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Quest Means Business
US Jobs Report Disappoints; US Markets Flat; Dell Sweetens Deal; IAG Moves Into Profit; RBS Earnings; European Markets Mixed; Dollar Down; UK House Prices; Monopoly Versus Reality
Aired August 02, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: Tonight, the July jobs report falls short, and US markets fall back in tandem.
IAG's report card. Willie Walsh gives the airline group a B plus.
And modernizing Monopoly. You'll need an awful lot more than $200,000 these days to get past Go.
Hello, I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.
Tonight, a stern reality check for the US economy in the form of a distinctly Jul -- jobs report, I should say, for the month of July. Now, after a week of encouraging economic data from the United States, this number was actually supposed to be the icing on the cake.
Instead, though, just 162,000 jobs were actually added for the month of July, and that's actually the second-smallest for the best part of this year. It also comes in well below analysts' expectations. What's even worse is that the jobs number for May and June was also revised downwards, so those two months by a combined 26,000 in total.
On the face of things, there is one bright spot to come from this jobs report today. The unemployment rate is actually now at 7.4 percent, the lowest level it's been since 2008.
The reasons behind the drop, well, a bit less encouraging, though, because it actually shows that the percentage of people actually looking for a job these days in the US is around about the lowest level we've seen since the 1970s. And yet again, it fell again in the month of July.
Last month, 37,000 people actually dropped out of the jobs market altogether. Less than two thirds of the labor force is now considered to be actively participating in it. So, it is that participation rate that has many an economist worried.
Diane Swonk joins us now. She's the chief economist for Mesirow Financial, joining us now, live from Chicago. Great to have you on the show, Diane. So, obviously, this is disappointing. And what's really disappointing is that participation rate, because it basically means people are giving up.
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Exactly. What we're also seeing is people who are on long-term unemployment, they're no longer even discouraged workers, they're actually basically staying home to take care of either children or in more cases, an elderly person who's ill now. And that happened in the 1980s when we had the severe recessions as well. Of course, we came out of that much more rapidly.
The good news is they're there to care for them, and that's -- they've sort of punted on the job market and said we'll defer the costs of -- and save some costs here by helping to care for this elderly person.
But on the other side of it, of course that means fewer household formation, it undermines the housing market going forward. So, there's a lot of collateral damage to having these people not only drop out but give up in many ways.
It also said the long-term unemployed persistently be there. And the you add the extra layer on it, that the people who are getting jobs are getting part-time jobs. We're also seeing a lot of people who had jobs, full-time jobs in the last couple of months, a very large number have had those jobs scaled back to part-time jobs.
Some of that is the sequester by the government. Unpaid furloughs have been forced on many defense contractors. And in the health care industry, even, we're seeing some back office personnel, administrative personnel -- sort of the bill keepers out there -- being moved from five days a week to three days a week.
DOS SANTOS: Yes, Diane, if you take a look at the quality of the jobs that have been added here, that's the really worrying thing, isn't it?
SWONK: Exactly.
DOS SANTOS: We had the US president Barack Obama standing on the podium earlier this week talking about that American dream of middle class values, middle class types of jobs, and the reality is, those middle class jobs are fast disappearing. They're not being created.
SWONK: Absolutely. And that's one of the issues. The income inequalities have actually gotten worse from the Great Recession. You'd expect that from the recession. You would hope to be healing from that in the recovery.
And in fact, the composition of job growth since the recovery began has been dominated by part-time jobs. We've seen a big move up in part- time employment relative to full-time employment. And usually by now you would be seeing much more movement back into full-time.
In addition to that, we've seen this much more reliant on what we call the contingent workforce. We call them temporary workers here who are hired but they aren't given benefits, they have lower -- less safety nets and pensions and things like that.
And they're hired on as temporary workers to work full-time, oftentimes, which is at a better pay scale but they don't have that safety net a full-time worker gets. And that can become a semi-permanent position, yet not be full, full-time.
And again, that erodes at the quality of jobs that we're creating. You actually see it in income distributions where the middle has been squeezed as both ends of the income -- the two ends of the income quintiles have actually grown.
DOS SANTOS: Yes, there's something else that's risking to become a semi-permanent situation, and it's the dichotomy between where the markets are going at these all-time highs at the moment, and really where Main Street is going these days.
Diane, how worried are you about the fact that we're getting consistently reliant on, perhaps, disappointing economic data to assume that the Fed is going to keep printing money?
SWONK: Well, there certainly is that linkage there, and the Fed's goal, one of it was to boost asset prices. We've also seen a sharp movement up in the US of housing prices, which has restored wealth among the majority of households.
Because that's where the majority of households hold their wealth rather than just the high-income households that are highly concentrated in equities. So, I think that's a positive movement, to see the movement up in housing prices.
I do think that there is an issue that part of the reason we've seen equities prices move up on a fundamental basis, say, is because companies instead of investing, which we have seen sort of a shortage of in the United States, they've been punting and dividing out, giving the money back to investors.
