be making decisions about particular technologies.

For example, in the US, we have these car fleet efficiency standards, which do have a role in reducing carbon, but they require bureaucrats to decide on the technology, on what level of efficiency is attainable.

If we had more general carbon pricing in the US, we wouldn't need such heavy regulatory intervention.

QUEST: Professor, many thanks, indeed, for joining us on QUEST MEANS BUSINESS tonight. Professor Christopher Sims joining us from Princeton University.

So, the way in which this entire operation is being put, at the moment, rests on the airlines. Every airline that uses European airports will be taxed and affected by the ETS system. When I spoke to Singapore Airlines chief executive, Goh Choon Phong, a few weeks ago, he told me the scheme gives unfair advantages to his Gulf rivals.

(BEGIN VIDEOTAPE)

QUEST: If we look at the industry at the moment, particularly let's start with the question of ETS, the European trading -- the Emissions Trading System from Europe. You are absolutely being clobbered by it.

GOH CHOON PHONG, CEO, SINGAPORE AIRLINES: Absolutely.

QUEST: And you've got to pay it.

GOH: And we have to pay it. Now, Richard, we're not happy at all with the ETS and the way it is being implemented. We don't think it's equitable, as you say. It provides an unfair advantage for carriers with a hub that's nearer to Europe.

Someone taking a flight from Singapore to Europe, much of the time, the flight is not over EU air space, so how can it be the EU is allowed to tax on those air space?

QUEST: Would you be in favor of Singapore's government adopting some of the basket of countermeasures that were proposed in the declaration from Moscow?

GOH: Singapore government is a signatory to that resolution, so obviously, we do support that, to challenge the ETS implementation. But we also support to actually target a global solution for this ETS issue, rather than a bilateral solution so that there's clarity of how it is to be implemented across the world. There is some agreement to that.

(END VIDEOTAPE)

QUEST: And you can hear more from Mr. Goh later in this program on his plans for Singapore Airlines and SIA in a tough economic climate.

The opposition to the European ETS scheme is wide, far, and deep. In some cases, it's on policy. Often, it's on practicalities. For instance, Air New Zealand's chief executive Rob Fyfe has told us what he thinks of the scheme.

(BEGIN VIDEO CLIP)

ROB FYFE, CEO, AIR NEW ZEALAND: I think the underlying philosophy of trying to minimize aviation's impact on the environment is a good thing.

Does the ETS -- the EU ETS make a difference? I'm not convinced it does. It's -- it's an initiative that's been imposed on the airlines, it's been imposed on countries, done unilaterally, taxing people in geographies and jurisdictions that have no relevance to the EU.

And where does the money go? Is it actually going to help improve going to R&D to make sure that engines are more efficient, that we can find alternative fuels? It doesn't. And so, that to me is frustrating, because it's an example of just window dressing and not actually making a real difference.

(END VIDEO CLIP)

QUEST: Rob Fyfe of Air New Zealand. We will follow that story very closely. And you can hear more, of course, on our Business Traveler segment.

Coming up in just a moment --

(RINGS BELL)

QUEST: Oh, dear. Encyclopedia Britannica closes the book on its print edition. We'll look at what's next for these volumes.

(COMMERCIAL BREAK)

QUEST: You know, I always say "Join me in the library." And for a very good reason, because you can't beat a good book. You never know when you're going to want to need to refer to that one over there, or that one over there.

Except, of course, all is not as it might seem. A bit like, these days, with the Encyclopedia Britannica, which is going out of print after nearly 250 years. With more people turning to the web for information, the once coveted 32 volume print editions now brings in less than 1 percent of the total revenues. The company is -- will focus on its educational software and its online divisions.

The encyclopedia is facing fierce competition online from the hugely popular and free Wikipedia. As I say, all is not as it might seem in reality.

We'll get rid of this before damage is done. Anyway, the news is sure to sadden champions of the printed word, but Britannica says the move is a natural part of the company's evolution. The president of the Encyclopedia Britannica, Jorge Cauz, joins me now live from New York.

