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Quest Means Business

Egyptian Situation Examined; European Central Bank Gives Explicit Guidance; Latest on the Edward Snowden Saga

Aired July 04, 2013 - 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: A new regime in Egypt tonight as the political, economic and corporate response to the extraordinary coup in Cairo.

Central banks are sign posting the markets getting forward guidance from the Bank of England and the ECB.

Also an intercontinental intrigue: Edward Snowden has diplomats around the globe demanding answers.

I'm Richard Quest and of course, I mean business.

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QUEST: Good evening. It has now been 24 hours since Egypt's first democratically elected president was forced out by the military. The head of the country's constitutional court, Adly Mansour, has been sworn in as interim leader. Mr. Morsy is in military custody. Straight away to Cairo and our correspondent, Ivan Watson.

Ivan, extraordinary events, new president, old president locked up. Do we know anything about Mr. Morsy at the moment?

IVAN WATSON, CNN CONTRIBUTOR: Well, I spoke with the Muslim Brotherhood spokesman a few hours ago and he said as of 5:00 am this morning Cairo time that Mohammed Morsy had been taken to the defense ministry. He was not being allowed to communicate, I was told, with his supporters and his followers and his aides.

Now is Thursday night, the beginning of the Egyptian weekend and the crowds are back again in slightly smaller number in Cairo's Tahrir Square, partying again. Earlier throughout the day, residents of the city were treated to a display by the Egyptian Air Force, several displays of jets flying overhead in formation, forming with their vapor trails hearts and the colors of the Egyptian flag.

And all of this going on as the Egyptian security forces appear to be rounding up the leadership of the Muslim Brotherhood, not just Mohammed Morsy, but some of his top aides. We hear -- and also some of the top officials in the Muslim Brotherhood, also shutting down as of last night at least three pro-Muslim Brotherhood TV stations.

The prosecutor general (ph) came out and spoke to journalists. He said that the Muslim Brotherhood is in a hole (ph). They can't move left or right and take another listen to some of the other excerpts from his statement to the press.

(BEGIN VIDEO CLIP)

ABDEL MEGUID MAHMOUD, EGYPT PROSECUTOR GENERAL (through translator): We will take measures that are nothing but legitimate and constitutional and within the right legal procedures. We will not gloat and we will not settle scores with anyone or seek revenge from anyone. We will declare the lawful sovereign (ph).

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WATSON: And there is the prosecutor general saying that he will take constitutional steps even though the top general in the country suspended the (inaudible) --

(BREAK)

QUEST: And we are, as you can hear, Ivan Watson is in Cairo tonight.

Now the Egyptian stock market surged on Mohammed Morsy's dramatic downfall. It gained more than 7 percent on Thursday, the same day as Egypt's new interim president, Adly Mansour was sworn in.

Thursday's stock market gains can't disguise the critical economic problems facing the country's interim government. Morsy wasn't able to turn the economy around; far from it. Things got a great deal worse. And now investors are keen to see if the new Mr. Mansour can conjure up jobs and investments.

So this is what's on the agenda.

Record unemployment, 13.2 percent: that's the official level. The informal level is believed to be much higher. More than 25 percent of people are living below the agreed poverty line definition. More than 70 percent of the population receives food ration cards and indeed the economy itself seems to survive on subsidies for staples like fuel and bread.

Earlier, I spoke to Naguib Sawiris, the executive chairman of Orascom Telecom Media in Cairo. And I asked him of (inaudible) --

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NAGUIB SAWIRIS, EXEC. CHAIRMAN, ORASCOM TELECOM MEDIA: Well, everybody is jubilant here. You can hear the fireworks behind me. You know, people are dancing in the streets yesterday all the time. Everybody feels like the sun has come up the darkness. I don't know if you follow but there were 30 million people in the streets of Egypt asking for this president to leave. And everybody's now very optimistic that the future is going to be better.

QUEST: How will you run your company? And how will you now have to adapt to this new environment?

SAWIRIS: To be honest, we have stopped investing in Egypt for two years now because we were not at all happy with the regime of Mr. Morsy and his gang, you know. So were many other international investors and people like us, when the local people like us don't invest in their own country, nobody comes, you know.

And we feel that the main problem was that there was not like -- we had a president who claimed to be elected democratically, while he didn't observe the democratic rules of -- and he took all the power in his hand, there was no -- he ignored the constitution, ignored the rule of law and order.

So nobody was going to invest in such an environment.

QUEST: Are you going to --

(CROSSTALK)

SAWIRIS: (Inaudible) back to Egypt where --

QUEST: -- well, are you going to invest now or are you going to wait to see if the military does hand back power to a democratically elected government? Are you now or in the future?