Well, they have to give it -- do something with the money, but to say the only thing we can do is return it to you because we don't have a future to invest in, that undermines future growth as well. And so, my concern is not as much the role the Fed is playing, because there is some fundamental basis of the stock market increases based on dividends.
But dividends alone can't carry you for a long time. You need to invest in your future to have a foundation to build on going forward.
DOS SANTOS: Diane Swonk, there, the chief economist of Mesirow Financial. Thanks so much for joining us there from Chicago this evening.
The rally on Wall Street has also come to an abrupt halt on the back of this jobs report. Alison Kosik is at the New York Stock Exchange for us this evening. Alison?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Hi, Nina. We are seeing stocks pretty much flat right now. What investors are doing today is really unraveling what these jobs numbers will mean for the Federal Reserve.
You look at the 7.4 percent unemployment rate. It is creeping closer to the Fed's target for when it raises interest rates, but that lower unemployment rate may be for the wrong reasons, the number of people counted in the labor participation rate fell. These people literally left the labor force, gave up looking for work.
And then, they're looking at that 162,000 number, and they're thinking it's very much more of the same as far as the jobs numbers go, especially because it came in weaker than the 180,000 that analysts were expecting.
And then, you throw in the downward revisions to May and June, so you see a lot of investors really kind of sitting on the fence today. One analyst put it this way, saying that the jobs number is, quote, "terrifying" for Main Street, since it means the labor market is still stuck in quicksand.
But it's terrific for Wall Street, because it means our so-called punch bowl should remain out. But you have to remember, the stimulus spigot won't stay around forever. Many believe the Fed will begin to pull back on that stimulus before Bernanke leaves office in January, if not sooner. Nina?
DOS SANTOS: All right, Alison Kosik at the New York Stock Exchange, thanks so much for that and have a great weekend.
Well, there is one stock that's bucking this kind of trend: Dell. Its shares are up by more than 5 percent at the moment after Michael Dell, the founder of this company, made a new and improved takeover bid to shareholders.
He's hoping that he'll be third-time lucky here in his bid to take control of the company that, of course, bears his name. Felicia Taylor's following this story from New York for us this hour. So, a special dividend, Felicia. Is it going to be enough?
(LAUGHTER)
FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT: Depends on who you ask. Mr. Icahn does not think it's enough. He's the second-largest shareholder, and he's just released a statement, which we'll get to in a minute.
But let's take a look at what is on the table. Michael Dell has put a new deal on the table that many shareholders are in favor of. It values the deal now at $13.75 a share. That is a 10-cent increase from the original deal, which obviously was at $13.65.
He is also offering a one-time special dividend of 13 cents. So, effectively, that values the deal at $13.88. That is in addition to what is a regularly -- quarterly dividend -- three quarterly dividend of 8 cents a share. But as Mr. Icahn says, that is something that they're already entitled to.
What's interesting to note about this, though, is that Michael Dell will personally be financing that 13 cents a share dividend, and that comes to a tune of about $350 million. So, he has certainly upped the ante from his perspective to get this deal done.
What's different, though, is that the record date is going to be moved to August 13th. What that means is that a number of hedge funds that have gotten -- and bought into the stock of Dell since this whole machinations started to take place will now be able to be a part of that shareholder vote. That new shareholder vote is expected to take place on September 12th.
Now, let's get to that second-biggest shareholder, Mr. Icahn, who owns about an 8 percent -- 8.7 percent stake in the deal. He has said, quote, "We are not satisfied. We believe that an increase of a mere 13 cents is an insult to shareholders. Promising shareholders an additional 8-cent dividend that we were already entitled to and pretending that it is some sort of a gift is further a slap in the face."
It is clear that Mr. Icahn is going to continue to fight this deal. But there are some analysts out there that thing this is a worthwhile deal, especially from Mr. Dell's perspective, because he wants to take that company private.
He believes that without having shareholders in the microcosm of overlooking every single move he makes as he moves away from hardware into software that this is the only way he's going to be able to do it. But here's what one analyst had to say about what's going on with this very complicated deal.
(BEGIN VIDEO CLIP)
ANGELO ZINO, STANDARD & POOR'S: What you're doing here is actually getting a new set of investors involved, those being effective August 13, and really what's most important here is it gets a lot of the ARB investors involved. Anyone that kind of took a position here over the last two months will now have a say into the company.
And those investors, you would think, would side towards Mr. Dell because they essentially got involved to try to get a higher offer price.
(END VIDEO CLIP)
TAYLOR: So, when he talks about ARB investors, he's referring to those hedge fund players that got into the marketplace since this whole deal discussion started, and that could be very significant.
Mr. Icahn, for his part, says that the annual meeting and the special meeting should be held on the same date. He is not in favor of those being held on separate dates. We'll see how this plays out. It's not a done deal yet, but a long shot.
DOS SANTOS: Yes, those Arbitron investors the big concern, I suppose, Felicia, is that they're only really in there for the financial profit that they can eke out of this gain, whereas Michael Dell really wants to change this company, to update it to the tablet era. Is he the right guy to do so?
