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QUEST MEANS BUSINESS

Greek Debt Crisis Sparks a Selloff

Aired February 25, 2010 - 14:00:00   ET

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


JOHN DEFTERIOS, HOST, QUEST MEANS BUSINESS: Taking flight from risk, the Greek debt crisis sparks a sell off.

RBS reopens the bonus rounds saying its top talent have taken flight.

And the ODEON Cinema failed to cut the makers of the new movie, "Alice in Wonderland" down to size.

I'm John Defterios in for Richard Quest. And this is QUEST MEANS BUSINESS.

Good evening.

European stock markets took a heavy tumble this session. Fresh concerns about the Greek economy are rippling across the region's trading floors this evening. This after two credit rating agencies, Standard & Poor's and Moody's, warned they may cut their ratings on bonds issued by the Greek government.

In London, miners and energy companies were the worst hit, with hedge funds and insurers also losing value. In Paris, oil and gas companies and the automakers Peugeot and Renault also lost ground. And in Frankfurt the sell off was broad and it was heavy. Only one share made much headway, the chemical giant BASF, which released annual results which were better than expected.

Shares in Greece itself were badly bruised. Banks stocks fell the most, not surprisingly. EFG, the EuroBank, and the national bank of Greece, both lost more than 5 percent in today's session.

The euro also suffered. It is currently trading at a one-year low against the Japanese yen, and against the dollar it is close to its lowest level in nine months.

Traders in the U.S. are also looking at great concern at what is unfolding in Europe right now and the news at home isn't providing much comfort either. Let's get a read on the Dow industrials today. We had a loss now of 93 points. This is a recovery, because the steepest loss of the day was 1.6 percent. We are trading at 10,280. The loss on the S&P 500 is similar. Two reports out today surprising the market the U.S. jobless claims report higher than expected, climbing 22,000 to nearly half a million. And more importantly durable goods orders for the month of January down 0.6 percent. They actually expected a gain of 1 percent. So this is what drove the markets down. And again, this is a recovery from our lows on the session.

By the way, the durable goods order was the worst in six months.

The U.S. Federal Reserve is looking into any, a new possible role of Goldman Sachs, and other major U.S. financial institutions, and may they have mislead people on Greece's debt problems in some of the fancy instruments they have created. This even came up in the U.S. Congress today, in the second day of testimony by Ben Bernanke, the U.S. Federal Reserve Board chairman. Let's bring in Maggie Lake, who has been following this story.

And the thing that stands out, Maggie, foremost is the fact that not only the Greek debt problem is getting into the U.S. Congress, but even the role of the banks, like Goldman Sachs and some of the other institutions. What did you hear?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, absolutely, John. You know, the markets hate uncertainty and there is so much of it swirling around this whole issue of sovereign debt in Europe. And particularly at issue today, again, the question of whether banks are using complex financial instruments properly.

There are already questions about whether Goldman Sachs and other banks used currency swaps to help Greece understate the extent of its debt. Thursday more questions surfaced, including on the front page of "The New York Times". This time surrounding the insurance contracts known as credit default swaps. The concerns that the same banks that may have help Greece hide its debt are now making speculative bets that the country defaults. U.S. senators worried that this could ignite another financial crisis, asked Fed Chairman Ben Bernanke specifically about it. Have a listen.

(BEGIN VIDEO CLIP)

SEN. CHRISTOPHER DODD, (D-C T) CHRMN., SENATE BANKING CMTE.: Since there is no requirement that purchases of credit default swaps actually own any of the underlying debt, we have a situation in which major financial institutions are amplifying a public crisis for what would appear to be for private gain. I want to ask you here whether or not you think there ought to be limits on the use of credit default swaps to prevent the intentional creation of runs against governments. Do you have any quick comments on that?

BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE BOARD: Yes, Senator, I just want to say first of all, that we are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece, and on this issue as well. As you know, credit default swaps are properly used as hedging instruments.

DODD: I agree.

(END VIDEO CLIP)

LAKE: Now, remember credit default swaps are the same instruments that brought down insurance giant AIG and pulled the world into a deep credit crisis. That is why there is so much concern. As you heard, Bernanke taking pains to say, listen, these things can be used properly, but he warned that credit default swaps should not be used to destabilize the country and he assured lawmakers that the Fed and SEC are looking into the matter.

You know one positive thing, John, is that the questions are being asked at all, right? In the wake of the global crisis it shows that officials now know these markets exist and the more educated about the risk, the bad news is there has been no real reform of that derivatives market and that may mean that finance authorities find themselves, once again, behind the curve.

DEFTERIOS: Yes, in fact, I know the Chairman Bernanke pointed to the SEC and they would look in to it. It is almost like they are chasing the products that are on the market right now. And there is this questions of whether we should bring this process to the G20. Can you have a level playing field where you regulate these markets, globally. I know this is being resisted in the U.S. and here in London, but is there any debate at all whether this process of regulation can move at a faster pace?

LAKE: It is so difficult. And you remember here, John, this is taking place in the backdrop of Washington bitterly, bitterly divided, right now, between Republicans and Democrats. There is a very contentious mid-term elections, although they seem ages away in the fall, to everyone else, right here those elections games being played out right now. There is so much disagreement. Health care is taking up a lot of time; a big summit on that today.

