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Quest Means Business

Argentina Moves to Nationalize Gas Unit; Interview with IMF Director Christine Lagarde; Interview With Robert Zoellick

Aired April 19, 2012 - 14:00   ET

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

(BEGIN VIDEO CLIP)

ANTONIO BRUFAU, CHAIRMAN AND CEO, REPSOL: Unfortunately, Argentina has a government that do not merit to lead the country.

(END VIDEO CLIP)

RICHARD QUEST, HOST: Tonight, the chief executive of Repsol tells me Spain must force Argentina onto the right road.

At the IMF spring meeting, the crisis puts a chill in the air. The outgoing head of the World Bank says Argentina is making a mistake.

And the IMF chief, tonight, sees a light recovery blowing in the wind. It's a weather forecast for the economy from Christine Lagarde.

I'm Richard Quest, live from Washington where, yes, I mean business.

Good evening. The program tonight comes from the IMF. This is the atrium of HQ2 at the IMF, where I will be joined -- where you'll hear later from the IMF's managing director, Christine Lagarde.

We also have tonight on the program the outgoing World Bank president Robert Zoellick, and the Turkish finance minister, Mehmet Simsek, will be joining us to talk about that on the economic front. But we start with an exclusive interview tonight with the chairman and the chief executive of Repsol.

Today, Argentina moved to privatize the Spanish companies Argentina gas unit. It comes only days after the Argentineans took control of Repsol's YPF oil division. Argentina says it won't pay $10 billion compensation Repsol is demanding.

And now, tomorrow, Spain's cabinet will discuss how to retaliate. The Spanish prime minister Rajoy is in Mexico trying to drum up support.

Speaking exclusively to us tonight, Repsol's chief executive and chairman Antonio Brufau told me what he knows about the oil and now gas expropriations.

(BEGIN VIDEOTAPE)

BRUFAU: That's totally true. That yesterday the government approved a decree to nationalize and to expropriate our LPG business in Argentina. This is a subsidiary, 82 percent belonging to Repsol and 18 percent belonging to an Argentinean company.

They are expropriating only the 82 percent belonging to Repsol, which is a very difficult move to understand, because that is not consider of public interest. Nothing to do with public interest, but they have decided that.

QUEST: So, you've lost your oil interests in Argentina, and you've lost your gas interests in Argentina and, seemingly, there is very little by way of compensation that is going to be paid. Is that also your understanding?

BRUFAU: No, that's not my understanding. And obviously, crystal clear, we are going to go to arbitration, to arbitration court.

It's very clear, very clear that when YPF was privatized in 1992, the government at that time that was being led by Mr. Menem, decided to approve a law that forced the government, in case of taking over again YPF, to launch a takeover. That is in a law, in the privatization law of YPF.

QUEST: So, you recognize the right they have to expropriate, but now you say you want at least $10 billion. The Argentineans say you're not going to get anything like that. In that scenario, this is going to end up as an absolute mess, isn't it?

BRUFAU: Yes, it's going to end in a court, in an arbitration court. We will go to the arbitration court in Washington, we will go to New York. You have to consider that there is not only Repsol which is being expropriated, but all the other holders invested in a company that was private and for profit.

And today, what they have is a company which is state-owned, controlled by the state, and not for profit.

QUEST: What would you like the Spanish government to now do? They say there will be consequences. They say that they will be commercial and diplomatic. But what would you now like? What tonight -- what are you calling for the Spanish government to do?

BRUFAU: Well, I think that the European authorities, not just the Spanish government -- should try to force Argentina to come back to the -- to the right road. There are a lot of measures that they can take in order to force Argentina to be a normal country.

I'm sorry to say, Argentina, the government of Argentina -- I have a lot of respect for the Argentineans and for the society as a whole, but unfortunately, Argentina has a government that do not merit to lead the country.

QUEST: How angry are you about what has happened? About the whole situation and the position that Repsol has now been put in?

BRUFAU: I am very angry. You have to remember, until four months ago, the president was the real supporter, the most important supporter of YPF. All the government were supporting YPF until the end of last year.

Immediately after the new election, the new government, the new move, the new political move, everything changed. And there are many reasons to believe about that change. In my opinion, the main one is the non- conventional resources that Repsol and YPF discovered in the Neuquen Basin.

The president, in the speech that she did when she was announcing the expropriation, she has spent half of his --

QUEST: Right.