TAYLOR: Well --
(LAUGHTER)
TAYLOR: -- again, it's a question of who you ask. Let's face it, this is Michael Dell's baby. This has a lot to do with -- he's been at the helm of this company pretty much since he was 19 years old. He started it in his dorm room with $1,000.
Can he take it to the next level? At least one analyst that I spoke to earlier this week at "PC Magazine" believes that he is the right person to do this. He has been making some of the right moves up until now, initiating a different kind of a company for Dell.
It's -- there's no question that they have come to the game a little bit late. But they are moving in the right direction, and Michael Dell has a vision for this company. And perhaps he should be the one to take it into the next stratosphere. But not according to Mr. Icahn --
DOS SANTOS: Felicia -- yes, yes. Of course not. Mind you, Mr. Icahn's done this before with other companies, hasn't he?
(LAUGHTER)
DOS SANTOS: Thanks so much for joining us there. Felicia Taylor, there, all over that story, there. Dell entering another era in the digital age.
Well, the parent company of British Airways and Iberia is changing course as well. As IAG delivers a rosy second quarterly figures, we'll have a look at what the CEO has to say.
(COMMERCIAL BREAK)
DOS SANTOS: "The turnaround has started." Those are the very words of Willie Walsh, the CEO of IAG, which owns British Airways and the Spanish struggling airline Iberia. Well, this group on a whole made an operating profit of some $325 million in the second quarter of the year, coming back from a loss a year ago.
And in a sign of recovery at Iberia -- remember that this is an airline that operates in Spain, very, very difficult market these days -- its losses managed to shrink by around about 63 percent to $46 million. That's a reversal from an 11-quarter trend of declining profits.
And BA's operating profits surged to $327 million in total. That's thanks to a strong trans-Atlantic market. Earlier today, Richard Quest sat down with the CEO, Willie Walsh, and asked him to sum up the results.
(BEGIN VIDEOTAPE)
WILLIE WALSH, CEO, INTERNATIONAL AIRLINES GROUP: What is interesting is the contrast between the first quarter and the second quarter, because in the second quarter, you can see the evidence of the restructuring in Iberia, and also in British Airways the evidence of the improving economic environment in the UK.
So, this second quarter actually paints a -- I think a much fairer picture of what is happening and a better indication of what the future is going to look like.
RICHARD QUEST, CNN INTERNATIONAL: That second quarter also shows the huge amount of work you've still got to do at Iberia. Not only was the number -- you're shrinking the airline, but the number of passengers are shrinking, and the amount of money it's -- yes, you may have made fewer losses --
WALSH: Yes.
QUEST: -- but that's because there were fewer passengers.
WALSH: Yes, but that's what you've got to do. You can fly millions of people around the world but lose a hell a lot of money, and there's no future in that. So, what we've got to do is ensure that we have a cost base that is competitive, and then a commercial case, commercial proposition that is sustainable in the long term as well.
And Iberia had neither, and we're repairing both. So, the work on the cost base is performing well. I think we've made good progress. But there's still a long way to go. And we're approaching the commercial proposition from a completely different point of view, now.
QUEST: So, with Iberia, you can't say yet you've reached the turnaround point.
WALSH: Oh, no, absolutely not. This is evidence of a start of the turnaround. This is the beginning of a turnaround program that will lead to a sustainable and profitable airline, that will lead to an airline that can invest in new aircraft and new products in a similar way that British Airways is doing today.
QUEST: Notwithstanding the mediator's agreement, do you expect to have to make further job losses at Iberia?
WALSH: Well, the mediator's agreement was a good first step. That's the way I describe it.
QUEST: First step.
WALSH: Yes, absolutely. There's still a long way to go to implement that. To date, we've seen about 1700 people leave the airline. By the end of this year, that will be 2,400. But there will be another 800 to go during 2014 and then to early 2015.
At that stage, we'll have a much better picture of the future of the airline, and we will know whether further adjustments are necessary.
QUEST: Totally different position at British Airways. Made money, it's making money in its key markets, trans-Atlantic is strong. Premium traffic is holding up, and you've got new aircraft, too. So, what do you now want BA to do?
WALSH: Well, BA needs to improve its commercial performance. BA's benefiting from restructuring that we did three, four years ago. It's seeing the benefit of that in the figures today. It's seeing the benefit of the investments that it has been making in its new aircraft and in its new products. And it will see further benefit as more new aircraft are introduced into the fleet.
QUEST: It's got to improve its commercial performance.
WALSH: Yes.
QUEST: You're basically telling Keith Williams --
(KNOCKS ON TABLE)
QUEST: -- more money, please.
WALSH: More to do. To be fair to Keith, he recognizes that. That's not just on the revenue side. What we're saying to British Airways is you've got to remain very focused on your cost base. So, it's a combination of improving the revenue performance and improving their cost performance. And BA can do that, without question.
(END VIDEOTAPE)
DOS SANTOS: Well, like IAG, the Royal Bank of Scotland is also coming out of the red these days, because the taxpayer-backed bank managed to make a half-year pre-tax profit of -- look at that -- $2.1 billion. That compares to a $2.5 billion loss for the same period last year. So, a complete mirror image from this time about 12 months ago.