So, financial reform has sort of had to take a backseat to that. Dodd, who you saw there, has been spearheading it, but he is actually not even running again. So there are all of these sort of complicated politics slowing down the process that everyone agrees needs to happen quickly, before something like this gets out of control again.

So, the Fed, the authorities doing what they can with the rules that are on the books, but this once again puts into-into sort of stark headlines, or the need to have something done. So, you are right. They are chasing it.

DEFTERIOS: Dare I say this, seems like they are losing some momentum. Maggie Lake, we'll see you later in the program. Thanks very much, Maggie Lake, in New York.

Let's get a European and global perspective on what's transforming the markets here. We've seen the Ben Bernanke go to the Hill for the second day Bob Parker joins us from Credit Suisse.

Nice to see you again.

BOB PARKER, SENIOR ADVISOR, CREDIT SUISSE: Thank you.

DEFTERIOS: This doesn't feel very good. You know, by instinct alone, gut instinct, which you have to rely on aside from your charts, the Greek debt crisis reaching into Capitol Hill. Mr. Bernanke said he is going to go in and kind of scope some of the activities of the banks right now. How serious is this? Are we going to go through another round of handwringing to go through the regulatory process?

PARKER: I think there are two points here. The first point is what is specifically the problem in Greece? You know, the data is very clear indeed.

DEFTERIOS: Well, there are two different things here. One is how the banks handled it themselves, in sort of the product they created.

PARKER: Correct.

DEFTERIOS: Secondarily, the debt crisis itself.

PARKER: Absolutely.

DEFTERIOS: Let's deal with the regulatory issue, the bank issue, first.

PARKER: Well, Ben Bernanke made I think a very valid comment, which is the credit default swaps are a valid financial instrument for hedging risk. So, if I own a Greek bond, I have a choice. I can either sell it or I can hedge it. What is potentially destabilizing, and I think the regulators in the states and in Europe will look at is if there is a wave of selling of Greek debt, through these credit default swaps, and that results in a disproportionately higher level of that Greece has to pay on its interest on its debt. And potentially that can be destabilizing, particularly if a lot of that trading activity is, if you like, over the counter, off the market.

DEFTERIOS: And it is bringing such a premium right now. That is the other thing, it is 3.5 percentage points higher than German bonds right now.

PARKER: Correct.

DEFTERIOS: It is costing them, at the worst time, billions of dollars to refinance the debt.

PARKER: Yes, and I think, actually, one thing that is worth looking at, in Europe, is actually compare what has happened in Greece, where I would argue that the government has not yet achieved credibility with the steps of reigning in its budget deficit, with the reasonable success that the Irish government have actually achieved. Because they have come out with a very credible budget plan and if you just look at the spreads on Ireland versus Greece.

DEFTERIOS: Yes.

PARKER: You know, the market believes Ireland, the market doesn't believe Greece.

DEFTERIOS: Yes, I know that. Is it time to say let's hand this over to the IMF? The ECB, the European Union, the European Commission is not dealing with it fast enough? I know the IMF officials were down there, along with the other two -

PARKER: Correct.

DEFTERIOS: entities I was just talking about. But is that a real failure, the white flag of surrender? Or is it wiser to move at a faster clip?

PARKER: At the moment it is a tri-part ideal lead by the European Union in Brussels, assisted by the European Central Bank, and -

DEFTERIOS: With great reluctance, politically, for Germany and for anybody else to step in?

PARKER: Well, I think that-we then have to say, what is plan B? And plan B is if you get Germany and other successful European economies, like France, like the Netherlands, failing to bail out Greece, because inevitably it will need serious economic restructuring and some sort of bail out. If you have a failure by Germany and the other countries then plan B is probably an inevitable introduction of an IMF lending and restructuring program.

DEFTERIOS: Very interesting.

PARKER: We're not there yet.

DEFTERIOS: Not yet, it could be an option.

PARKER: We could be, we could be there in two month's time.

DEFTERIOS: Well, the danger of course, is we are seeing very sluggish growth on the continent right now?

PARKER: Correct.

DEFTERIOS: Potentially negative 2 percent for Greece in 2010. In this environment with high government debt, very sluggish growth, where do you find quality? You have moved up your equity portfolio to 65 percent.

PARKER: Correct.

DEFTERIOS: But you are very cautious of where you are applying the money?

PARKER: Well, first of all, and this may sound obvious, is that we are negative on government bonds worldwide.

DEFTERIOS: Yes.

PARKER: And we have taken that position now, for some months. Where we are quit positive is on defensive, high-quality equity sectors. Now what do I mean by high quality? Companies and sectors that pay high dividends, where they have low levels of borrowing or leverage, and where they don't have spare capacity in their sectors. Now, good examples of that, you know, despite the regulatory issues, are the pharmaceutical sector, the health care sector.

DEFTERIOS: And you want at dividend, as well?

PARKER: And you get-and from those areas, both in America and in Europe, in many cases, you are getting higher dividends than you do on the corporate bond yields, and certainly higher than you get on government bond yields. And also, it is a defensive strategy, which generates income in what could be potentially a difficult economic environment over the balance of 2010.

DEFTERIOS: OK, in five seconds, because I'm out of time, are you very concerned about the selloffs we're seeing? This is not going to lead one after the other until the Greek debt crisis is solved?