SAWIRIS: No, no. We are going to invest from now because we are sure. I mean, what you don't seem to grasp in the West is 30 million Egyptians went to the streets of Egypt asking for this change. The military did not act based on anything. They acted based of the wish of the people.

They only acted because the regime (inaudible) Morsy in his last speech and his gang threatened the Egyptian people with violent acts, terror and so on. The army went down to protect the Egyptians from such threats. They gave them support. They didn't move and made a coup d'etat like you call it. How can you do a coup d'etat when 50 million people were in the streets?

QUEST: From the business perspective and from investment perspective, putting the economy back together again, because you and I have talked before, Naguib, the Egyptian economy is in a terrible state now.

So one of the priorities must be to get the economy moving again.

SAWIRIS: Exactly right. That's what we are concentrating on now. We are working with Dr. ElBaradei and others to form a government that will get the respect of the international investment communities that will know what it's doing, the technocrats, of experts, you know. At the same time, once we Egyptians reinvest back into our country, everybody will follow.

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QUEST: And that is Naguib Sawaris, the head of Orascom Telecom.

With Wall Street shut for Independence Day, it was left to Europe's central banks to provide their catalyst for the market and by jingo, did they do it today. We have two central bankers at the helm of what was happening.

And first of all, of course, Mario Draghi, the European Central Bank got investors pumped up in an unusual move it issued for the first time explicit forward guidance. The ECB was in an unprecedented statement by Mario Draghi. And what was interesting, it wasn't in the Q&A part. It was actually in the statement itself, forward guidance on interest rates.

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MARIO DRAGHI, PRESIDENT, ECB: The going counsel took the unprecedented step to give forward guidance in a rather more specific way than it did ever in the past. It says the governing council expects the key so all interest rates to remain the key ECB interest rates, to remain at present or lower levels for an extended period of time. It's the first time the going counsel says so.

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QUEST: So and another break with tradition, the Bank of England explained its decision to keep rates on hold and also dropped a few hints about economic conditions. Now the way the Bank of England -- and of course, under the governor, Mr. Governor Mark Kearney, it basically said the rising rates in the market -- some 20-odd percent on short-term rates - - 10-year gilt (ph), the rise in the rates was weighing against economic benefit and was not justified by the underlying economic conditions.

So what we go in from -- what we got from Mark Kearney and from his MPC was 303 words, nothing including the date of the next meeting. Compare that to the last two meetings under Mervyn King, where the statement was just 44 words. We are moving towards -- we are moving towards forward guidance from both the Bank of England and we certainly got it today from the ECB.

The market absolutely loved it. European stocks surged as investors put concerns about Portugal on the side for the moment. A strong rebound after the close, word of a breakthrough (inaudible) prime minister and foreign minister reached agreement to keep their coalitions alive.

Stephen King is with us, chief economist at HSBC, and author of "When the Money Runs Out: The End of Western Affluence."

Money's not run out just yet from this lot.

STEPHEN KING, CHIEF ECONOMIST, HSBC: Central banks of course, can print as much money as they wish to. And in that sense they can produce lots and lots of money. My point merely in the book was to say that people (inaudible) expected in that sense money's running out rather than just through the (inaudible) themselves.

QUEST: The fact that we got forward guidance now from the ECB -- and let's face it, it's coming in August from the Bank of England, I'm tempted to say what's taken them so long? The Fed's been doing it for months if not years.

KING: One thing that's changed, of course, over the last few weeks is the talk about the Federal Reserve tapering QE in the U.S. And that has led to this big increase in bond yields, not just in the U.S. itself, but also in the U.K. and in the Eurozone. And the problem is that the U.K. economy -- and in particular the Eurozone economies -- are not strong at the moment. So the last thing they needed to stage is higher bond yields driven by changes in U.S. monetary policy rather than monetary policy at home.

QUEST: But anybody worth their salt would have looked at the economic data and seen huge unemployment, stagnant growth and realized that the -- they weren't going to be moving on rates anytime soon.

(CROSSTALK)

QUEST: -- it's like walking in front of them with a red flag.

KING: That's (inaudible) true. But the problem is that bond markets around the world are very, very highly correlated. And so even if it's the case of the economy in Europe or in the U.K.'s, it's still relatively weak. The fact that the markets are so heavily correlated with the U.S. that investors everywhere are competing for funds gives you that high correlation (inaudible) more difficult step, (inaudible) correctly.

QUEST: But if you end up with that high correlation, you're still going to get tapering in the U.S. probably before the --

KING: Before (inaudible).