The results mark the bank's first two consecutive quarters of growth since it received a government bailout all the way back in 2008. It also comes on the same day that RBS has named this man as its new chief executive. Ross McEwan is currently the head of the bank's retail banking arm. He only joined RBS just last year and was with the Commonwealth Bank of Australia before that.
McEwan has already said that he won't accept an annual bonus for this year or for 2014 amid public anger over UK bankers' bonuses and pay.
Shares in RBS closed down more than 3 percent in Friday's trading session. Some investors are actually put off by the fact that those profits came from a change in the value of the bank's total debt. So basically, accounting differences here.
Overall, the London FTSE 100, as you can see, edged lower on the day, falling around about half of one percent to -- coming down from two-month highs, I should say, for that market. Germany's Xetra DAX closed the week virtually flat, as you can see, down just 0.05 of one percent.
The CAC 40 in Paris finishing the day marginally higher. And the standout performer in the region, as you can see at the bottom of the chart, was the Zurich SMI, gaining nearly 2 percent on the day in total.
The UK's Royal Mint says that one in four Brits don't know who this woman on the coin behind me actually is. Well, she is, of course, Britannia, a symbol of the British people who's been around since the Roman times.
Her image has been used on British coins since 1672. The mint says that sometimes she's mistaken for all sorts of people, including the Greek goddess Athena, or even France's Joan of Arc.
And that brings us to tonight's Currency Conundrum for you on this show. Which other historical figure is Britannia often mistaken for? Is it A -- and this could be a plausible one -- Margaret Thatcher? B, Queen Elizabeth II? Or C, Florence Nightingale? I'll have the answer for you later on in the show.
Speaking of currencies, the US dollar is sharply down against the British pound and also weaker on the back of those US jobs reports against all sorts of other currencies, slipping against the euro and the Japanese yen as well.
(COMMERCIAL BREAK)
DOS SANTOS: Hello and welcome back. Well, house prices in the United Kingdom are on the rise, according to the British mortgage lender Nationwide. It is mixed news, though, for people playing the property game. You'll welcome these kind of figures if you're already a homeowner, because it means that the average house price is now nearly around about 4 percent higher than this time last year.
But here's the bad news. It's not great if you're a first-time buyer, because what it means is the average house price across the country now stands at, as you can see there, $260,000. That means that prices have actually grown at their fastest rate in nearly three years.
Nationwide puts this kind of improvement in housing market down to modest improvements made on the overall economy and also to government incentives designed to help those first-time buyers get on the property ladder.
Well, it's been almost 80 years since this game, Monopoly, was actually first released, and in that time, property prices in some of the locations on this map have really grown exponentially. Jim Boulden took to the London streets to explore.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): Monopoly differs depending on where you live. When the board game launched in Britain in 1936, the properties were streets and communities in London. The value then, on average, 208 pounds.
BOULDEN (on camera): With the value of London properties soaring because of an influx of foreign buyers, Halifax Bank wanted to value Monopoly properties in 2012 prices.
(WHISTLE)
BOULDEN (voice-over): Then there's Regent Street, home to the first Apple Store in Europe. It's a case in point.
CRAIG MCKINLAY, MORTGAGE DIRECTOR, HALIFAX: Property on this street was 300 pounds. It's now prices at 1.25 million pounds. So, one of the most expensive post goes.
BOULDEN: And while some parts of London have gentrified, on the whole, the wealthy parts in 1936, like Regent Street, Park Lane, and Mayfair, have remained the most expensive, while the cheapest stop on the board in 1936, Old Kent Road, is still that.
(CASH REGISTER BELL)
MCKINLAY: The cheaper parts of London, such as the Old Kent Road, which even now you can buy a house for 200,000 pounds, versus Mayfair, where it's 1.4 million pounds.
BOULDEN: In 1936, Mayfair was the priciest at 400 pounds. Now, a flat -- yes, a flat -- costs on average 1.4 million pounds. Good luck taking the whole board.
MCKINLAY: It's a big market and internationally well renowned, and house prices are very expensive, so yes, it would be a lot of money if you wanted to buy the board at today's prices.
BOULDEN: There is a serious side to this study. The average first- time buyer in the UK is now 35 years old. Many people need years to save for a mortgage.
MCKINLAY: It is a real problem. Getting on the property ladder in London is difficult, and we're finding many first-time buyers are having to save up to nearly 100,000 pounds in order to get on the property ladder. So, a huge amount of money, huge investment.
BOULDEN (on camera): It's such a large amount of money, in fact, that for some potential first-time buyers, it must sound a bit like Monopoly money.
Jim Boulden, CNN, London.
(END VIDEOTAPE)
DOS SANTOS: Ah, the property game in Britain, just -- the stakes get higher and higher, don't they? Now, from the property game to the political game. Up next on QUEST MEANS BUSINESS, Silvio Berlusconi is facing political downfall, and he could take Italy's coalition government down with him. We'll explain what his sentence means for the future of Italy's economy.