PARKER: Well, I'm concerned about the selloffs in government bond markets, and I think they will continue and the government bond markets will remain under pressure. I think the downside risk in those defensive equity sectors, that we discussed, is actually now very low.

DEFTERIOS: OK, good to see you again.

PARKER: Thank you.

DEFTERIOS: Thanks very much, Bob Parker of Credit Suisse.

Well, managing Greek finances right now is probably among the toughest jobs in the world, no doubt, as we just talked about with Bob. Stefanos Manos knows what it is like, he was the finance minister in the early 1990s, when Greece actually had its budget deficit under control. Jim Boulden spoke to him in Athens and asked him to explain how Greece got into this recent mess.

(BEGIN VIDEOTAPE)

STEFANOS MANOS, FMR. GREEK FINANCE MINISTER: We have been through a period of uncontrollable spending. And in very simple words, what we have to do-and it seems that the government is trying to do something in that direction-is we have to have drastic reduction in spending. We didn't go and say what I would want to see is brutal spending cut, because there is a lot of fat. And we have to cut it away, more so than in other countries that face similar problems these days.

JIM BOULDEN, CNN INT'L. CORRESPONDENT: So what steps should be taken then?

MANOS: Spending cuts, spending cuts, spending cuts. And the way to do that is to go every line through the budget and say, do we really need to spend this money? In my opinion we would be able to immediately to fine-I mean, when I immediately, within 10 days, identify 10 billion euros to cut.

BOULDEN: You say brutal, but we saw demonstrations and marches on the streets Wednesday and that is only the first phase of the austerity package.

MANOS: Well, I'll say, that I was astonished at how small the attendance was. I was not at all impressed by what happened yesterday in Athens. When I used to be minister, years ago, the demonstrations were 10 times as big, or 15 times a big. So, I'm not impressed by that.

In fact, I would say that I'm impressed that the people seem to be ready to accept pain.

BOULDEN: And so far, you don't see any evidence that the government is backing down a little bit?

MANOS: Well, I wouldn't say it is backing down, but I don't see them moving as quickly as I would have done, as I would have wished. But it is many of the things they want to do are in the right direction. It remains to be done, however.

BOULDEN: One of the drastic cuts you would make is in the public sector, something you tried to tackle in the early `90s when you were finance minister, and now it is even bigger.

MANOS: It is much bigger, not just bigger, it is much, much bigger. So, this is a lack of discipline. And also lack of-we don't like to measure things in Greece, we just make decisions often on qualitative criteria, without really measuring what we're doing. But as I said, this is what I would try to do. Not so much also, cutting wages as many people suggest. We employ in the Greek public sector many more people than we actually need, three times as many, four times as many. It is unbelievable. And something has to be done about it.

BOULDEN: It is interesting that you talk about a standby agreement with the IMF because people outside of Greece say that's a bad idea politically.

MANOS: Well, people may think, OK, why can't the Europeans take care of themselves? The answer is because they didn't think of it ahead of time. So they do not have a system ready to do that. I would very much welcome, as some people have suggested, if the Europeans would put together a European monetary fund. So, in case a country is in trouble and there will be more countries in trouble, that they may take care of it.

BOULDEN: So, what is your gut feeling? What is the scenario for the next few months here in Greece?

MANOS: Now, all sorts of opportunities in Greece. You are now in Athens, and you have noticed what the weather is, we have 11 degrees more than London. Now, now as we speak.

BOULDEN: In February.

MANOS: You could go out and swim. And normal European, rational European, should take advantage of the situation and come to Greece for his holiday.

(END VIDEOTAPE)

DEFTERIOS: Stefanos Manos there, with Jim Boulden. Even making a pitch for the Greek weather this time of year, particularly in London, where it is nice and gray.

Now, let's get you up to date with the news headlines. And for that we turn to Fionnuala Sweeney joining us from the London newsroom.

(NEWSBREAK)

DEFTERIOS: Well, it is a bad combination of words for many people, bankers and bonuses. Royal Bank of Scotland is reopening the Pandora's Box. We'll take a look at who is getting what and why, these days.

(COMMERCIAL BREAK)

DEFTERIOS: Royal Bank of Scotland is back in the spotlight today. The bank which passed into state ownership in 2008 due to its financial problems posted a loss for last year of $5.5 billion. Believe it or not that was not as bad as the market expected. A year earlier it lost several times more than that, over $36 billion.

The bank is now bracing itself for a storm over staff bonuses, it is planning to hand its investment bankers payouts of around $2 billion. That is likely to go down badly with the British public. They are pointing out that taxpayers rescued the bank from disaster and now own 84 percent of it.

Chief Executive Stephen Hester says he has pay bonuses or else say good bye to his best performer these days. According to him the banks is already paying the price for failing to keep some of its top money makers. If they hadn't left RBS would have an extra $1.5 billion in 2009, according to Hester. Hester is declining to take the $2.5 million bonus he is entitled to this year.

Lloyd's CEO Eric Daniels is also bowing to taxpayer pressure. He is foregoing a $3.5 million pay day. The board of HSBC is expected to withhold a pay raise for their CEO, even though the bank did not get state help. Whether they offer him a bonus is still under consideration.

The chairman of U.S. bank Morgan Stanley is going one step further. He's talking about efforts to reform pay. John Mack echoing a phrase used by President Obama, told a meeting in North Carolina that the banking industry still does not get it.