BRUFAU: -- of her time talking about unconventionals. And unconventionals means YPF today, and therefore, this massive future, this brilliant future of the hydrocarbon industry for the government was not positive to allow the private companies to work in and obviously YPF.

QUEST: Right. I just want to finally ask you again, then, because investors are looking at Repsol into the future, can you assure us tonight that the Repsol of the future will restore its profitability, will restore its revenues as best it can?

BRUFAU: Oh, for sure. I mean that -- look, what we are going to lose in terms of bottom line, in terms of profit after taxes from YPF is two times what we lost last year in Libya, in our operation in Libya.

But today, Libya is already in operation. Therefore, I think that our PNL this year will be, without YPF, very similar or even higher than the one that we had last year.

I am totally confident with our future, and our stockholders know that. They know as we are very clear, we are very transparent. And I do think that we have a brilliant future in two -- in the divisions we have, upstream, downstream, LAG, natural gas, et cetera, et cetera.

And that's the real future of Repsol. We are in -- we are in 30 countries, and this is not by chance.

(END VIDEOTAPE)

QUEST: Totally confident in the future, the chairman and chief executive of Repsol, speaking exclusively to us earlier.

A few big voices are rallying their support behind the cause. One of them is the outgoing president of the World Bank, Robert Zoellick, who says due to the current economic climate, this kind of expropriation is going to keep happening.

(BEGIN VIDEOTAPE)

ROBERT ZOELLICK, OUTGOING PRESIDENT, WORLD BANK: Well, I think it's a mistake. And I think it's somewhat symptomatic of the dangers that we're going to see in many countries about pressure for populism, nationalism, target policies, protectionism.

It's not going to be good for Argentina over the long run. But you're right. It's the sort of thing that you want to resist in all economies.

QUEST: Argentina has more than 40 claims before the tribunal from previous occasions of this sort of activity. And what would you recommend or suggest needs to be done on this occasion?

ZOELLICK: Well, if you're talking about one of the investment tribunals, since it's part of the Bank, I actually -- to have it be a fair process, I'm not commenting on the tribunal cases.

But I think that I've made quite clear that I think that the step that Argentina took in the words of President Calderon of Mexico, what investor would, in his right mind, would put money into a country where people are taking away the private property?

QUEST: Isn't the difficulty, now, how to unwind what's taken place? With country -- with Argentina not losing face, with Spain getting back what it believes its right, where the companies involved getting proper compensation, finding a formula that allows everybody to row back is what's going to be challenging.

ZOELLICK: I suppose. I -- my view of life is if you make a mistake, you should reverse it.

QUEST: You just think they should change their mind

ZOELLICK: I think it was a bad policy. I think it's a mistake, and I think it'll hurt Argentina over the long run. It may have some short-term political benefit to the government, but this is not the time to be playing with fire, and ultimately, it'll leave Argentina behind in the international economy, and that hurts the people of Argentina, and that's who I'm concerned about.

(END VIDEOTAPE)

QUEST: President Robert Zoellick of the World Bank. And we'll be hearing more from him and his thoughts on the next president of the World Bank and the global economy a little bit further on in QUEST MEANS BUSINESS.

Earlier, I asked the IMF's director general Christine Lagarde on the Argentina move, and suitably, this is what the managing director said or, perhaps, didn't.

(BEGIN VIDEO CLIP)

CHRSTINE LAGARDE, DIRECTOR GENERAL, INTERNATIONAL MONETARY FUND: My worry is that foreign direct investment in many countries are extremely necessary, and foreign direct investment to move in the direction of any country, it needs to have certainty. It needs to have predictability. And -- I'll say no more. I think it's -- my silence will be eloquent.

(END VIDEO CLIP)

QUEST: The managing director of the IMF, Christine Lagarde. And in a moment, she becomes a weather forecaster. And the IMF -- says she sees dark clouds on the horizon, but she has her economic umbrella ready. In a moment, QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: From the atrium of the IMF headquarters in Washington, it's an unsettled forecast from the managing director of the IMF. The World Bank and the Fund are holding their spring meetings here in Washington.

Christine Lagarde is warning the stormy weather has not blown over yet, and she's calling Europe the epicenter of risk to the global economy. Best get your umbrellas ready, says the weather forecaster.