QUEST: -- before the end of the year. So there will still be that spillover across the Atlantic into European markets and into European bonds.

KING: Which is precisely why they've done what they've done today, which is --

(CROSSTALK)

QUEST: But is it going to work?

KING: Well, that's another question (inaudible).

QUEST: (Inaudible) work?

KING: I think there's a better chance of it working now than was the case previously, precisely because they have made this forward guidance promise. Of course, forward guidance has some difficulties because you don't know what's going to happen to economies in six months or 12 months' time.

One of the reasons why the ECB's been reluctant to offer it so far is by sort of being held hostage by economic date which appears to be different from what they had previously expected.

The only thing to remember is that even with forward guidance, there's no magic answer to all this. You know, there need to be a lot of structural reforms in Europe and (inaudible) recovery.

QUEST: And of course, we could end up with forward guidance and official -- I mean, look at the moment. We've got official rates down at 0.5 and market rates are much higher.

So we've got a discrepancy already in the market. It doesn't mean to say because central banks are going to continue their policies that the rates aren't going to rise in the market.

KING: (Inaudible) problem is the U.S. and another problem, of course, within Europe is a discontinuity in terms of interest rates being north and south. (Inaudible) companies in southern Europe are still significantly higher than they are in northern Europe partly because of the weakness of their banking systems and the advents of the banking union.

QUEST: We're talking about a high level of technicality here. But I think we come -- we have to come back to the emotion of the day and the emotion of the --

KING: Oh, emotion's very good, of course. The central banks are actually going to save the world now, whereas they failed to -- they were not going to save the world. So this is a --

QUEST: Once again, though, the central banks are having to do it because they're the only game in town.

KING: Yes, and because of politicians who should be doing the structural reforms are constantly refusing to do it. So the central bank fulfills in a vacuum that otherwise be there.

QUEST: Good to see you. Thank you very much, Stephen King, joining us to talk more.

Coming up next, QUEST MEANS BUSINESS, anger across the world, in the U.S. spying row, the latest from London and Latin America on the Edward Snowden affair.

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QUEST: Diplomats on several continents are deep in discussion tonight and all because of Edward Snowden, the security contractor who turned leaker. Whether it's in Brussels, where E.U. ambassadors are discussing allegations that U.S. spied, as Snowden claimed, or indeed in Latin America, well, everybody, it seems, is pretty angry about what's happened.

So if we examine how Snowden has stirred the whole thing. Let -- look at the map. So the whole thing starts off in Hong Kong, where he makes his first statement. And he flies -- he's already in Hong Kong, remember -- he flies and he makes (inaudible) in Hong Kong. He makes the allegations against the United States. In doing so, he angers the European Union over the alleged spying, the potential of course endangering next week's talks with the E.U.-U.S. trade talks.

But having -- I was going to use another word then, but having annoyed both Hong Kong, the U.S., the E.U., he sneaks into Russia and not only that, the hunt thereafter forces the Bolivian presidential plane to land in Austria and that angers the whole of South America. Latin American leaders tonight are meeting in Bolivia; Ecuador's foreign minister wants to know who put the bug in the London embassy.

So by my reckoning, he has annoyed the Chinese, the Russians, the Americans, the Latin Americans and the Europeans. Perhaps only the African continent remains to be put off.

We have team coverage for you on all of this.

Atika is with me in our studio here in London and CNN's Matthew Chance is joining us from Quito in Ecuador.

Let's begin, Matthew, with you. So Ecuador is still considering the asylum. But I'm wondering what does this Bolivia wrinkle in all of this make it more likely that the Ecuadorians or Latin Americans are sympathetic to Snowden?

MATTHEW CHANCE, CNN SR. INTL. CORRESPONDENT: Well, Richard, I think that's the key question because up until now, three main countries that emerged as the most likely candidates to offer Edward Snowden asylum -- talk about Ecuador, Venezuela and Bolivia, up until now, they've kind of made the calculation that economically the consequences perhaps would have been too great; their products are heavily dependent on markets in the United States. There may have been sanctions against them if they'd done that.

But this incident involving the plane of Eva Morales, the Bolivian president, has really angered Latin American leaders. There's an extraordinary meeting of heads of state taking place in Bolivia a short time from now. They could change their calculations.

QUEST: Atika, whilst those leaders in Latin America are getting hot under the collar, did anything of importance, useful or interest, come from E.U. ambassadors?

Or are they just hot air?

ATIKA SHUBERT, CNN CORRESPONDENT: It's not just hot air. What they had decided is to launch an inquiry investigation to find out what's really happened, not just what kind of spying has the NSA done on E.U. offices in Washington, Brussels, but also allegations that member E.U. states have been spying on each other as well.