Well, earlier I spoke to Mark Thompson from the management consulting firm, the Hay Group; they have just published a report on how companies manage staff compensation. I asked him if it was likely that staff who walked away from RBS really cost the bank $1.5 billion?

(BEGIN VIDEOTAPE)

MARK THOMPSON, ASSOCIATE DIRECTOR, HAY GROUP: No, definitely not. I mean, there isn't any such formula that Stephen Hester would have used. That was a complete, I think, estimate as to what he would have earned had he managed to retain his people.

DEFTERIOS: Have you changed the culture, though, within the city, where the expectations are very high around Wall Street, where they are expecting annual bonuses. You have talked about a holistic view. Many would say that is a three- to five-year time horizon and a bonus pot built up over time. Can we get there?

THOMPSON: Well, this is where regulation may come in and may have a part to play. Because the market is not going to respond unless there is some kind of control over this and that is a very key objective for regulation.

DEFTERIOS: You see, so far, the chief executives, or those in the C suite, the COO and the CFOs, postponing their bonuses, but this is not reaching down into the rest of the organization. Would you actually have a revolt if in fact they tried to tighten the screws and say, Look, we want to judge you over a three to five year period?

THOMPSON: Well, there is quite rightly a lot of skepticism about that. Certainly, in the general population that, are these people really the masters of the universe, for example? And can we, you know-do we really rely upon them that much? Do they have skills that are that scarce? But not many organizations are prepared to risk it.

DEFTERIOS: What is your view on that, yourself? Is the talent really hard to retain in this sort of market? Not just in banking but within other services that you surveyed?

THOMPSON: Yes, I mean, I work a lot with more general businesses and organizations and I see a lot of people with very scarce skills, very skilled, and they are paid a lot, lot less than investment bankers, and they are not going anywhere.

DEFTERIOS: I looked into your report and I thought something that was very interesting, "don't ignore the average performers", as you call them, because you want to retain the very top talent, of course, but there is that wide swath, probably 70 percent of an organization, that you do need to retain because it is your base.

THOMPSON: It is the backbone. Now, the problem is now that pay bills are very much under pressure. So, if you are running a pay system, you will want to try to ensure you keep the best people and put the money into retaining the best. And the danger is, if you do that is you will lose sight of the average.

DEFTERIOS: Tax measure, I mean, in the U.K. and the U.S., they have been trying to tax this regulation, but you say that is a big distraction. And if you start to focus too much on tax, you actually see companies moving. Picking up their sticks and going to Switzerland. This has been the major threat within the city of finance, of course.

THOMPSON: Well, highly exaggerated.

DEFTERIOS: I think so, too.

THOMPSON: A lot of talk. But, you know, in the past it has happened. After all, we had brain drain in the United Kingdom in the 1970s, due to ridiculously high tax rates. The Middle East, actually, it is not that attractive to work there, but people do go there because there is very favorable tax rates.

DEFTERIOS: Zero taxes.

THOMPSON: So, at the extreme ends, then a tax does make a difference. But for the majority, sort of somewhere in the middle, no, I don't think it makes a difference in terms of mobility.

(END VIDEOTAPE)

DEFTERIOS: Once again, Mark Thompson of the Hay Group.

In a moment we go backstage at London Fashion Week, behind all the glamour, the people who make sure there is plenty of sparkle on that catwalk. Meet the man who dresses the stars.

(COMMERCIAL BREAK)

DEFTERIOS: London has been a good place for celebrity spotting in the past few days. The fashion world came into town trailing super models and movie stars in its wake. But we're looking at what goes on out of sight at the catwalk show. In tonight's "World at Work" the designer Osman Yousefzada, as he gets ready for one of the biggest events in the fashion calendar.

(BEGIN VIDEOTAPE)

I am Osman Yousefzada and I am a fashion designer showing at London Fashion Week. Welcome to "World of Osman". We've got fittings today. I'm just straightening the lining. I'm trying to make it work better on the body, just to king of generally get the look to get the running orders.

The creative process actually takes quite a while. It is sort of ongoing, sometimes you kind of make things last minute.

We need to make this sleeve shorter. It works for the show because you think there is a gap in the collection.

Why can't she secure it to here?

I'm never happy. I'm a perfectionist.

This zip is too close together as well.

These are some of the ladies that add to the magic as well. There is Janet who is actually helping us over fashion week. And then Nola (ph), who is here full time. And Asta (ph), who does the patterns, who is basically here fulltime as well.

Everything has to be perfect, basically, before the show. You know, it is like a wedding preparation.

I grew up in the industry, basically. My mother had her own dressmaking business. I was the one out of all my brothers and sisters, that was much more interested in my mothers work than anyone else. I was cutting from a young age. I could sew from a young age. And I think your product really needs to be accessible, but also what some people actually want, a brand that people actually want to build a wardrobe from.

So, I've dressed (UNINTELLIGIBLE), Ann Newton (ph), Mary Kate Olsen, Charlize Theron, Anna Freah (ph), Anna Reynolds (ph), Clara Brown (ph).

I obviously recognize this dress. We're delivering some dresses to Sarah Brown (ph), and see you later.

There are a lot of people, it takes a lot of people to oil the machine, to make everything run flawlessly.

Look out for this one, basically, on the runway, yeah?

I think the pieces are beautiful. (UNINTELLIGIBLE) I think they are pieces that people want to wear.