(BEGIN VIDEO CLIP)

LAGARDE: Looking at the world economic situation, it's obviously very diverse. And if I was to use a weather analogy, because we're all very fond of weather reports, we're seeing a light recovery blowing in a spring wind, but we are also seeing some very dark clouds on the horizon, which is another way to tell you that there is a bit of a recovery, timid, and a fragile situation with still high risks.

(END VIDEO CLIP)

QUEST: Christine Lagarde warns that Europe needs to, in her words, keep up the pace of reform, and she told me the economic umbrella that's being raised over it still has some holes in it and that beneath it there's room for austerity.

(BEGIN VIDEOTAPE)

LAGARDE: What we're saying, essentially, is number one, for countries that are under financial and financing stress, they have to demonstrate determination to cut deficit. So, those countries have to go through those austerity measures that we've been talking about.

There's a second group of countries that are not facing the same financing stress and that should let revenue fall and spending rise, depending on circumstances, if growth is under threat.

And then the third category, that's my last one, third category has a bit of space, a bit of fiscal space and is not facing hard, tough market conditions. Those ones could, if growth is in jeopardy, slow down a bit the pace of consolidation.

QUEST: But the fact that the IMF and yourself are saying that suggests that at the moment, you believe the balance is not right between all those countries.

LAGARDE: No, quite to the contrary. We think that the level at the moment is fine. Not more, not less, but it has to be tailored if growth is likely to be in jeopardy.

If we see that growth is sort of weakening, then the recipe that I've just mentioned, those under stress, those that do not have fiscal space, and those which have fiscal space, have to adjust their austerity program.

QUEST: With Spain, are the Europeans not being given a chance to get it right? Having spectacularly got it wrong previously, now they have a chance with Spain to get a head of the curve.

LAGARDE: They do have a much, much improved took kit. They have solid government in place, they have the strict governance, they have the ECB, that has done very good things, and they have the firewall. So --

QUEST: If they choose to use it all.

LAGARDE: -- the toolbox is much bigger, and if they use it adequately and if they have the political resolve to do it, yes, they can get it right.

QUEST: Do you think they will?

LAGARDE: I have trust in Europe.

QUEST: The crisis -- you used a weather analogy. High -- you talked about a timid recovery blowing in the spring wind and dark clouds on the horizon.

LAGARDE: Yes.

QUEST: OK, if they storm breaks, is the umbrella that now exists in the financial market, is it strong enough? Will it withhold us from a downpour?

LAGARDE: I'm ever so pleased that you're thinking about the umbrella, because I've heard so much about the firewall and the firepower and all this sort of weapons language. It doesn't suit me so much as the umbrella. I think it's great.

And it's not just one, huge, big umbrella. It's a set of umbrellas that will be -- that will have to be used in coordination if need be. What I hope is that the wind of growth will actually pick up a bit more and will push those big clouds away faster than we have to open the umbrella.

QUEST: And does the umbrella still have too many holes in it? Just to push this umbrella analogy far further than it should be allowed to go.

LAGARDE: Well, the holes are being filled, you know? Because the Europeans committed -- Japan was the first one to commit, Nordic countries, Switzerland. They're coming in groups, and I have more countries actually committing today and tomorrow.

QUEST: Are you disappointed that the United States is not committing?

LAGARDE: I want the United States to be an economic leader. The United States is contributing in its own way, different from the others, no question. But as Tim Geithner said yesterday, it is providing those central bank to central bank swap lines in much significant numbers.

QUEST: What is it you want now from the global -- from global leaders, from the financial world? What is it in blunt terms that you want?

LAGARDE: I want cooperation, collective action. I want balance, no excess. I want money, because I need to consolidate the umbrella and make sure that we can resist any potential crisis. And I want implementation of the quarter and governance reforms so that the IMF actually represents the economic world adequately.

(END VIDEOTAPE)

QUEST: That's the managing director of the IMF, Christine Lagarde.

Just over the border from the EU is a powerhouse of growth that is, of course, Turkey, where the economy is set for a 4 percent expansion this year. The government there is giving tax breaks to key industries. It's part of the drive to close the gap between imports and exports.

The economy is slowing down, and some might suggest that's a mixed blessing. The finance minister, Mehmet Simsek, joins me now. Minister, thank you for talking to us.

If we look at what the IMF says and what Christine Lagarde says, she wants cooperation, she wants greater coordination. Do you see any evidence that that is now happening in a -- in a meaningful way in the G20 or elsewhere?