(COMMERCIAL BREAK)
DOS SANTOS: Hello and welcome back. I'm Nina Dos Santos. These are the top stories that we're following for you here on CNN.
These pictures are being broadcast right now on Nile TV of Egypt. The state-run network reports that police over there are trying to turn away pro-Morsy demonstrators outside the media center in Cairo. It says that the protesters are trying to enter that particular media center building. We'll bring you updates on this as soon as they become available.
But tens of thousands of people have already been taking to the streets in Cairo this Friday. Supporters of the deposed president, Mohamed Morsy, are ignoring demands of the interim government to disperse. All of this comes at the same time as the government has been refusing to confirm speculation of an operation designed to clear these protest grounds.
The US State Department has issued a worldwide travel alert to its citizens warning of a possible terrorist attack this month. The department says an al Qaeda -- may launch an attack in places like the Middle East or North Africa or even beyond. As such, 21 American embassies across those kind of regions are being closed on Sunday as a precautionary measure.
US intelligence leaker Edward Snowden is free to move about in Russia and may soon speak in public for the first time since being granted asylum and leave to remain in Russia for this year. It's not clear, though, when he may actually speak. His lawyer says that he's currently staying with some Americans that he met online. He had been holed up in Moscow's Sheremetyevo Airport in a transit area since late June.
A new UN report says that July was Iraq's deadliest month since 2008. According to the report, some 4100 civilians have been killed this year, and more than 1,000 of them were in July alone. The US is -- sorry, the UN is urging Iraq's leaders to take immediate steps to try and stem this violence.
(END VIDEO CLIP)
DOS SANTOS: An indignant and defiant Silvio Berlusconi has delivered his own verdict on Italy's high court for upholding a prison sentence in his tax fraud case.
(BEGIN VIDEO CLIP)
SILVIO BERLUSCONI, FORMER ITALIAN PM: (Speaking Italian).
DOS SANTOS (voice-over): Sitting behind a desk with the presidential star backdrop, the former prime minister made a 9-minute speech attacking those who confirmed the ruling. Let's bring in Alberto Nardelli. He's the cofounder of Electionista, which is a service that monitors global politics. He joins us now live from London.
Great to have you on the show, Alberto.
First of all, 30 trials for Silvio Berlusconi, 25 years that he's dominated the political arena. And he's been prime minister three times. Surely now it's time to give up.
ALBERTO NARDELLI, COFOUNDER, ELECTIONISTA: Well, I don't think he is giving up as was news out this evening that he met with his -- the MPs and senators of his party and they're threatening early elections if there isn't a judicial reform. And they may even go to the president, ask the president to pardon Berlusconi. And all the ministers have said that they're ready to resign if the system isn't change. So he's definitely not giving up.
DOS SANTOS: Yes, he's not giving up, but this isn't good for Italy because obviously it must be quite a distraction at a time when this country really needs to focus on some pretty hard choices.
NARDELLI: Absolutely. And I think that's the main issue here. The sentence now puts tremendous pressure on both the center right and the center left part of the two parties, which fundamentally are keeping the government together. And the challenge that these both parties have is that they're fundamentally divided on what to do next.
Both parties will have groups inside that want to go to elections and while others want to stay in government and the bigger picture is that all of this is not good for the country and for the future of the government.
DOS SANTOS: Well, also, as we were just saying before, it puts a lot of pressure on the coalition government and Enrico Letta is trying very hard to push through really badly needed reforms.
Why does Berlusconi remain among some figures a popular person, among some circles, a popular figure in the political world in Italy? Surely, if he's been accused of so many things, including sex with underaged girls, tax fraud, surely that would tarnish his image.
NARDELLI: I think the reasons for Berlusconi's popularity are very complex. I think one of the main reasons though, throughout the years, has been the weakness of the center left. There's never been a strong, articulate alternative to Silvio Berlusconi.
And to give just one example, over the past 20 years, Berlusconi has almost shared power equality with the center left. But each time the center left went into power, the government would fall or go into a crisis. Berlusconi would then go back to the electorate and say, I may have some of these problems in the sides, but my governments last. They don't fall after three months.
(CROSSTALK)
NARDELLI: (Inaudible) vote him for that reason.
DOS SANTOS: That's true. He is, out of all the political leaders of the recent 70-odd years of the Italian republic, well, he has actually been the person who's managed to stay in power the longest and have longest long-serving governments.
Do you think that he should be banned from public office, though? Because if you take a look at Beppe Grillo, according to the same sort of logic, he himself having had problems with an accident he caused while driving, he technically shouldn't really be in office, either.
NARDELLI: Well, technically after yesterday's sentence, Berlusconi can no longer run for parliament because the previous government, the Monti government, passed a law in December of last year for states that anyone who has been sentenced for more than two years can no longer run an election.
So Berlusconi will not be able to stand in the next election whenever it is. The Beppe Grillo parallel is a fascinating one, because obviously (inaudible) Grillo, despite that, is very actively involved in politics and is de facto the leader of the five-star movement.