Well, I read your statements. You have nodded beautifully to tradition, you have said what a sad day it is for those traditionalists amongst us, and you're doing it anyway. What's the purpose?

JORGE CAUZ, PRESIDENT, ENCYCLOPEDIA BRITANNICA: Well, the purpose is really to just make -- basically making public what everyone at Britannica knows: we're a digital company, we have been growing, we have been profitable for many, many years, and most of our users come to us through our web properties.

So, this is really just an acknowledgment of a fact of business and a fact of where society uses content and how they use content. So really, we're following our users and we're following our business.

QUEST: OK. Now, you're doing all of that. I have to use the "W" word. Wikipedia. The moment you become online as your main vehicle -- and I know you've got educational services, which is the vast majority of revenues --

CAUZ: That's right.

QUEST: -- and that's the growth area.

CAUZ: Correct.

QUEST: But in terms of the encyclopedia, you are head to head online with Wikipedia. So, tell me, why do they -- why do you win and they lose?

CAUZ: Well, I don't think it's a win-lose situation --

QUEST: Oh!

CAUZ: I think that Wikipedia is a very -- no, no, really. Wikipedia is a very different product than Britannica. Obviously, it's free, it's created by the community, and Britannica is by nature a much smaller product than Wikipedia. We can only allocate resources to a much smaller assortment of topics.

And we do that very, very carefully. We use scholars to actually write the content. We make sure that everything is factually correct, well-written, balanced, and that's what we provide to the majority of our users.

Now, you say, who wins, who loses? The fact is that we have more than 100 million students here in the US and in the UK who have access to Britannica through their schools, their public libraries, or their households.

So, there is plenty of evidence that there are many people who still appreciate facts and for whom well-written documents and veracity are an important part of life.

QUEST: All right, stay where you are, because I'm going to go to my library over hear to remind the dear viewer, dear you, about some of the famous parts of Britannica.

The shortest entry in the first edition in 1768: "Woman: the female of man." I think we can all agree on that. Set the tone nicely.

In the first edition, "bloodletting" was suggested 98 times as a cure for illness in that first edition.

And Ernest Shackleton, now, he didn't even need to read the encyclopedia to be useful. He took a couple of volumes of his doomed expedition to Antarctica -- and I think you'll probably agree, even you would agree, Jorge, that he did the most sensible thing in that -- he burnt them to keep warm and probably stay alive.

Now, I'd be interested to know the sort of -- in the years to come, the sort of trivia we're going to get from the online edition.

CAUZ: Well, I think there are many trivia you can get. For example, what was the shortest-lived entry, so now we update content every 20 minutes and even more often if required. So, I think that the trivia that is yet to come is probably going to be based on how fast content changes and how fast Britannica is able to change it, as well.

QUEST: OK. So, my final question is, there's something -- there's a qualitative nature -- all right, I'm a traditionalist -- about a book. It feels right, it feels researched, it's been printed. Online feels temporal, it feels ephemeral. How are you going to ensure that same touch- feel context remains?

CAUZ: Well, I think that now that digital technologies allow for a much more lively and robust experience, and you can see that from the tablets and the SmartPhones that have much more density of color.

But I also, Richard, want to share something with you.

QUEST: Please.

CAUZ: I think that you and I are probably a very different age group than the young learners and the people that are going to college. So, perhaps you and I were raised with books and printed encyclopedias. The younger individuals have the same affinity to the digital screens that, perhaps, you and I had to the paper.

QUEST: I somehow figured on this. All roads were going to end with us being on the wrong side of 40. Jorge, good to see you. Thank you very much, indeed, for joining us. You're absolutely right.

And this is something you'll have some thoughts about. Do we mourn the lack of the library and the arrival of the digital technology? @RichardQuest is the tweet. In fact, you should be following me anyway @RichardQuest, because that's where you and I can have a dialogue away from the television. It's @RichardQuest.

Now, in a moment, Finland says Greece and Spain are getting back on track and it's thanks to austerity. Finland's foreign trade minister, a minister for Europe, talks to me after the break.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest.