MEHMET SIMSEK, TURKISH FINANCE MINISTER: Well, that's a perfect recipe, but unfortunately, when it comes to practice, there is less so, because global imbalances are growing rather than narrowing. I think it suggests that maybe it isn't happening.

Yes, there's a lot of talk of it, certainly. I think it helps to talk about this cooperation, coordination. But ultimately, Chinese need to obviously spend more and the US needs to save more. And --

QUEST: If we look at that. Because you are now sounding a warning note, aren't you, that whatever we may think has been fixed, back to Christine Lagarde's umbrella, there are holes in it, and it could rain down on an emerging market and an economy like yourselves?

SIMSEK: Absolutely. I mean, look at -- our exposure to the eurozone is huge, and what is happening in the eurozone is having a significant impact on us. Our exports to the rest of the world is running at high teens year on year, but to the eurozone, it's completely stalled. So, I think it's important as -- that we fix problems around us so that everybody can move on.

QUEST: I -- in your own economy at the moment, as it slows down to 4, 5 percent or give or take, that is not sufficient to create the growing middle class and the unemployment -- bringing down of unemployment, and all the things that are necessary for the alleviation of -- or creation of growth.

SIMSEK: Yes. I mean, 4 percent is sub trend. Last year, we had 8.5 percent real GDP growth. The previous year, we had 9.2 percent. And we've created over 3 million jobs over the past three, four years. Of course, 4 percent is not enough. But given the circumstances, given the Arab Spring, given the eurozone debt -- sovereign debt crisis, I think 4 percent is quite respectable.

QUEST: So, also when I look at, say, for example, Turkey, you're with the Syrian issue, with the eurozone issue --

SIMSEK: Iran.

QUEST: With Iran issue. You're well and truly caught in the middle. Which of all of these crises do you think threatens the stability in Turkey the most?

SIMSEK: Well, I think the eurozone, from a medium-term, long-term perspective over the next decade is more of a drag. Iran is more geopolitical risk that has an impact to higher oil prices, which obviously has a negative impact on Turkey.

Syria is less of a concern because our trade volume in Syria --

QUEST: Right.

SIMSEK: -- is only $2 billion. With Iran, it's $16 billion. But with -- obviously, Europe is three, four times.

QUEST: Minister, many thanks for joining us.

SIMSEK: Thank you.

QUEST: Now, before you -- time for our Currency Conundrum. You don't need to answer the question, but today's Currency Conundrum, how long does a dollar bill still in circulation? Is it two years, five years, or ten years? A dollar bill. We'll reveal the answer later in the program.

The currency market today, on the market, the euro is slightly up against the dollar. Sterling is trading at a five-year -- five-month high against the greenback. Expectations of stimulus fade away. And in Japan, the yen is weakening after the Central Bank said it's committed to more monetary easing. Those are the rates, this is the break.

(COMMERCIAL BREAK)

QUEST: Good evening from Washington. QUEST MEANS BUSINESS coming from the spring meetings of the IMF and World Bank.

Spain just beat its target at a bond auction today, raising more than 2.5 billion euros. That's $3.3 billion. It came at a cost. Concern about Spanish debt pushed the borrowing higher. The yields on the ten-year bond 5.7 percent, that's up from 5.4 percent in January. Spain's benchmark index fell sharply. The IBEX 35 is now below 7,000 for the first time in three years.

The outgoing president of the World Bank, Robert Zoellick, has some ideas on what Spain needs to do to short -- sort out its chronic problems. Robert Zoellick is in the last few days as president of the Bank, told me the solution is no secret: the core is growth and support.

(BEGIN VIDEOTAPE)

ZOELLICK: Well, let's start with the basics. The future of Spain depends on the Spanish. So, the most important thing about getting Spain right is for the Spanish.

But if you're going to keep a euro zone, and you're going to have an effective European Union, they certainly need support. And as somebody that's had some experience with politics as well as economics, what I'm suggesting is, as they make these tough economic decisions, as they have 23 percent unemployment, they're going to need some support to continue the process.

But also, let's not just get totally absorbed with Europe. I represent the World Bank and developing countries. Developing countries represent two thirds of global growth, so one way you help Spain and Europe is to continue to foster the growth in developing countries, because that will create some markets for Spain and others.

QUEST: The situation, if not grave, is serious. And yes, we have been in worse situations over the last two or three years, and no doubt you'll say that this is no time for complacency. What needs to be done?

ZOELLICK: Well, it's no time for complacency.