UNIDENTIFIED FEMALE: See you next time.

YOUSEFZADA: OK, see you next time. Take care. Bye-bye.

(END VIDEOTAPE)

DEFTERIOS: The buzz of London Fashion Week.

Well, the day after the ordeal there was no precedent for the grilling the head of Toyota subjected himself to in Washington Wednesday. In a moment we look back at how he got on and what's down the road for Toyota.

(COMMERCIAL BREAK)

DEFTERIOS: It's going to stay low for the time being. But that's still weighing on markets, whether we're going to be facing a slowdown in Europe and how that's going to affect the U.S. Economy, as well.

Well, Akio Toyoda, the head of the world's biggest automaker, sat before U.S. lawmakers on Wednesday, saying he was determined to restore drivers' trust in Toyota cars. In three hours of questioning, Toyota admitted that while the company was growing at top speed, Toyota got off track. The admission was the first step toward repairing a reputation damaged by the recall of more than eight million vehicles.

In an exclusive interview with CNN's Larry King, Toyoda said he should have spoken up a lot earlier.

(BEGIN VIDEO CLIP FROM "LARRY KING LIVE")

LARRY KING, HOST: You apologized on behalf of Toyota. One congresswoman, Congressman Marcy Kaptur, didn't think you showed enough remorse.

How -- how sad -- this is hard to put in words, maybe -- how sad are you over this?

AKIO TOYODA, TOYOTA MOTOR CHIEF EXECUTIVE (through translator): Well, all the vehicles bear my name and if the people's trust vis-a-vis the vehicles lessens, then that is the same to myself. It is very difficult to express with words, but sometimes people tell me that I'm not explaining enough. It's unfortunate, but I really would like to continue doing my very best to convey my feelings.

(END VIDEO CLIP)

DEFTERIOS: Toyota's appearance on Capitol Hill was closely followed in Japan, as well as the United States.

Kyung Lah in Tokyo sums up the reaction to his performance back at home.

(BEGIN VIDEOTAPE)

KYUNG LAH, CNN CORRESPONDENT (voice-over): Top news in Tokyo, the top Toyota boss' testimony before U.S. lawmakers.

"I think it's good that he took responsibility as the president of the company," says this commuter.

Japanese morning shows were abuzz with that same sentiment, noting the questions were tough, but not as tough as they could have been.

Much is at stake for Japan. Toyoda the man represents not just Toyota, the company, but, in effect, all "made in Japan" products. From Japan's prime minister, relief that the testimony is over.

"But this is not over yet, says Japan's prime minister. We expect Toyota to pay careful attention and improve safety."

(on camera): There's also headline news here because there's simply no equivalent here in Japan. It just doesn't happen in this country -- a corporate head being hauled in front of lawmakers, called on the carpet for failing the public.

(voice-over): On U.S. turf, Toyoda went out of his way to be more like an American boss and less Japanese -- speaking publicly again and again, not just at the hearing...

(BEGIN VIDEO CLIP FROM "LARRY KING LIVE")

KING: Was it a difficult day for you?

(END VIDEO CLIP)

LAH: But in an exclusive interview on "LARRY KING LIVE" and then to Toyota dealers.

But the emotion of the day wore on the grandson of the company's founder. It is the price, say many, for a company that needs to make amends with its worldwide customers.

"Toyota is a globally successful company," says this commuter, "and it became a giant in the U.S. It is necessary to adjust Toyota's corporate mind to the American culture."

An adjustment for this embattled company that has only begun.

Kyung Lah, CNN, Tokyo.

(END VIDEO TAPE)

DEFTERIOS: U.S. President Barack Obama is sitting down with fellow Democrats and opposition Republicans for a televised summit to discuss the future of health care.

White House correspondent Dan Lothian joins us live from Washington with the latest -- and, Dan, I know they've sat down together, trying to bring this legislation together. But it seems that they're further apart with some of the debate that I was watching.

What do you -- what's your perspective on this?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Yes, you are -- you are so right. And, in fact, the president, when he started off this morning, he pointed out that he's not even certain that this large gap that exists can be shortened at all, that they can actually come together. And, by the way, the second session now underway. You can probably take a look at the live pictures there.

The first session started at 10:00 this morning. It was supposed to be, in terms of the opening statements from the president and then from lawmakers on both sides only supposed to happen for about a few minutes or so. But instead, it -- it lasted for about an hour.

And you heard some of the same debates that have been ongoing ever since this administration started trying to push through health care reform, Republicans saying that they don't like what the administration has been doing, they don't like what Democrats have done in the House and the Senate. They believe that this process should start over from scratch. They believe that what the president has in his health care proposal will only lead to further increases in premiums, something the president says is simply not the case.

Now, in general, I would say -- I was actually inside the room. And I would say that the tone was civil, but there was a testy exchange when Senator John McCain started talking about deals that the administration had cut in order to get some things passed.

Take a look at this exchange between former presidential hopeful, Republican John McCain, and President Barack Obama.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Let me just make this point, John, because we're not campaigning anymore. The election is over. The...

SEN. JOHN MCCAIN (R), ARIZONA: I'm reminded of that every day.

OBAMA: Well, I -- yes.

(END VIDEO CLIP)

LOTHIAN: Now, I can tell you there did appear to also be a bit of frustration on the part of both sides when some of the lawmakers ended up taking a lot more time than they were allotted. There was no specific time limit that they were given, but the president kept urging all the lawmakers there to really watch their time. And everyone kept going on and on. You could see people rolling their eyes, a bit of frustration there.