More QUEST MEANS BUSINESS in a moment.

This is CNN. And on this network, the news that always comes first.

The U.S. soldier suspected of killing 16 Afghans has been transferred out of the country, according to the Pentagon. The Defense secretary, Leon Panetta, is in Afghanistan today for talks, as the U.S. seeks to contain the fallout from the massacre. His visit was interrupted by a security breach today at Camp Bastion. An Afghan base employee stole a car and drove it onto the runway while his plane was landing.

Belgium is mourning the deaths of 28 people, 22 of them children, in a coach crash in Switzerland. Many others have serious injuries. The bus was returning home to Belgium after a school skiing trip. It hit a concrete wall in a motorway tunnel. The Belgian prime minister has called it a tragic day for the country.

The International Criminal Court has found the Congolese warlord, Thomas Lubanga guilty of recruiting child soldiers. Lubanga was accused of using children as young as nine as bodyguards and fighters during a civil war in the Democratic Republic of Congo 10 years ago.

(VIDEO CLIP)

QUEST: This video posted online. It appears to show Syrian troops in Idlib firing their guns into the air and smiling. Opposition activists say government forces have taken control of the northwestern city, which has been a stronghold of the rebels, the Free Syrian Army.

President Barack Obama has warned that Iran is running out of time to reach a diplomatic solution over its suspected nuclear program. He said Tehran should meet its international obligations and come clean over its activities. At a press conference with the British prime minister, David Cameron, Mr. Obama said both the U.S. and U.K. were determined to prevent Iran from acquiring a nuclear weapon.

An executive at the U.S. banking giant, Goldman Sachs, has used an op- ed piece in the "New York Times" to explain why he's quit. Greg Smith has called the environment at Goldman Sachs "toxic" and "destructive." Goldman Sachs has released a statement saying it disagrees with the views expressed.

U.S. banks are ready for another financial crisis, according to the Fed's stress tests. Fifteen out of 19 banks managed to survive a hypothetical crash. BB&T was one of the banks and it's boosting its dividend.

Its chief executive, Kelly King, joins me now from the headquarters in North Carolina.

Congratulations on meeting the stress tests.

But when I look at the tests, I wonder, were they really that stressful, and in a time of 2008 crisis, frankly, you'd all buckle once again?

KELLY KING, CEO, BB&T: Well, thank you for the congratulations.

I appreciate that.

You know, I think it was a very fair and difficult test. Recall that the hypothetical conditions stressed unemployment up from 8.3 to 13 percent. Housing prices went down 21 percent from here. Stock prices dropped 50 percent. So it was a pretty stressful set of conditions.

So I think -- I think the -- the companies that made it or passed through that certainly demonstrated that they have sufficient income capacity and very strong capital.

QUEST: What more needs to be done, do you think, to -- to get lending back into the real economy?

The Fed is just about tapped out. Yes, it's got on the -- I know you're on the Federal Reserve Board of Richmond. But the -- the Fed is -- has done its bit. Fiscal policy is almost exhausted.

So what more needs to be done, do you think, Mr. Kelly?

KING: Well, well, thank you. And technically, I just went off in December, so I can certainly be more free about my comments now.

So, yes, I think you're right. I think the Fed has basically done all it can do or should do. I mean interest rates are at al time lows. They've flooded the markets with liquidity.

My advice to them is to do nothing.

But what needs to be done is to get some positive leadership out of Washington. You know, in my business, I travel around every year and talk to 500 or 600 businesspeople. I just did it yesterday. I'll do it again tomorrow.

When I talk to businesspeople, here's what they say.

QUEST: Right.

KING: They said that, you know, my business is doing ok, but it's mainly because I'm cutting expenses.

QUEST: Right.

KING: But I'm not going to invest a dime until things get better in Washington.

QUEST: How damaging do you think not just to Goldman Sachs, but to the investment community, are the sort of allegations that we are hearing today?

Admittedly, it's about Goldman, but it will immediately turn the spotlight on every one of you about whether banks put clients at their heart?