(LAUGHTER)

ZOELLICK: Well, I think there's a number of aspects, and right now, people are focused on the problems in the eurozone, the European Central Bank's efforts bought time, but people have to use the time. And there continue to be a combination of issues with the banks, the sovereign debt, the fiscal consolidation, and my emphasis is, doing all this in an environment without growth is very difficult.

QUEST: Are you now saying that the balance at the moment between austerity and growth in the eurozone is wrong?

ZOELLICK: No, I don't -- this simple trade off of zero sum doesn't work for me. So, what I believe is that the Germans, for example, are right about countries having to take the fundamental steps in terms of fiscal consolidation and structural reform for growth.

My point, however, is if you don't have some additional demand, it's hard. I've tried to come up with some ideas on the supply side with additional investment and additional use of the single market for services and people that would help with the politics of reform.

QUEST: As you come to the end of your tenure here and the World Bank looks to a new direction or a change, how would you best describe what you think the change will be under the new administration?

ZOELLICK: Well, I think there'll obviously be some continuation. What I've tried to do differently is to focus on the client. And so, sometimes you have elite economists say the Bank should do X or Y or Zed.

My view is, let's listen to the client, and then let's try to get faster, more flexible, and modernize our operations. This moves in the direction of making it a more open institution. We've had a lot of transformations of information, data policies, research policies that partly democratize the development process.

From the contacts I've had with Dr. Kim, I think he'll do a fine job, and I think his science evidentiary-based model will move in that direction. I'm pleased that I tried to leave a well-resourced institution. We had the first capital increase in some 20 years, and we raised about $90 billion for our fund for the poorest, so that's a pretty good start.

But I believe in change, and that's one reason why I stepped down. I think it's good to bring somebody else in who'll have fresh ideas. So, let's see what he decides.

QUEST: Ten years from now, will we be out of the financial crisis? Will things look a lot better, do you think?

ZOELLICK: I certainly hope so. I'm an optimist. But I'm also a person who's made policy, and it depends on the decisions that people make. So, that's some of the things that I hope to push forward even at my last spring meeting.

(END VIDEOTAPE)

QUEST: That is the president, the outgoing president of the World Bank, Robert Zoellick, talking to me earlier.

Coming up next on QUEST MEANS BUSINESS, I'm joined by Olivier Blanchard, the chief economist of the IMF. We're going to be talking the WEO, World Economic Outlook, and what needs to be done. We are live tonight in Washington. Good evening.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. More Quest Means Business in a moment. First I'll have the headlines because this is CNN, and on this network, the news always comes first.

(BEGIN VIDEOTAPE)

QUEST (voice over): The head of the U.N. is now calling for 300 monitors in Syria. The six unarmed observers who are there right now have not been allowed inside the devastated city of Homs. Video posted online appears to show a building there on fire after it was shelled. An opposition group says troops have killed 25 people on Thursday.

Anders Breivik says he was hoping to kill Norway's prime minister and other members of the government in his militant rampage last July. Breivik admits to killing 77 people with a car bomb and gun attacks. In new testimony, he also reveals he prepared for the rampage by playing first- person shooter video games.

The chairman and chief executive of Repsol says Argentina's government is unfit to lead the country, and Europe should force it onto the right path. Speaking exclusively to CNN, Antoine Berthou confirmed that Repsol's gas and oil units in Argentina have now been nationalized.

The chief executive of Barclays won't be getting part of his bonus this year. Barclays has bowed to pressure from shareholders and has deferred Bob Diamond's bonus for 2011 until the bank has improved profitability.

(END VIDEOTAPE)

QUEST: Twice a year, the World Economic Outlook is published, and we pour over the numbers to see exactly what they mean. Has there been improvement in the global economy? Where are the weaknesses? Well, there was a small improvement in the overall trend of growth, but the weaknesses were still there.

Very fragile is what -- how the World Economic Outlook described the possibilities. Olivier Blanchard is the IMF's chief economist. Olivier joins me now. The risks just won't go away, and as I read your summary, those risks are as dire in many ways if they happen.

OLIVIER BLANCHARD, CHIEF ECONOMIST, IMF: Yeah, they are. And they are going to be there for a long time because when you think about it, these companies have a very tough job on their hands. Even, you know, you think that Euro (inaudible) countries -- they have to deal with competitiveness, they have to deal with fiscal, they have to deal with growth, -- these are tough, tough challenges, so along the way, there are going to be bad numbers, there are going to be worried investors, there is going to be pressure at financial markets. We have to be ready for some.