And also, as you noted, from that exchange, when people went off message and started talking about other things, bringing up things from the past and not dealing with specific items on the agenda that they could hammer out and find some agreement on. Some of the members, and including the president, were not happy with that.

After the first session, the president walked back over to the White House and he was asked by a reporter how he thought things were going.

Take a listen.

(BEGIN VIDEO CLIP)

QUESTION: How's it going, Mr. President?

OBAMA: It's interesting. I mean I don't know if it's interesting watching it on they've, but it's interesting being part of it.

(CROSSTALK)

OBAMA: I think we're establishing that there are actually some areas of -- of real agreement and we're starting to focus on what the real disagreements are. If you look at, you know, the issue of how much government should be involved, you know, the -- the argument that -- that the Republicans are making really isn't that this is a government takeover of health care, but rather that we're ensuring the -- or we're regulating the insurance market too much. And, you know, that's a legitimate philosophical disagreement.

(END VIDEO CLIP)

LOTHIAN: Now, the two points that all of the lawmakers and this administration will be focusing on for this afternoon's session will be reducing the deficit and also expanding coverage. And again, you know, this administration very hopeful that something can come out -- something positive can come out of this summit.

But still, a great distance between what Republicans want and what this administration is pushing -- back to you.

DEFTERIOS: Dan, in fact, it's a very challenging process, is it not, that the Obama administration put forward an 11-page document trying to boil down a $950 billion health care proposal. Three weeks ago, the president had a, you know, debate with Republicans in Baltimore and it fared very well.

This is a high stakes game. He's trying to show the public that he wants to get something done and it's a very divided Washington right now.

Can he actually bring the parties closer together, at the end of the day?

It doesn't seem like it at this stage.

LOTHIAN: Well, you know, the president came to Washington saying that he wanted to really push for bipartisanship. He said he wanted to change the way that Washington worked.

And after being here for a little bit more than a year, he realizes that that's a tall order, that's very difficult to do and that Washington remains as polarized as ever.

They continue to be very optimistic that they can bring this closer together. But it seems highly unlikely that just from this summit alone that they will be able to bridge that gap. There's still a lot of differences.

And, you know, I spoke to one expert negotiator yesterday that said one of the big problems for this administration is that the president did put forward this plan and said, OK, let's work off this plan and find areas where we can agree on.

But Republicans are saying, listen, that's not the way to negotiate. And other experts agree, as well. What you should do is come to the table and say I have some ideas, let me hear your ideas. But let's sit down and try to build something together. That's not going to happen, as much as Republicans want the president to throw out his plan and to start all over.

What the Democrats will say and what the president has said is that we don't have time for that. The American people can't wait any longer. And so for us to throw it out will mean we're going to have to start all over again, too much time. So let's work with what we have.

Are they going to be able to do it?

It seems highly unlikely.

DEFTERIOS: It does at this stage.

Thanks very much.

Dan Lothian reporting from the White House.

Well, up next, a big movie premier in London, but in the background, the might of Walt Disney takes on a British cinema chain. We'll tell you who backed down in this battle of the big screen.

(COMMERCIAL BREAK)

DEFTERIOS: A U.K. cinema chain has reversed its decision not to put the new movie, "Alice In Wonderland" on show in its theaters. ODEON Cinemas is going ahead and running the film after earlier threatening a boycott. The dispute erupted because Disney wanted to release its movie on DVD sooner than usual. The rumpus was resolved in time for tonight's royal premier in London.

And that's where Atika Shubert is right now -- so I guess there's a lesson here, Atika, as you fight the rain out there on Leicester Square.

A cinema chain versus Walt Disney, it doesn't seem like a big equal match.

How did it play out?

ATIKA SHUBERT, CNN CORRESPONDENT: No, it doesn't. And a lot of the analysts we spoke to predicted that Disney would win out, as the studios usually do.

But still, it was the first time, really, that we saw a chain like ODEON, the biggest U.K. cinema chain, stand up to Disney and say, you know, that they're drawing a line in the sand, they won't show the film unless Disney reverses its policy.

Now, obviously, that has not happened. ODEON will go ahead and show the film. But, clearly, there is a dispute with the cinemas, saying that they do not want to see the DVD release date moved up any earlier. They feel it is going to threaten their businesses.

But some kind of an agreement has been reached so fans don't have to worry, they will be able to see the film at ODEON cinema chains across the U.K.

DEFTERIOS: Did they get any concession out of this for putting the film back on?

Did they get future negotiation rights here to say, look, don't release these movies to the market so quickly, because the time line was much shorter than usual?

SHUBERT: It's much shorter. It's moved up by five weeks. And, really, what it is, is Disney saying, you know, we don't just make our money off of theater releases anymore. It's also DVD sales, its online sales. And they want to make sure those revenue streams get as -- they get as much as they can out of it, especially for a big release like this. "Alice In Wonderland" is a hugely anticipated film.

And we were able to speak very briefly with the director, Tim Burton, as he made his way up the -- the green carpet here tonight.

Here's what he had to say.