So we might very well have a scenario soon where Berlusconi becomes the Beppe Grillo of the center right, where he's de facto the leader, even if he doesn't sit in parliament.
DOS SANTOS: So he could become the popular no vote, if you like, against the current regime. That in itself would be extremely interesting.
In a yes or no, though, quickly, Alberto, do you think that he should be banned from public office as a figure?
NARDELLI: Well, I think he already de facto he is banned. My personal view -- and I think the thing which I find most interesting about this situation is that Silvio Berlusconi keeps winning elections or keeps having electoral results that put him in a position where he's decisive, like now, in terms of the government's future.
It would be much more healthy for the country if there were an alternative political coalition that were to beat him soundly in an election. Because all the debates which we're having now wouldn't happen.
There was a poll this morning, for example, that showed that more or less 50 percent of people believe that he is persecuted by the magistrates and still support him. The other half of the population doesn't. And until Italy can overcome that divide, it won't be in a sound position.
DOS SANTOS: OK. Alberto Nardelli there, the cofounder of Electionista, a service that monitors politics around the world, thank you so much for that. I know --
(CROSSTALK)
NARDELLI: Thank you very much.
DOS SANTOS: -- fascinating views on Silvio Berlusconi, I must say, extremely eloquently communicated.
Now the CEO of International Airlines Group or IAG is back in a moment's time on QUEST MEANS BUSINESS, handing his report to Richard.
(BEGIN VIDEO CLIP)
RICHARD QUEST, CNN HOST: This is the classic scored report, isn't it? They're good, but could do better.
WILLIE WALSH, CEO, IAG: It's -- yes, I'd give it a B plus, yes. I think it is a good report (inaudible).
(MUSIC PLAYING)
DOS SANTOS (voice-over): (Inaudible) also talks about two new arrivals, the Dreamliner and the mighty A380.
(COMMERCIAL BREAK)
(MUSIC PLAYING)
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DOS SANTOS (voice-over): Time now for the answer to tonight's "Currency Conundrum." Earlier I asked you which (inaudible) is Britannia often mistaken for, and the answer is A, Margaret Thatcher, (inaudible) 180,000 Brits say (inaudible) says that Britannia is a likeness of the late (inaudible). There you have it.
Well, we've all had a report card which says must do better. But as far as grades go, B plus is actually pretty good. That's the verdict of IAG CEO Willie Walsh on his own organization. He cut losses on Iberia by shrinking that airline down and BA's profits, he said, are on the rise. He told Richard Quest that there's plenty to look forward to.
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WALSH: I think it is a good report for the quarter. I'm not going to try and say that we deserve an A for that, because I think there are things that we do need to do better.
But come back in the third quarter and you will see further evidence of progress being made, particularly in the restructuring of Iberia and further evidence of an improving financial performance in British Airways and the greater contribution from well into the group.
QUEST: You have to really serve in 18 380s?
WALSH: Yes, I am actually. These are going to be fantastic aircraft. The A38 C flew today for the first time commercially. It's on its way to Frankfurt as we speak. And the 787 will start commercial flying next few weeks.
I think it's going to be a great aircraft. In fact, I think it is a great aircraft. But I think it's going to be even better, once people get used to operating this, once Boeing gets used to the changes that it will need to make, to iron out any of these bugs. These things happen. We've seen it with the 777; we saw it with the A380. We saw it with 747. New aircraft are difficult to introduce in commercial service.
QUEST: So you -- besides the battery, you've seen nothing, whether it's the latest incident with the Ethiopian plane or any of the other turnbacks that there have been?
You've seen nothing in that, in any of them, that's given you pause for other than just teething problems?
WALSH: No, it -- teething problems. That's exactly the way I would describe it. And the Ethiopian issue appears to be related to the ELT, which is not unique to the 787. It's on -- as I understand it, it was about 6,000 aircraft.
So I don't think that can be blamed on Boeing or the 787. It's very, very unfortunate that it happened to be on a 787. But unless they can show that there's something about the way the ELT is connected into the 787, I think that's going to be an isolated incident.
So, yes, these are teething problems. They will get resolved. We always knew with the 787 because of the amount of new technology it was going to be a more difficult aircraft to introduce into service.
And it's pretty much playing out as we had expected. So I'm convinced that this will be a great aircraft. It's an aircraft that the industry needs because of its fuel performance and environmental performance and we remain committed and confident about the aircraft.
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DOS SANTOS: So that's Willie Walsh there, talking about the airline industry and also IAG.
Let's go over to the weather forecast and find out how it's faring. Jenny Harrison is standing by at the CNN International Weather Center.
Jenny?
JENNY HARRISON, CNN METEOROLOGIST: Hey, Nina, fairly quiet picture really across Europe as we head into the weekend; not so across the northwest, some fairly heavy and at times persistent rain still in the same regions, Ireland, Scotland, but also to these warnings are in place, pretty much in France and the Low Countries heading into the weekend, severe winds, tornadoes even and more of that large hail.