QUEST: We have to be ready. But as I wrote already, you were -- you are now saying more so than you have before that the austerity being taken, even if it's right, it might be too much, too quickly in some cases.

BLANCHARD: No, we don't say that. I don't think we say this. We say we have to be careful not to do too much fiscal austerity, but we don't -- we don't criticize the existing progress.

QUEST: But are we doing too much at the moment?

BLANCHARD: No, we're not. No we're not. The way we think about it is we have to push the bank (ph) as much as we can. The instrument that we have is money. Interest rates. We're pushing. Then, there are breaks. One is fiscal, and the other is banks. We're saying on fiscal, do something steady. Do go at it too strongly. In most cases, we are doing the right thing. And for banks, they could probably do more.

QUEST: If that is the case, then you are, or one is resigned to these very high levels of unemployment in many European countries for some -- for the foreseeable future, simply on the grounds that they are in a slow-down, in a recession that's going to get worse as a result of the policies.

BLANCHARD: No. I think we have to accept the fact that there are breaks to growth now, so growth numbers this year -- you saw the forecast - - they're not good, OK? But other times, things will improve. Like very low interest rates. If I asked you, zero interest rates -- are you going to get a demand, well, you'd say yes.

Now at some stage, these interest rates are going to need to more investment, more (inaudible) going to come, right? Then --

QUEST: Only if there's a structural reform that takes place.

BLANCHARD: No! Forget structural reform. If you had zero interest rates, you can't lower zero interest rates, you'll go and you'll buy (inaudible).

QUEST: It hasn't happened yet, Olivier.

BLANCHARD: Because of the other breaks, but the other breaks are slowly going to phase out, and hopefully, right, things will improve. Now this being said, even under the most optimistic scenario, you are going to have unemployment for quite a while. There is no question about this.

QUEST: You talk about tail risk. It's the first time that we've heard this sort of phrase, tail risk. It's basically it's the big banana. Isn't it? It's what could go wrong horribly.

BLANCHARD: Yeah. Absolutely.

QUEST: And it's about a country leaving the euro zone. It's about the collapse of the Euro, and you mention that quite openly now.

BLANCHARD: Yeah, it's a nightmare. And nightmares we've always try to think about, but discreetly, we decided that it is time we could share basically these nightmares in the World Economic Outlook. So it's not chance. We have thought about these things before, but now we basically said, look, let's try to think about what would happen in that case.

We're doing everything we can so it doesn't happen, but yes, now we have a discussion of it.

QUEST: Many thanks today for joining us.

BLANCHARD: It was a pleasure.

QUEST: Good to see you as always. Olivier Blanchard joining me here live in Washington. The managing director of the IMF decided to give us an economic weather forecast. Wonder what Christina Lagarde would be like during a real weather forecast? Better still, let's find out after the break what they're like during the weather. We'll be right back after these messages.

(COMMERCIAL BREAK)

QUEST: Earlier, we left you with the question, how long does one dollar bill last in circulation? Our currency conundrum. The answer is two years. All notes get worn out from every day use. One dollar bill used to be used the most, so they wear out the quickest. A $100 note is expected to last more than seven years. Here is one dollar bill. I guarantee you, in my pocket, this won't last more than probably two hours.

The markets that are open and doing business, the Dow Jones Industrial is down 120 points. At the moment, the markets are down quite sharply. Now, Madame Lagarde says we're all very fond of our weather reports. And indeed she is most definitely looking forward to an economic umbrella.

Needless to say, I'm having a little bit more difficulty. It's bad luck, I'm told, to be opening -- just lucky I haven't got it open all the way. Jenny Harrison is at the World Weather Center for a real weather forecast, not an economic one.

JENNY HARRISON, WEATHER ANCHOR, CNN: Yeah, actually, I've just got a question. You said you're fond of your weather forecast. Is that forecast or forecasters? Can you not --

QUEST: Don't push your luck, Harrison.

HARRISON: I was just wondering. Just wondering. OK. You won't need your brelly. Just as well, you're kind of -- just as well, you won't need it. You're all right. I know, look at -- honestly. Never seen anything like it.