(BEGIN VIDEO CLIP)

TIM BURTON, DIRECTOR, "ALICE IN WONDERLAND": Well, it's a very -- you know, the -- the "Alice In Wonderland" characters are a lot of crazy characters. But the thing with this, it's a very sort of personal internal journey. It's about somebody finding themselves and kind of using their fantasy and dream world to kind of deal with real problems.

So it's a very kind of simple, personal journey for some -- for a girl.

SHUBERT: Just a last question.

You have some royal guests in attendance today, and, of course, it's premiering in London, where the story comes from.

Are you nervous about that?

BURTON: Well, you're always nervous when a movie opens. So it's pretty much normal in that way.

(END VIDEO TAPE)

SHUBERT: You saw there I was asking Tim Burton about the royal attendance. In fact, Prince Charles and his wife, Camilla Parker Bowles, just arrived here and they will be attending the screening tonight.

So a lot of excitement for this film and a lot of fans happy that they will be able to see the film now at the ODEON Cinemas -- John.

DEFTERIOS: It doesn't look like the rain is deterring the big crowds by showing up. And looking over your shoulder there, it seems like it's pretty packed.

Or is that just because they narrowed the -- the entranceway here?

SHUBERT: No, no, no. It is pretty packed. It did not stop the fans at all. Lots of screaming fans here, especially for the biggest star of the film, Johnny Depp.

DEFTERIOS: OK.

How are reviews, very quickly, on this film, by the way?

Have you seen anything?

SHUBERT: I have seen it. And it's visually stunning, especially in 3-D. It's just incredible colors. You didn't even know there were colors like that, especially on Johnny Depp's hair. His character has some brilliant orange hair. And, of course, he plays The Mad Hatter. So it was a lot of fun to watch.

DEFTERIOS: OK. So, Atika Shubert, thanks very much, braving the rain there in Leicester Square for the debut of "Alice In Wonderland".

As you can see she's fighting the weather.

In the United States, they're going to be fighting a huge snowstorm.

Let's get the latest on both sides of the Atlantic.

And for that, we turn to the CNN Center and welcome back Jenny Harrison -- Jenny.

JENNY HARRISON, CNN METEOROLOGIST: Yes, John, you're not wrong.

A big storm now really impacting the Northeast. Of course, already the slight delays are beginning to click in. You can see here the amount of snow. The whole system just continuing to sit across the region. But rain, of course, further to the coast, but you can see that cutoff line all too clearly.

And certainly some very long delays, in particular at LaGuardia now, over four hours. Not quite so bad at Philadelphia and also not quite so bad further to the west. But it's really going to be LaGuardia that's impacted, certainly for the next few hours.

But this system is going to sit in place, really, as we go into Friday. We're looking at some very heavy amounts of snow and the winds, as well.

Now, we could be seeing winds gusting at about 95 kilometers an hour. So we're looking at blizzard conditions with that rain coming down -- a very, very heavy, wet snow. This, of course, is showing where all the winter storm warnings are in place -- pretty much as you would expect.

And the reason we've got such a strong storm -- it's what's called a nor'easter. It's when a storm clashes two air masses, but in particular, it's been rolling its light way along the coast. And so really getting a lot of energy, a lot of moisture from these very warm waters. And so, of course, the cold air, the warm air, all clashing. And this is why the system is producing such a heavy amount of snow.

You can see in the precip part, the snow sitting in the Northeast. And, also, I just want to point out to you some really unpleasant conditions rolling along the coastal areas of California in particular over the next couple of days -- rain, thunderstorms and more of that snow into the mountains.

But look how much snow we could be seeing to parts of the Northeast. Upstate New York seeing very heavy amounts. These, of course, some of the places that we've plotted. Nearly 30 centimeters in -- in Scranton; and, of course, as we head into Friday, although the wind -- the snow beginning to ease off, the winds are probably going to be more of a problem, actually, on Friday than they were today.

So it really is a day just to check ahead if you're heading off to the airport. Of course, if you're heading in in the next 24 hours, be prepared for some delays.

Now, meanwhile, out in the Atlantic, we've been watching this storm. It's been gathering strength. Here, of course, is Medeiros. So we're keeping a close eye on that following the weekend landslides, the mudslides.

Right now conditions are pretty good. We've got sunny conditions, dry conditions. But this is the next storm system. Now, in fact, as it gets closer toward coastal areas, toward Madeira there, but also toward Portugal and Spain, the rain beginning to taper off a little bit but the winds -- a big factor will be the winds with the storm system. And you can see the accumulations, certainly in the next 48 hours. We'll probably see about one centimeter pushing into Portugal and Spain.

So we've got one system now impacting Europe already. Then that's the next one, of course, hot on its heels. But that system, which is impacting the Bay of Biscay in France right now, warnings in place because of the strong and potentially damaging winds.

And then in the U.K., you saw that rain pouring off Atika's umbrella. Look at this. No wonder. This is the radar in the last two hours. And, by the way, that, to the north, is not rain. That is coming down as snow across in Scotland. More warnings in place. Very heavy amounts of snow.

And again, this is the system. And this will continue to work its way up toward the northeast into Saturday. So those winds, of course, wrapping around that low and dragging all of that cold air, all that moisture turning to snow across much of the north of (AUDIO GAP).

Of course all of that means we'll see some travel delays. So again, when it comes to the wind and the snow, those are the likely culprits.

Now, it's time for a short break here on QUEST MEANS BUSINESS.

John is back with you, and, of course, he'll be back in just a moment.