So it goes a lot further now.

Also, remember, you talked about those trade talks. There were threats to derail those trade talks --

QUEST: But they're going ahead.

SHUBERT: They are --

QUEST: -- commission said it's going ahead.

SHUBERT: -- yes, they're going ahead, but only because talks about the security and the spying are now going in parallel with the trade talks.

QUEST: Matthew, how much of this -- how much of this anger in Latin America is, quote, "being fueled by the usual suspects?" Anti-American rhetoric, which, frankly, you don't need a Tuesday in August to wait for.

CHANCE: That's right. Well, I think a lot of it is being fueled by those usual suspects. The awkward squad, as they're sometimes called. It's interesting because this meeting that's taking place in Bolivia in three hours or so from now, it was meant to be a gathering of all the heads of state coming together to condemn the United States and condemn the European governments for interrupting the presidential plane of Eva Morales. But only five presidents have turned out to visit it as far as we can see, Venezuela, Ecuador, Bolivia, Argentina and Surinam. Other countries have free trade agreements with the United States, like Chile, Peru, Brazil, Colombia; they're staying away.

QUEST: And Atika this, the Morales plane, I mean is this conspiracy, was this designed? Or was it good old-fashioned cock-up? They just simply -- they just simply had a plane heading in their direction and they turned down permission for it to land and now everybody's very red-faced?

SHUBERT: There's definitely a lot of conspiracy theories. But what it seems is that Portugal said you can't refuel here, and that had a knock- on effect in everywhere else. They ended up in Vienna instead.

Now I do think there's a lot of drama that's come out of this from Bolivia. They called it kidnapping by imperialism. That says a lot right there.

QUEST: Finally, Matthew, is it -- this is the impossible question to you.

I mean, first of all, is it a gut feeling in your part of the world that he is going to get some asylum or some form of asylum from some country?

And how on Earth is he going to get there?

CHANCE: Well, that's the real problem. I mean, even if this scandal over the Bolivian presidential plane gets the leaders to alter their calculations and they say, OK, we're going to give him asylum, they still face that fundamental physical obstacle: how do they get Edward Snowden out of the airport?

I think what the ordering of the Bolivian plane to land in Vienna or forcing it to land in Vienna, I think what it shows is that the U.S. and European powers are prepared to intervene if they suspect Edward Snowden is on a flight crossing their territory. And that may be the real message of that scandal.

QUEST: And final question to you, Atika, come on, the realpolitik of this is the Europeans or we'll just eventually ignore and to be back to business as usual within a month.

SHUBERT: Well, nobody can say no to the United States, can they? So you're right about that.

QUEST: Well, maybe not on Independence Day.

Matthew is in (inaudible) Quito, Ecuador -- I'm getting confused with -- you've been in so many countries recently, Matthew, that even I'm getting confused as to exactly which one you're in today.

You are in Ecuador; you're with me, Atika Shubert, in London.

Let's continue our look around the world on the business conversation of the evening.

The identity of Rupert Murdoch's eventual successor at News Corp may have been revealed in a secretly recorded conversation. Exaro News claims to have taped the conversation, reportedly in March, between Murdoch reporters working for a Sun newspaper. It was later broadcast on our U.K. affiliate, Channel 4 News.

CNN cannot confirm the recording's authenticity. It appears to suggest his son, Lachlan Murdoch, is next in line.

(BEGIN AUDIO CLIP)

UNIDENTIFIED MALE (from captions): (Inaudible) my son, (inaudible). And you don't have any worries about either of them.

(END AUDIO CLIP)

QUEST: Lachlan Murdoch.

Now News Corp has not denied the authenticity of the recording, nor has it commented on the conversation regarding the succession plans.

QUEST MEANS BUSINESS after the break. When is a coup not a coup? Well, apparently, when it's in Egypt. We hear from an elder statesman of British diplomacy on the removal of Mohammed Morsy on whether it's time to call a spade a shovel in some plain English.

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QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news always comes first.

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QUEST (voice-over): The head of Egypt's Supreme Constitutional Court has been sworn in as the country's interim president. Adly Mansour is virtually unknown outside the country. At the ceremony, Mansour said the Egyptian people have given him the authority to amend and correct the revolution that ousted Mubarak in 2011.

The Middle East news agency says the Muslim Brotherhood's former chairman and his bodyguards have been arrested. Now TV is reporting on additional high-profile arrests.

Court papers lodged in a bitter family dispute say the former South African President Nelson Mandela is in a perilous state of health. The case ended with a court order for his grandson, Mandla (ph), to return the remains of three of Mandela's deceased children to Mandela's boyhood hometown. Relatives say they want to make sure the family gravesites stay together.