Let me start out with what's been going on. I'll tell you what it's not been (inaudible) at all across the South East of Europe. Another very unpleasant day, of course, for South East of Turkey. Again, it's been really hit by some pretty strong storms. But in the last few hours, you see that swirly (inaudible), that is the worst of that weather, now heading up towards Eastern mainland Europe, and it's losing a lot of it's (inaudible) system as it moves away.

But once again, we have these extremely high winds, in fact, one gust in Istanbul itself at 130 kilometers an hour, so the winds have been really, really strong. It shows in, of course, the damage certainly in the last couple of days. But as I say, the system is on its way north so it's going to be weakening all the time.

It will bring snow up into Scandinavia, and then we've got this other system in the North West. It's just been fierce across the U.K., and that is really going to spread a lot of rain across much of the South. But at the same time, these strong winds are going to be bringing, of course, thunder storms as well across into Turkey.

Look at this dust storm again in Baghdad in the last few hours across the Middle East . Some of the mobility really down to just very low numbers. The numbers in green are showing you the kilometers, so just four kilometers, so it has indeed been very dusty. That it will improve as well as the system moves away.

But this is what I mean about Western Europe, and look at these thunder storms now across the South, across the mountains and Central Europe, and then that's the (inaudible) air pressure that's sitting across the U.K. and again, we saw some very high winds here, over 108 kilometers an hour out towards the West, and it's a slow-moving system, so it'll just sit there and continue to bring those showers, and as I said, snow entering a high elevation.

But Richard, you have got some nice weather for a couple of days.

QUEST: Just as I deserve. Jenny Harrison, many thanks for that weather forecast. And that is Quest Means Business for tonight. I'm Richard Quest, live at the IMF in Washington D.C. Whatever you're up to in the hours ahead, I hope it's profitable. Marketplace Europe is next.

JULIET MANN, CNN CORRESPONDENT: Welcome to Marketplace Europe. I'm Juliet Mann in Strasbourg, as the people of France prepare to elect their next president. Home to the European parliament, this French city is one of the country's main business centers.

With unemployment in France at a 12-year high, if he wants to stay in office, Nicolas Sarkozy will need to convince voters that he's a person best placed to drive the eurozone's second biggest economy for the next five years. Coming up, a tale of two towns. I'll visit Selestat where youth unemployment is at 23 percent, while in nearby Emmendingen in Germany, it's a different story. And I talk to the CEO of the French Cosmetics giant L'Oreal at the company's global hair research center.

This footbridge in the Two Banks garden park connects Strasbourg with the German town of Kehl on the other side of the Rhine. It's a symbol of Franco-German corporation and friendship, but despite Kehl's cultural ties, the economic gulf between the two countries is getting wider, hiring staff costs employers 10 percent more in France than in Germany.

French exports have stagnated while in Germany they're booming. And unemployment in France is at 10 percent against 5.7 percent in Germany. Early on in his campaign, Sarkozy said the French should be more like the Germans. I went to two towns either side of the French-German border to find out what that means.

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MANN (voice over): It's market day in Selestat, a French town in the heart of Alsace, close to the German border. People have come here from all over the region to barter over the local-grown vegetables and supplies since medieval times.

We hear French voices, some German and a smattering of the old Alsacen dialect, a hint of cross-border cultural ties here. But economic circumstances either side of the border are very different.

This family-run kitchen company has been around since the 1930s. Despite a commitment to invest here, they worry about the increased costs of running a firm in France.

ANNE LEITZGEN, PRESIDENT, SALM KITCHENS: (Inaudible) labor are about 42 percent in France and 20 percent in Germany, so there's a big difference. Also, taxes on benefits are about double in France than what they are in Germany. Other differences are, for example, the relationship you can have with unions, they are much more, how we say, constructive and easier in Germany.

MANN (voice over): She fears that the next French government will tax companies like hers out of business.

LEITZGEN: We know that the country it needs to find more money, and we are really afraid the money's going to be taken from the companies like ours that are still working a lot, employing people and making money.

MANN (voice over): The presidential candidates who give out ideas on how to give business a boost need not travel very far. Barely 20 miles away, the German town of Emmendingen is roughly the same size and has an industrial base similar to its French neighbor. Yet, unemployment is 2.8 percent, compared to 7.4 percent in Selestat.

Among the under 25s, the unemployment rate here is 1.8 percent. In Selestat, it's 23 percent. Why the disparity? Germany has a more flexible labor market. More part-timers, government subsidies for salaries during tougher times, and established apprenticeships programs nationwide. Asked of this Frenchman, who lives in France, but works in Germany.