KING: Well, I've been in this business 40 years and, you know, while you want all of your employees and associates to be happy and supportive, I think you generally have to take with a grain of salt what associates say when they -- when they leave, and especially when they maybe try to grandstand the basis on why they left. I don't know any of the particulars here, certainly. But I wouldn't pay too much attention to that.

I think the truth is this. Our company, Goldman, BB&T, JPMorgan, all of us make money by providing services to our clients. We love our clients.

The notion that we would belittle or otherwise speak in a derogatory manner toward our clients is, on its face, absurd. You know, it's -- they are our reason for being. We have great relationships with our clients and we want to have them grow so we can be prosperous.

QUEST: And if you found out that one of your senior managers, allegedly in this case, had called anyone, a client, a muppet, to another client, so I gather the steam would be -- would be coming out of your ears?

KING: Well, the steam would come out of my ears right after the words, "You're fired," would come out of my mouth.

(LAUGHTER)

QUEST: Good answer.

Kelly King joining us from BB&T.

Well, hopefully, sir, you'll make time in your busy schedule to come back on QUEST MEANS BUSINESS and talk more about economics and other issues in the -- in the U.S. election year.

Many thanks, indeed.

Now, analysts raised the price target on Apple's shares today and they started to climb right from the opening bell. They put on 3 percent today, helping the NASDAQ stay above 3000.

The opening bell, look closely. It was rung by Finland's minister for European affairs and foreign trade, Alexander Stubb. This is Finland.

Well, I'm sure they're ringing something there.

Anyway, after he -- before I left New York yesterday and before he'd rung the opening bell, I caught up with Mr. Stubb and I asked him, when we look at the Greek debacle -- and now, of course, Greece has got its tranche of money, Bailout 2 is underway. Spain has had its knuckles rapped. Now that Greece has got its money, is it over?

(BEGIN VIDEOTAPE)

ALEXANDER STUBB, FINNISH FOREIGN TRADE MINISTER: If they go for the austerity, then things will be calm. But it's going to take a long time for Greece to get back onto the path.

QUEST: Do you and other ministers see the -- what some believe is the humiliation that took place, of Greece, during the process?

STUBB: I understand the frustrations. But the bottom line is that we need to reinstate trust in Europe. And the only way in which you can do it is to have tough rules and to have austerity. And we all need to do our bit. Even Finland, which is a AAA rated country, is now looking at savings in their budgets of between 7 to 10 percent.

QUEST: So attention now turns to Spain, which said it wasn't going to be able to meet its deficit target, for good reason. It's got austerity. It's got recession and it's...

STUBB: Yes.

QUEST: -- and yet it got kicked by the commission.

STUBB: Well, I don't see this as a football match. I think we're all on the same team, actually. The commission needs to observe the rules and regulations. And Spain is doing its bit. The key was for Spain to bringing down its deficit to 3 percent in 2013.

I was in Spain last week and I have full faith that they're going to do it.

QUEST: It may be too much too fast. There could be the real prospect of -- of strong demands tipping countries over into unrest.

STUBB: I hope that that is not going to happen. But the more political the European Union gets, the tougher the situation is, the more probable is that you will see unrest in places. It is partially due to the public finances of the country in question and partially due to the demands that are set by the European countries.

QUEST: The Fiscal Compact is now signed.

STUBB: Yes.

QUEST: The ratification process, we only need 12 before the whole thing comes into force. The Irish referendum is a sideshow, do you believe?

STUBB: I don't know. The Irish have to decide that themselves. I...

QUEST: But they can't stop it, like they could with Lisbon or Nice.

STUBB: They certainly can't stop it. And we have the U.K. outside, we have the Czech Republic outside.

And you know what?

I think this is the trend that we're going to have in the future. Those countries that want to forge ahead with more European integration, they can do it. And those who want to stay behind can choose to do so.

QUEST: But you can't use the full force of the institutions. And that's going to be the fighting ground now, Minister, isn't it?