The European Central Bank has broken with precedent declaring it will keep interest rates at record lows for an extended period and may yet cut further. In another break with tradition, the Bank of England explained it was in no rush to raise interest rates, given the weak state of the British economy.

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QUEST: The question is being asked: when is a coup not a coup? When can we call it something different? And are the events of Egypt over the last 24 hours, did what take place, was it a coup?

The Egyptian liberal opposition leader, Mohamed ElBaradei says the events of the past few days are not a coup. He spoke earlier to CNN's Becky Anderson.

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MOHAMED ELBARADEI, EGYPTIAN OPPOSITION LEADER: It's not a coup, Becky. I mean, unfortunately, it's a sad situation we're in. It's a painful situation with all that we went through fairly free in our presidential election. And then unfortunately the president messed up and when you end up with 20 million people in the street, you know, of a state of mind that he needs to go and needs to go now, you know, it is -- it's sad state. It was a very painful decision to make, you know. Either to continue and risk a civil war situation or take some exceptional measures to make correction of the uprising of 2011.

(END VIDEO CLIP)

QUEST: You can see more of that interview in a special edition of "CONNECT THE WORLD" live from Cairo, which is just 90 minutes away from now.

So if you go by the dictionary definition, the pedants and the semantics, well, I think one would have to say semantically what has happened in Egypt is a coup -- a popular coup, perhaps, but a coup nonetheless.

Not everyone is willing to call it that. The U.S. president has avoided the "coup" word; so has the U.K.'s foreign secretary, for good reason. There are legal implications to calling something a coup, things like aid, for example, may no longer be forthcoming.

Lord David Owen was Britain's foreign secretary in the 1970s. I asked him what he'd call the removal of President Morsy.

(BEGIN VIDEOTAPE)

DAVID OWEN, FORMER U.K. FOREIGN SECRETARY: Let's call it by what it is: it's a military coup. It's happened before. Democracy has come back under military and it can easily do so again. We've seen it all too recently. We had the junta in Greece. We had Franco and we had fascism in Portugal.

When we started to see just a creeping of disrespect for democracy in our own European Union countries, we're tamping down on it. We tamped down on it in Austria and we're very worried about Hungary at the moment. And we're quite right to be.

Vigilance, eternal vigilance, is the price of democracy.

QUEST: Are you uncomfortable with what has taken place?

OWEN: Yes, I am. I think we thought this was a reasonably fair election and we thought that the Muslim Brotherhood won the presidency and we accepted this as such.

To see it overturned by effectively a military coup after only really a year of -- is a very, very difficult -- to live with. And yet we have to live with it. We don't live there; this is being done by a popular protest movement. And I think we just need to be very cautious. We don't need to endorse them. We need to advise them. They should treat President Morsy with respect. They should not have him locked up. And that he should be the transition from in a democracy, from president to president, is very important. And I think that we should try to ensure that this process of house arrest lasts for a very short time.

QUEST: Is it -- is there a role for the E.U.? Obviously there is for the U.S. A carrot and a stick approach to those generals in the military in Egypt, saying, all right; we don't really like what you've done, but we'll hold our nose while you've done it. But, by jingo, you had better get back on track. And we'll use a stick if we have to.

OWEN: Well, I think E.U.'s quite good at soft diplomacy. They're not very good at force. But they have put a lot of money into Palestine and the West Bank and have tried to keep open the lines to Gaza at a time when America and some other countries like Britain have cut them off, really, too much.

So the E.U.'s been a good vehicle (inaudible). Yes, I think the E.U. can use their aid budget and possibly increase it and talk and have a dialogue, all the time with a commitment to restoring democracy.

QUEST: If we were the NSA, and we were listening to conversations of diplomats around the world tonight --

OWEN: You can be sure they are.

QUEST: -- what do you think they're all saying to each other, the French to the Brits, the Brits to the Americans, the Americans to the Australians? What do you think everybody's saying about the Egyptian situation tonight?

OWEN: I suspect the French and the British view it pretty similarly and I think we have worked together with them well over Libya. We are attempting to try and get a more active involvement over Syria. So there's a -- French and Britain, I think, is OK. I'm not sure how much influence we have on American policy towards Egypt.

(END VIDEOTAPE)

QUEST: Lord David Owen talking to me earlier.

After the break, BA's new baby. Well, less of a baby and more of a whale, rather large. That's it, the A380. We'll tell you why economically it's so significant for the world's airlines.

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QUEST: British Airways has become the only airline in Europe to now operate both the Boeing 787 Dreamliner and its Airbus A380 rival.