So for Saturday, maybe some delays at Glasgow, (inaudible) Geneva and Moscow, a little bit of low cloud, a little bit mist as well, there, as you can see. And then of course that heavy rain continuing through much of Scotland the last 12 hours. You saw some rain Friday at St. Andrews for the women's British Open.
Saturday a pretty (inaudible) day, I'll say, some very strong winds, up to 40 kph, should be mostly dry. That's the cold low pressure ushering in much cooler air to the west, hot and dry continuing to central and southeastern regions.
Friday, still plenty of cities with those temperatures above the average and the July stats in from the U.K. Med office, July now officially ranks in the top three sunniest and warmest ever on record, going back to 1910.
Just below -- just behind July 2006 and also July 1983. So an unsettled picture continuing, more rain across the west and generally temperatures pretty close to the average across most areas, Nina. You have a good weekend.
DOS SANTOS: Thanks so much, Jenny Harrison, you too, there at the CNN Weather Center.
Let's go back to a story that we're following for you earlier on in the hour in Cairo. These are pictures that are currently being broadcast by Egypt's Nile TV right now, pro-Morsy demonstrators are said to be outside the media production setting in Cairo. Arwa Damon joins us now live from Cairo with the latest on people gathering there.
Arwa, what is the scene like?
ARWA DAMON, CNN CORRESPONDENT: Well, it seems to be quite chaotic according to Nile TV itself, whose images have really been showing just how intense the situation there is, pro-Morsy demonstrators were trying to storm this facility that's located outside of Cairo itself. They were using Molotov cocktails, riot police trying to disperse them using tear gas.
And you can see a massive fire billowing in part of what we believe to be the front gate of the facility. Now this media city has been the target of some anger when it comes to the pro-Morsy camp, even while the deposed president was in power.
A number of his supporters were -- have in the past staged demonstrations outside of this media city, even tried to attack it back then because they viewed that some of the broadcasters who operate from within the perimeter of that sprawling complex, to be biased towards Morsy; rather, biased against Morsy.
And also remember since the former president's ouster, a number of Islamic channels have been shut down as well. So there's been a growing level of anger within the Morsy camp when it comes to the various broadcasters that operate within that facility.
All of that, of course, aggravated by the mounting tension when it comes to how the military-backed interim government is going to be dealing with the various demonstrations, the sit-ins that are taking place.
So this most certainly is a sight escalation of this situation here, not entirely unexpected, though, but it most certainly is not reassuring for the Egyptian people who are really very concerned that the situation here is going to turn much more volatile, much more violent before it does eventually all someday calm down.
DOS SANTOS: Yes, Arwa, you can see there pictures of Molotov cocktails that you were talking about before, and fire seems to have broken out there according to these pictures coming from Nile TV.
Let's just talk about what the current interim government is actually doing about this, because they seem to refuse to confirm so far that there's an operation in place to try and disperse these people.
DAMON: Their rhetoric has been quite interesting to follow. They've come out and said that they have a plan in place to deal with these demonstrators, the sit-ins that are blocking off two main parts of Cairo at this point.
They said initially that they would be delivering warnings. One of those seemed to have come yesterday when the ministry of interior issued yet another statement, asking these demonstrators to disperse, guaranteeing them safe passage.
Earlier today, we also heard that there was a possibility that a cordon (inaudible) into place within 48 hours around the main demonstration sites, not to prevent people from leaving them; they would continue to be free to do so, but prevent people from entering them.
And then the government said that if people do not heed these various warnings it would use tear gas and then whatever other means necessary of force to try to deal with these demonstrators. And actually the government is hoping that they will somehow peacefully disperse, that this will come to some sort of peaceful resolution.
But when it comes to the pro-Morsy camp, they are so hardened in their position and they so firmly believe that this is the real only option that they have, that they're unwilling to -- if they're unwilling to back down.
So what you have is this incredibly tenuous situation with both sides unwilling to back down, unwilling at this point in time to compromise. And that is what is lending itself to all of these great and very realistic concerns, that there is going to be significant bloodshed that is spilled before the situation is even resolved.
Egypt right now is at the beginning of what most certainly promises to be a very, very long path towards stability, prosperity and the nation that so many people really want to see it become.
DOS SANTOS: Yes, and obviously this is a huge change from where Egypt was, also economically speaking, about 5-7 years ago because all of this is preventing tourism, which brings in very badly needed foreign exchange revenues.
It's also hampering its relationships with places like the United States that has traditionally given Egypt an awful lot of aid for spending on military equipment.
How is all of this affecting its relationships with other countries, Arwa?
DAMON: Well, it most certainly is having a negative impact on them. The United States, as you were mentioning there, has over a billion dollars that it gives to the Egyptian military on a yearly basis.
That was something that was possibly going to no longer exist because of what is happening, although they're working their way around to the United States and most certainly not wanting necessarily to end that aid, Egypt of course being a vital partner, viewed as being a vital partner when it comes to securing America's number one ally in the region, and that is of course, Israel.