Because you're going to want to use the commission, the court. You're going to want this to make -- you're going to want to make this an EU business?

STUBB: Yes.

QUEST: And you can't.

STUBB: Well, my argument is that if you have monetary union, you need economic union. And if there are countries who are not in the monetary union or don't want the economic union, give them the right to stay outside. Give us the right to use the institutions.

(END VIDEO TAPE)

QUEST: Minister Stubb. Give us the right to use the institutions. I'd like to hear David Cameron's answer to that and along with the Czech prime minister. It will be a battle we'll watch closely.

In a moment, economic crisis and fuel prices -- it's spiking an ever- changing climate. We hear from the chief executive of Singapore Airlines why the custom (INAUDIBLE) aviation sector, you need to adapt. It's the Business Traveler segment

(COMMERCIAL BREAK)

QUEST: This month, Business Traveler returns. And every week, we will be bringing you the new innovations and developments in the world of business travel here on QUEST MEANS BUSINESS.

Our first trip is to Singapore Airlines, a company with plenty of quality. And these days, it has other concerns.

(BEGIN VIDEOTAPE)

QUEST: Singapore Airlines' reputation for quality is epitomized by the luxury first class suite here on the A380 Super Jumbo, and, of course, by the signature Singapore girls -- thank you very much -- the flight attendants.

These days, the airline is beset by higher fuel prices, competitive threats from Gulf carriers and weak demand in key markets. It means the new chief executive has some serious decisions to take.

(voice-over): Goh Choon Phong has been in the job just a year and recently had to announce disappointing results, down by 53 percent.

(on camera): If we look at the last set of results for SIA, by no stretch of the imagination an impressive set of results, three things come across from the company -- fuel costs, demand and competition.

GOH CHOON PHONG, CEO, SINGAPORE AIRLINES: Fuel is more than 40 percent of our expenditure. It's a huge amount of expenditure for which we have very little control. Yes, we can hedge. But hedging is really a way to moderate the volatility of the fuel prices and not so much, really, a solution to the high fuel prices.

We recognize that the world is changing. The traffic flows are different. The -- the day when crude oil prices are low could be days in the past. We just have to make sure that we can compete effectively and function effectively as a profitable enterprise going forward.

QUEST: And, the -- the GT -- the -- the tax -- you're shocking your head already.

PHONG: See, the airline contributes tremendously to -- to the economy, the developed -- especially developed economies' GDP. So, therefore, you know, we should be looking at how we can liberalize the aviation environment and aviation industry more and to encourage airlines to actually operate in an efficient manner rather than looking at all ways of taxing the industry.

QUEST: Finally, back to Singapore Airlines.

PHONG: Sure.

QUEST: One of the best brands in the world, facing one of the most competitive environments. This is going to be the mother of all fights for aviation, isn't it, for the long haul passenger in the future?

PHONG: I think you think about it and I reemphasize what I mentioned earlier. The thing about SIA is that it is in our DNA to be very service- oriented. We're already working on what the next generation will look at.

What is our next great leap in terms of service standards, in terms of product offering, in terms of what network we could offer to our customers?

So we will announce them as we -- as we -- as we...

QUEST: Oh, oh.

PHONG: -- as we get those done.

QUEST: I thought you were going to announce them now.

(LAUGHTER)

PHONG: Thanks.

QUEST: Thank you very much.

PHONG: Thank you.

Thank you.

(END VIDEO TAPE)

QUEST: The chief executive of Singapore Airlines.

The carrier was the original buyer and launch customer for the A380 Super Jumbo. The engines for those planes are made very close to home of the airline. This is the Rolls-Royce factory in Singapore, the first of it its major factories outside of the United Kingdom.

In fact, I went to see exactly how they inject so much power into the grand jumbo jet.

(BEGIN VIDEOTAPE)

QUEST (voice-over): In the five years that the A380 has been commercially flying, 68 of these whales in the sky have joined the global fleet.

(on camera): Most of us have spent hours looking out of the window at the huge engines and wondering about the enormous power that it takes to get an aircraft like this into the air.