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QUEST (voice-over): BA took delivery of the first of its 12 A380s at Heathrow. All in all, it's the first of 78 fuel-efficient wide-bodied jets, the plan that the airline is going to purchase and introduce in the next decade at a cost of $21 billion.

The chief executive, Keith Williams, told Ayesha Durgahee why these new aircraft are worth the eye-watering price tag.

(BEGIN VIDEOTAPE)

KEITH WILLIAMS, CEO, BA: If you look at the cost of oil, it's $105 today. So oil is obviously a big cost for the airline. And we spend 3.5 billion pounds a year on oil. So anything you can do on fuel efficiency is great. And clearly you know, the modern fleet that we're bringing in with this Boeing 787 and mainly A380s, it bring in fuel efficiency, 15-20 percent fuel efficiency.

This aircraft has 469 seats across the forecabins that we fly. You should expect this to fly on the trunk roads (inaudible) routes going forward. If you look at what's happening to British Airways at Heathrow, we've acquired more slots through the acquisition of British Midland for about 42 more slots.

And that gives us the capability to grow the long haul network a little bit, to places that we haven't been able to fly to in the past.

So you know, we'll serve the emerging markets and other markets with the 787. If you look at the market today, and fuel is a big cost for everybody. And it's up to 40 percent of the cost base, which a few years it wasn't.

So modernizing the fleet is clearly important.

(END VIDEOTAPE)

QUEST: And that's why you need both the 787 for the small, skinny routes, long, skinny routes, and you need the A380s, the big super jumbo, the whale, which of course, to fill a plane like this really is an achievement because it is absolutely vast. And the economics of this sort of aircraft with its double-decker and huge cost of purchase, to fill that sort of plane really is a major achievement. And you do need to only put it on those very specialized high-yield, high-density trunk routes such as BA putting it on Los Angeles and Hong Kong. It is the 10th airline to receive the jumbo. Airbus says it will slash more than $150 million from the airlines' annual fuel bill in the lifetime of the plane.

The chief executive of Airbus, Fabrice Bregier, says, well, it's good to see airlines adding capacity even at this sort of level once again.

(BEGIN VIDEOTAPE)

FABRICE BREGIER, CEO, AIRBUS: Passenger per seats, the cost is much lower, of course. You do the size of the aircraft, the performance of the engines and the companies which operate these (inaudible) make a hell of money with it, yes. This is the solution for the (inaudible).

(END VIDEOTAPE)

QUEST: Solutions of future growth, solutions for the weather forecast.

Tom Sater is at the World Weather Center.

Warm, humid, (inaudible).

TOM SATER, AMS METEOROLOGIST: Yes, pleasant. In fact, Richard, you're living large. The next seven days, maybe 7-10, the worst the sky conditions will get in London will be partly cloudy. That's it.

Now it was up to 25 today. That's a little warm. The warmest temperature so far this season, last Sunday, 27 degrees, a lot of sunshine to be hoped. The heat really starting to build in parts of Portugal and into Spain, France as well. We'll get there. A few isolated showers, nothing heavy on radar at all. In fact, really dry conditions will prevail. And a good part of Europe, I think, for the next week, and that's mainly due to high pressure. As it slides into the area, a little southerly, southwesterly wind, sky conditions as mentioned will be quite clear. And just a smattering of some light showers but they'll stay mainly in Central Europe and head off a little bit toward the east.

Twenty right now in Paris, notice 36 in Madrid, where the brighter colors start to appear. This is where we're going to have some concerns, where the heat getting a little warmer than usual, Lisbon 36 degrees, making its way up to 38. The average, 27 degrees. Notice even Madrid, you're going to be in the upper 30s as well. So no big break from the heat for the next several days.

For the Tour de France, OK, we're looking at a good 205 kilometers, again, a lot of sunshine from the start to the finish. Conditions a little warm, of course. You get into the higher terrain, a little breeze, they'll handle it.

This is where it's going to get warm, of course, on the grass, 27 degrees for the women's final in Wimbledon. Sunday, men, will put up with a couple more degrees. So it's going to get quite warm at 29. In the U.S., a conveyor belt of moisture in the east; out west, the heat continues to build. We had thunderstorms that fired up just to the east of Albuquerque. You see it as it kind of made its way southward. I mean, they've been putting up with temperatures well into the upper 30s, near 40s. This is hail. It fell yesterday and continued to fall, pea-size, marble-size hail, getting as large as golf ball-size. But this is 40 cm in depth. They had to pull out these snowplows to alleviate the problem. This, again, where they've been looking at extreme temperatures and they're going to continue to see the heat out here. Of course, Independence Day, Richard, in the U.S., fireworks festivities on hold in many states out west because of the tinder dry conditions. In some cases the east has too much rain.