Catherine Ashton, the E.U. foreign policy chief, was here just a short while ago. She was trying to listen to all sides, not necessarily act as a mediator or an adviser, but at least someone who was able to reach out to all of these various parties. The international community is watching all of this that's happening with great concern.
Egypt is not a nation that any of the international players really want to see take a path of more chaos versus one of more stability.
The American relationship here is fairly precarious at this point in time because both those who support this military backed interim government and those who support the deposed president, Mohammed Morsy, carry a lot of anger toward the United States, the economy, that has been one of the main reasons that all of this began.
The economy was one of the driving factors, even back in the days of the revolution that toppled former president Hosni Mubarak, the economy was the main driver in this most recent act to remove President Mohammed Morsy along with, of course, this sense that he was becoming more authoritarian, more Islamist in the way that he was ruling.
And it most certainly is going to be a big factor for any government that really wants to ensure the -- its own success and enter the stability of the country.
And people are really feeling that economic pinch here, because a good chunk of the population, Nina, lives on a day-to-day basis. They rely on their daily income. So things like road closures, more violence, those affect people's stomachs, their families every single day.
DOS SANTOS: Yes and obviously it's politically split as well, isn't it. This is the largest Arab country in the world, as you were just saying before, where it is pivotal as part of -- as a U.S. ally in this region, just as the Middle East peace process is set to pick up after a three-year hiatus, and it's also a country that gets a huge amount of aid from the United States in return for military spending.
Arwa Damon there, joining us live from Cairo this hour.
And for our viewers who are just joining us in the last 10 minutes or so, we've been showing you pictures, live pictures from Reuters, about pro- Morsy demonstrations and sit-ins that have been happening across Cairo this hour, as well as the slightly more inflammatory situation that's been happening there with pro-Morsy supporters, venting their anger against media production facility at the media city there, saying that there has been anti-Morsy bias coming from some of its programming, according to them.
Those are pictures live from Nile TV this hour.
And that's it for QUEST MEANS BUSINESS. Thanks for joining us. I'm Nina dos Santos. MARKETPLACE AFRICA continues. It's already in progress (inaudible).
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ROBYN CURNOW, CNN HOST: Welcome back. Now for many here connecting to the World Wide Web is as simple as a click. For others, it's not that easy. Well, for this week's "Face Time" interview, we speak to the CEO of ICANN, a company that coordinates the Internet naming system or Web addresses across the world. They've recently come to Africa. Take a listen.
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FADI CHEHADE, CEO AND PRESIDENT, ICANN: Africa is now in many ways, along with Latin America and some parts of the world that have not yet had the promulgation of the Internet that we'd like to see, is a focus of ICANN. The Internet will bring Africa to the world and bring the world to Africa in ways that are not restricted by the physical movement.
I was in JoBurg recently and I wanted to buy some local clothing. And I looked in books and I found some telephone numbers; I called and I asked them, I said, "Do you have a website, where I could just quickly order these things? My son is in the clothing business in California; I think he'd love to bring some of your work there."
And very little preparation for that. I think that taking the richness of Africa, the products of Africa, the innovation of Africa to the world is enabled by the Internet and it can happen now. We can take work that took our generations decades. My father used to do trade between Ethiopia and Egypt and the Middle East. It used to take him a year to connect with producers.
Today it would take minutes to do. And also bring the world to Africa, because when I go outside Africa, many people believe that, well, you know, we need to go invest and develop Africa. No. Africa is full of innovation.
Even in our space, mobile innovation in Africa is ahead of the world. I can do things with my mobile phone in Africa that I couldn't do in California today. Therefore, it's two ways. The Internet will bring the world to Africa so that we understand Africa at a social, economic and political level. And it will bring the great African products, youth, innovation, but also spirit to the world.
I joined ICANN less than a year ago. And my first act was to bring the community of Africa, including some of the luminaries of Africa, Neek Waynor (ph) and Pierre Dejenue (ph) and Fatimata (ph) and all these people that for years have toiled to bring the Internet to Africa. We brought them together to build an Africa strategy. Took us six months.
And the outcome is a unified Africa strategy. The ground was ready in Africa to receive this opening. And we're seeing it because strategy is translated into action in less than a year across Africa in a common strategy. That's not happened before. It is happening now. And that's because Africa itself is growing, is rising.
I think the economic engines of growth in Africa are working now at every level, governance, infrastructure, democratic participation, business growth, education. Look at the growth in post-secondary enrollment in Africa.
These are real numbers and significant preparation for the ground of Africa becoming now a true participant, if I could even venture to say an equal participant in the governance of this great resource that unifies us amongst -- in a world where very little unifies us.
Unfortunately, our nationalities divide us. Our religious divide us. Our languages divide us. Sadly, sometimes, our political leaders divide us. Here we have an infrastructure, a network that is completely open and entirely democratic from the bottom up. So we must treasure this and keep it and Africa will be a key part of ensuring that this is not a developed world thing. It is actually for everyone.
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CURNOW: Fadi Chehade there from ICANN. Well, you can catch that interview and many more at CNN.com/MarketplaceAfrica. But from me, Robyn Curnow, see you again next week.
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