Stay with us.

(COMMERCIAL BREAK)

DEFTERIOS: The jobless rate in Germany is up, but it's not raising as quickly as some economists had feared. More than 3.4 million people are now out of work in Germany. The unemployment rate, seasonally adjusted, is running at 8.2 percent.

As Frederik Pleitgen reports, the labor market hasn't done too badly through the winter, but it faces a new test later this year.

(BEGIN VIDEOTAPE)

FREDERIK PLEITGEN, CNN CORRESPONDENT (voice-over): The rise in unemployment in Germany is significant but is somewhat lower than many experts were expecting. In February of this year, some 26,000 additional people were out of work compared to January of this year.

Some experts were predicting that the numbers could rise by some 70,000. And the reason for that was the massive winter here in this country, very cold temperatures, a lot of snowfall. And that, of course, had a lot of effect on seasonal jobs, especially in the construction sector. Many construction sites were idle for the better part of two months. Also, a lot of issues in other seasonal sectors, for instance, gardening here in Germany.

Now, on the whole, Germany has been somewhat shielded by the job crisis that's been gripping a lot of economies here in Europe, especially countries like Greece, countries like Spain, as well. And the reason for that, of course, have been government induced programs. For instance, the short labor program that was also put up by the German government at the onset of this crisis. That program, of course, allows companies to cut their workers' working hours and the government then picks up the difference.

Now, of course, many of these measures will expire as this year goes on and certainly there are people who believe that throughout this year, unemployment will rise and that that could damage Germany's economy and also have reverberations for economies around Europe.

Fred Pleitgen, CNN, Berlin.

(END VIDEO TAPE)

DEFTERIOS: More signs that a recovery in the Euro Zone may be slowing down. The European Commission says economic sentiment in the 16 countries that use the Euro Zone worsened in February for the first time in nearly a year. But it's sticking to its November forecast that economy will grow by a very modest 0.7 percent this year. The European Commission for Economic and Monetary Affairs says Spain will remain one of the weakest economies throughout the Euro Zone.

(BEGIN VIDEO CLIP, COURTESY A.P.)

OLLI REHN, EUROPEAN UNION COMMISSIONER: The economic growth of 1.2 percent for Germany and France and 0.7 percent for Italy. That is our forecast for 2010 for these countries. The United Kingdom stands out as the only large member state for which growth has been revised downwards. It is due to a host of factors, among which is the ending of the favorable impact of the -- of the earlier vat practor (ph) and the rather weak momentum already evident in the fourth quarter of last year.

Spain is the only large member state for which a further contraction of the economy in 2010, this year, is predicted, although somewhat less than earlier forecasts.

(END VIDEO CLIP)

DEFTERIOS: Business confidence is rising in Italy, as manufacturer growth is more optimistic about the recovery. The manufacturers overall a bit more optimistic. That's according to an Italian think tank, the ISAE. Its Index of Confidence stands at 84 in February. That's compared to 83.2 the month before, the month of January. That is the fifth rise in a row and the highest level since June, 2008.

Of course, Italy contracted by nearly 5 percent last year, with growth expected of close to 1 percent for the year. This comes after the Italian economy began to grow again in 2009, after the very, very tough contraction throughout the entire year of 2009.

Well, fresh political turmoil may be about to erupt in Thailand. Anti-government protesters are again threatening to take to the streets. A court decision due on Friday could prove to be the trigger. The issue is what to do with more than $2 billion seized from the former prime minister, Thaksin Shinawatra. His assets were impounded when he was removed from power in 2006. He's been convicted of corruption and is now living in exile.

Thaksin made a billion dollars in the telecommunications business and spent some of it buying the fresh -- buying the English football club, Manchester City. The club no longer has any ties with him. However, investors don't seem to be too worried about the chances of more unrest. Stocks in Thailand have been heading higher over the past fortnight.

Well, it's been a day of very rough trading in the European markets and also in the United States. We saw losses of about 1.5 percent in -- in Europe and a slight recovery taking place on Wall Street.

We're going to wrap up the markets and what drove the markets lower today, beyond Greece, when we come back.

(COMMERCIAL BREAK)

DEFTERIOS: We're about to enter this final hour of trade for today. Let's take a look at the latest numbers from Wall Street. We had a -- a fill up of about 1.5 percent earlier. And you've seen here, since we went on the air about an hour ago, that the market is kind of creeping back, with a loss of about 86 points at 10287.

It's been a pretty choppy day. We had a couple of bad economic numbers come out in the United States, one on durable goods orders with the manufacturers and what their orders will be like based on confidence going forward. That was down 0.6 percent.

They were expecting a rise of 1 percent. And we also saw the jobless claims went up by 22,000, to nearly 500,000.

Let's take a look at the European markets. That's where the sell-off started. And it really kind of points to Athens yet again. The European markets down in a range from 1.2 percent, as you can see, down to 2 percent. Paris suffering the most.

It was actually more severe in Greece, where we saw some of the major banks there dropping 5 percent each after the concerns by the S&P and Moody's that they may downgrade their debt.

There's also concerns right now that Greece may contract by nearly 2 percent in 2010.

And that is QUEST MEANS BUSINESS for this hour.

I'm John Defterios sitting in for Richard Quest.

And we'll not ring the bell.

"AMANPOUR" is next, after the news headlines.

END