QUEST: Tom, thank you very much for that, Tom Sater at the World Weather Center.

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.

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NINA DOS SANTOS, CNN HOST: Hello and welcome to MARKETPLACE EUROPE from Zagreb, the capital of Croatia, the latest country to become a member of the European Union.

I'm Nina dos Santos. As you can see here in the old town square, the E.U. flag flies proudly over the parliament building, marking Croatia's position as the 28th E.U. member state. On this program, we examine what E.U. membership means for this economy ravaged by this (inaudible) independence mired in a deep recession.

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DOS SANTOS (voice-over): Coming up, a land mine clearance company putting a new spin on its technology.

And I sit down with the CEO of Croatia's leading telecoms provider, Hrvatski Telekom.

IVICA MUDRINIC, CEO, HRVATSKI TELEKOM: Our proposal from the business community to the government is that they should start the key reforms as soon as possible, so the reforms of the public administration, reforms of the retirement fund, reforms of the health system and so on.

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DOS SANTOS: Business may be brisk here in Zagreb's famous Dolax (ph) market, but don't be fooled, because this economy has actually been in recession for four years. Croatia's war for independence took a hefty toll on this country's productivity. And the recovery was hampered thereafter by the global financial crisis.

Well, manufacturing bore the brunt of this decline. But I've been one Croatian company with designs on making this nation's first urban electric car.

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DOS SANTOS (voice-over): From the ashes of war roads, one company determined to make a difference, clearing away land mines at home and abroad.

GORDON KOLAC, CEO, DOK-ING: Our roads were enforced to our needs of Croatia for humanitarian (inaudible), which means mine clearance. So we were dealing with machines that were (inaudible) the mine fields and cleared the anti-personnel (ph) and anti-tank mines, specialized robotic remotely controlled systems that actually save operators' life in the mine (inaudible).

DOS SANTOS (voice-over): The company pioneered remote controlled mine clearance, their motto: don't send a man to do a machine's job.

DOS SANTOS: DOK-ING's factory here on the outskirts of Zagreb makes around about three of these anti-personnel land mine clearance devices every single month. This batch has been tested and is ready for shipment out to Afghanistan. These are the company's biggest customer, the U.S. Army.

DOS SANTOS (voice-over): The device costs over $300,000 while its big brother, the MV-10 anti-tank mine clearer, has a price tag of over $600,000. Fortunately for DOK-ING, it has customers further afield than Europe's increasingly squeezed defense ministries.

KOLAC: We are not concentrated on the European market (inaudible). I would rather say that European market is the -- that the last (inaudible) for us because the least important for us because we are much more present in U.S., on the Russian market, in South Africa, Middle East, but in Europe, maybe only a few countries.

DOS SANTOS (voice-over): It's carved out new markets and has also diversified its portfolio to underground mining, firefighting and now it's spreading its wing even further with the founder's latest invention, an urban electric car.

VJEKOSTAV MAJETIC, FOUNDER, DOK-ING: That's my dream from my youngster's age and I am dreaming to one day have my own car. And now we have technology, what we use in underground equipment.

You know, somebody can buy Ferrari; somebody can buy Lamborghini. Somebody can buy a Rolls-Royce. I'm making the decision to do my own car.

DOS SANTOS: The dream car has a tough Kevlar and carbon fiber body, gull wing doors and a solo driving seat.

MAJETIC: These things slip to make you easier entering in the car. We can sit like this, what do for you much easier to entering in the car. Everything is touch screen. We can regulate the driving, all the mod, radios, GPS position, everything what is new we install in this model electric car.

DOS SANTOS: But it's not just an electric car. It's an electronic car --

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MAJETIC: It is. That's future. Like everybody, everything in -- now it's in electronic. That's something what we use everything what is valuable in the world market, we design it in our car.

DOS SANTOS (voice-over): The DOK-ING car of the future has yet to find a business partner. So in the meantime, this car will remain a prototype, fulfilling Mr. Majetic's dreams.

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DOS SANTOS: Signing up for E.U. membership also means swallowing Brussels' bureaucracy, and that's already left a bitter taste in the mouths of a number of Croatian winemakers. Take, for instance, this local sweet wine. It's been made in this region for the best part of 500 years. But with a name like Fragec (ph), the E.U. has now ruled this sounds too similar to the Italian sparkling wine called Proseco (ph). And as such, it can no longer be sold.

Well, coming after the break, I speak to the CEO of (inaudible).