(voice-over): Wonder no more. At its new factory in Singapore, Rolls-Royce builds, tests and then delivers engines to either Boeing in Seattle or Airbus in Toulouse. This is Rolls-Royce's first production facility outside the UK.

(on camera): So, this is the engine?

UNIDENTIFIED MALE: This is the engine. This is a Trent 900 engine for the Airbus A380 aircraft.

QUEST: We're all familiar with this. We need to see the business end.

How is that fan giving thrust?

UNIDENTIFIED MALE: It's -- it's like a propeller. So the turbines in here...

QUEST: Yes?

UNIDENTIFIED MALE: Drive the fan and that just cuts its way through the air and pulls the aircraft forward.

QUEST (voice-over): The company's factory is worth half a billion dollars. It will eventually double capacity for the Trent 900 engines used to power the A380.

(on camera): When it's fully up and running, this vast facility will produce 250 engines a year -- half of Rolls-Royce's total production -- in effect, one engine for every working day.

(voice-over): The decision to come to Singapore was pretty easy.

JONATHAN ASHERSON, REGIONAL DIRECTOR, ROLLS-ROYCE: It is extremely important to Rolls-Royce. We have an order book of 62 billion pounds, half of which is from Asia or the Middle East. And it's the fastest growing region for us, as well. So it's extremely important.

QUEST: In 2010, a serious engine explosion led to the emergency landing of a Qantas A380. The cause of the blast was very firmly Rolls- Royce's fault. The company's share price fell, even though sales continued.

ASHERSON: Well, it was a serious incident, as you -- as you've mentioned. And I think what we can take from that incident is we -- all -- all companies that are in this field learn the lessons from incidents like this. And in an already very safe industry, flying just got safer.

QUEST: With the safety review essentially complete, Rolls-Royce are looking ahead. And with Asia being the company's fastest growing market, that production is also shifting east.

(END VIDEO TAPE)

QUEST: The enormous power of the Trent 900 engines that power the A380.

The weather forecast now.

Jenny Harrison at the World Weather Center -- it's amazing, Jenny, those engines. It doesn't matter what weather is up there, they just power on through.

JENNY HARRISON, ATS METEOROLOGIST: Yes.

Don't they just?

I know. Yes.

Don't they just?

Yes, I'm going to talk, actually, about some very nice weather a bit, Richard.

Of course, there's always a down side to nice weather. And I'll explain what I'm talking about in just a moment.

But we've had higher pressure in control of much of Central and Western Europe for the last few days.

Here's the last few hours. Not a lot has changed, it has to be said. We're in a very, very quiet weather pattern right now. And because of the position of high pressure, it's going to sink further southward. It will continue to feed up these very, very warm winds from the southwest. So temperatures will be well above average.

It will feel like the month of May, not the month of March. This gives you an idea. Look at this. The average in Paris is 11 degrees Celsius. Thursday, it will be 20 degrees. Still, the overnight hours very nice. It's going to cool off nicely and then beautiful in that first sunshine by day.

Berlin, as well, by Friday, 19 degrees. The average is eight. So, again, very much above average.

And London, as well, as you can see there, 16 degrees. The average is 10.

Now, that's all very well. But usually with dry, warm weather comes dry weather. And that's exactly what we have been seeing.

And this is the situation now across Western Europe. Much of Central and Eastern England is actually now looking toward a severe drought. We've got 50 percent less precip over the last few months, the winter months, than we would normally see this time or year. It's actually even worse than that across Spain and Portugal. Some areas, vast areas -- look at this -- only a quarter of the average rainfall.

I was talking about this yesterday, but across East Anglia, it's been the driest since 1921. That was when records actually began, of course. The rivers are slowing down. And we're now going into those months where things really begin to grow -- the crops and the plants. And they are going to be in desperate need of some water. Water restrictions could come in place by early April.

And as we go through the next few months, spring into summer, Central Europe definitely looks to be drier than normal. Wetter actually the far south and quite wet across the northwest of Europe, as well.