EMMANUEL FOYER, SALES MANAGER, BRAUNFORM: In Germany, for sure, we are looking for the long term. This is why also in companies like Braunform, there is a very deep focus on training our future employees, the approach in Germany, by helping their companies to keep their work during the crisis times, help the company to be ready when the economy re-started.

MANN: The thought is there is less job security in Germany unless extensive social protections for the unemployed, and, unlike in France, no national fixed minimum wage. The Mayor of Selestat says France needs to make these trade-offs in volatile economic times.

MARCEL BAUER, MAYOR OF SELESTAT, FRANCE (through translator): As soon as the next president is in office, be it the one we've got or a new one, I sincerely hope that the job reforms will be put in place immediately. The system needs to be more flexible. There is a lot that must change, starting with the mindset of employers and employees.

MANN: But jobs reforms that give firms in France the tools they need to grow would mean an end to a chunk of the employment perks the French so cherish.

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MANN: Coming up after the I speak to the CEO of L'Oreal, who believes that French business has a big part to play in putting the country out of its current economic malaise.

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MANN: Welcome back to Marketplace Europe. In Strasbourg, as the people of France prepare to go to the polls to elect their next government, you could say that the economy here needs a bit of a makeover, but the boss of the world's leading cosmetics company, L'Oreal is confident that France still has a competitive edge and a firm foundation for building a successful future.

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L'Oreal was founded over 100 years ago. Today, they boast some of the biggest names in beauty, including Maybelline, Lancome, and Garnier.

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MANN: With a presence in 130 countries, they employ nearly 69,000 people worldwide.

JEAN-PAUL AGON, CHAIRMAN AND CEO, L'OREAL: The cosmetic market is about innovation. Innovation, new trends, people also get older, all these trends are positive for the cosmetic market, but what we're not seeing in the next 10 years is the same growth in Europe as we can see, of course, in China or Brazil, where, in fact, the middle class now in these countries is emerging.

And so you have hundreds of millions of consumers that really want to have access to these products.

MANN: With these French elections coming up, then, what do you think should be on the economic agenda?

AGON: This. I think that the -- what should be on the agenda is: how is France going to play an important role on the economic scene in the world tomorrow? France has talents that no other country has in terms of medicines, in terms of luxury, in terms of technology, in terms of (inaudible), and this is something that the world needs, so France has a great role to play.

MANN: How important from a Frenchman's point of view, as well as from a business' point of view, is it to have a product that is made in France?

AGON: For a Lancome product to be produced in France is very important. But you know, at L'Oreal, we are not only about French products or French brands, you know, that almost half of our catalog now is made on non-French brands and, you know, it's as important for Lancome to be made in France as it important for (inaudible) to be made in America.

MANN: You signed a petition for rich people to pay more tax in France. Do you still stand by that?

AGON: Yeah. I think that 75 percent is maybe too high, but, yes, to believe that people who earn good money should share, who is president of L'Oreal U.S.A., and I think the U.S.A. people who earn a good salary, a good income, also the habit of sharing with others of giving back, and I think it's something legitimate.

MANN: In the past you've worked in Greece.

AGON: Yes.

MANN: Do you think that's given you a different perspective on the economic crisis and development in the region?

AGON: Yes, because I think I am one of the very few guys who work in Greece and in Germany. And you know, based on this experience, I can see that it's very -- it is very different for these two countries to live under the same currency.

I think that if the German economy is successful, it's very simply because they have found their role in the worldwide economy. So I think that Greece has also to define -- and define what they can be good at and what they will be known for and famous for around the world.

It's, you know, more and more, I think the destiny of the economy is a little bit like a destiny of a company. You have to specialize yourself in some areas where you're going to be the top leader worldwide. Europe could be rich of the diversity of these countries, the diversity of its expertise as long as each country is able to maximize its success as a potential in those -- in some field.

MANN: So what would you like to see the next president of France doing to harness those talents?

AGON: I think it's really time for our country and other countries of Europe to get united, to define some objectives, to define some ambitions and to make everyone behind its ambitions, and I think its absolutely possible.

I really believe now, that the market is global, we like it or not. And if a country, like a company, wants to develop its business, wants to grow, it has to grab business from all around the world.

MANN: Jean-Paul Agon, CEO of L'Oreal. And that's it from this week's edition of Marketplace Europe in Strasbourg. Join us again next week. Good bye.

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