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DOS SANTOS: Welcome back to MARKETPLACE EUROPE from Zagreb.

Croatia's accusation to the E.U. is taking 12 years with the help of some $13 billion worth of E.U. restructuring funds, the challenge is to make this country's economy more competitive. But what do businesses here in Croatia think that the E.U. will do for them?

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SUZANA ISEINI, DOTAC MARKET TRADER: (Inaudible). There's going to see. They even know we are not sure that there's going to be better or worse. Who doesn't know now.

We hope that it is going to be better, but we're going to see.

JURICA SAMARDZIC, FLORIST: I think it's so much maybe tourists come here, more tourists and of course, more euros.

DOS SANTOS: Niko, first of all, E.U. accession, good or a bad thing?

NIKO SKRIVANELI, MANAGER, HOSTEL SHAPPI: I think I'm working the tourism so I think it will be good for us.

DOS SANTOS: Luka, you think it's good?

LUKA JURKOVIC, MANAGER, IVECO: I'm working in construction business. And I think it will not be good for my -- so my kind of business. I believe in it. It is even now that big companies will come here and they will sell by themselves. Now they will just -- they will just, I don't know, maybe forget us and our kind of business and will directly sell to the clients.

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DOS SANTOS: (Inaudible) from the business community there in Zagreb.

Croatia's economy hasn't grown since 2008. And what's more is that it's set to shrink again this year.

What has been rising, though, is unemployment, which is now set to top 20 percent. The CEO of Hrvatski Telekom says that the government needs to do more.

DOS SANTOS (voice-over): Revenues at Croatia's leading telecoms provider fell by 7.6 percent in 2012 largely due to a 12.1 percent decline in voice communications. The business is increasingly reliant on growth from broadband, data traffic and pay TV, which increased 7 percent in the last year.

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MUDRINIC: The telecom in any country has a very important role and the incumbent operator. It's essentially the information infrastructure for society and for the economy, for business as well. In addition, typically it's a very large company. It big employer and has a big impact on the overall economy.

We, in a sense, mirror what happens in the economy, in its entirety and we touch every household. We touch every business. So therefore we have a big influence in how the economy and the society is evolving.

DOS SANTOS: And you have been affected by how Croatia's economy has been shrinking recently, haven't you?

MUDRINIC: Yes, of course. Since 2008 to today, the total GDP has contracted roughly 12 percent. And it is now as we are about to enter the E.U., we hope that this process will influence the economy and we will see an inflection point. In fact, we expect a turnaround in the economy. We expect certain FDI and also domestic investments to start to mature and the government has, in fact, in recent days, adopted a law on strategic investment, where they want to hand carry and in fact ensure that investments of significant size, strategic investments, will in fact have a fast track treatment.

DOS SANTOS: Should the government be doing more to support businesses here?

MUDRINIC: Our proposal from the business community to the government is that they should start the key reforms as soon as possible, so the reforms of the public administration, reforms of the retirement fund, reforms of the health system and so on.

If they do this very effectively, then they will be able to transform and reduce the tax burden on the business and on all of the employed in Croatia.

DOS SANTOS: On the issue of mobile and roaming, as you well know, the E.U. has now forced providers to cap these fees. How is that going to affect Hrvatski Telekom now that obviously you're going to be part of the E.U.?

MUDRINIC: Well, in part, it will have a negative impact on our revenues. So it will decline. It will contract. But at the same time, we believe that this change is more fair to the customer. So in this sense, we expect certain degree of elasticity that the customers will now lose the fear of using their mobile phone for data and for voice services when they're coming to Croatia. And this elasticity is changing behavior, should in fact, recoup some of the lost revenues.

DOS SANTOS: Now you're also the head of the employers' association here in Croatia, extremely important role, given the fact that this is a country with, by some accounts, 20 percent unemployment. And youth unemployment that's more than double that.

What can be done to get jobs for people here?

MUDRINIC: Well, the jobs are the result of investments, local, foreign direct investments, are the means to create jobs. If you want to attract investments, you have to create a climate in which these investment pays back better or the same amount as it would in other areas.

You need a more flexible law on labor law. You need to, in addition, in fact, reduce and remove some of the tax burden, remove some of the para- fiscal burdens that are currently in place. So in fact, you need to create an environment in which it's conducive to invest. And that -- for that, it's necessary to have a whole program of reforms, programs that will, in fact, yield a better investment.

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DOS SANTOS: The CEO of Hrvatski Telekom, bringing this week's MARKETPLACE EUROPE to a close . Well, join us again next week if you can. But in the meantime, from Zagreb in Croatia, it's goodbye from me and thanks for watching.

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