As for temperatures, warmer than normal, where it's going to be drier than normal and temperatures probably a little bit above average in the west, as well.

Sixteen, there it is, in London on Thursday. Twenty-four in Madrid.

I'll be talking about this, Richard, in the days to come, I'm sure.

QUEST: Jenny Harrison is at the World Weather Center.

We thank you for that.

Dry in some places, very dry in others.

QUEST MEANS BUSINESS is back in a moment.

It's a gloomy forecast, not on the weather, but this time on the economy, from one of the region's top economists.

(COMMERCIAL BREAK)

QUEST: The feel good factor from the stress tests on U.S. banks that were talking about earlier spread to Europe today. And the shares of banking stocks were up quite sharply.

Barclay's up 3.8 percent.

Deutsche Bank up 3.5 percent.

It wasn't all good news, though.

There were falling mining shares and metals, which were down and pulled the FT-100 off.

BHP Billiton was down 2.25.

The Eurozone formally approved the Greek bailout at $170 billion.

So the bailout is done. There does seem to be good growth in certain Northern European countries and worryingly deep recessions in those in the South.

Klaus Baader is the chief European economist for Societe Generale.

And he says and tells us that the ECB's long-term refinancing operation, the three-year money, has freed the bloc from a vicious cycle. And now, it's fiscal policy that will shape the economy.

(BEGIN VIDEOTAPE)

KLAUS BAADER, CHIEF EUROPEAN ECONOMIST, SOCIETE GENERALE: We are moving toward having a more unified fiscal policy. That is true. But it's still the case that in countries like Spain or Portugal or Greece, etc. You have very strong consolidation pressures, very strong negative demand effects. Whereas in countries like Germany, where the fiscal numbers have developed -- have surprised as much on the up side as they have in other countries on the down side, you have a neutral and, in my view, probably expansionary fiscal policy.

So the rel -- the result is you have very big growth differentials, moreover, let -- the last point. These are big numbers. If you look at Spain, they're now expected to tighten fiscal policy by something like 3.5 percent of GDP in one year. That's massive.

QUEST: Is it too much too soon?

BAADER: I think in some cases, you can make that case. In Spain, I would be careful, because I am quite convinced that the government -- the new government tried to boost the 2011 deficit as much as they could, put as much expenditure into last year just to make it...

QUEST: (INAUDIBLE).

BAADER: -- exactly. Just to make it easier to achieve the target. So I think Spain is a debatable case.

Some countries, like Greece, the fiscal effort is so huge that it's very difficult to see how it can actually succeed.

QUEST: OK.

BAADER: There is probably a limit. But the bottom line is -- and I think sometimes that's forgotten in the debate -- you cannot live forever beyond your means. You have to do these measures. And this is -- this debate is going to come to the United States, too, eventually, probably in 2013.

QUEST: Right. But is there not the worry, if you keep forcing this and forcing it and forcing it, eventually you get an eruption?

And we've come very close to eruptions in -- in Greece -- well, we've had them in Greece, but elsewhere.

If you have another year of recession in Spain, another year of hardship, that's what happens?

BAADER: That is a risk. And I think what -- what governments have to do in that context is they have to tackle the growing inequality of income. I don't think that the -- the Spanish youths are so much arguing against the specific austerity measures.

What they are arguing against is the whole setup that has massively privileged those workers who have been employed on permanent contracts. And for the youth, there's nothing.

QUEST: LTRO -- was this the savior of a (AUDIO GAP).

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

It's a sign of the times when there's no dusty tombs anymore and the "Encyclopedia Britannica" will no longer be printed on paper, the scene behind me reminiscent.

Well, my commitment to dead tree books is about as flimsy as this backdrop. After all, I might miss that version when it's gone and perhaps the only good part about it was that it was definitive.

Because once it's gone and we're all online, it's just another Web site competing for my attention, floating around amidst the web of Tweets, popups and countless e-mails. The online quest for knowledge may be interrupted by anything else that distracts the attention.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

Good evening.

END