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QUEST MEANS BUSINESS
Greece Plans More Austerity Measures
Aired April 29, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: Tonight, a new test for the Greek government, trying to push through even tougher austerity measures. On the other side of the Atlantic, a very different picture, the Dow Jones is posting triple digit gains and BP's shares are plunging amid a disastrous oil spill in the Gulf of Mexico. How bad will it become? I'm Richard Quest, an hour and a half together where I mean business.
Good evening, stuck between a rock and a hard place. Tonight the Greek prime minister in an unenviable position, international lenders want deeper cuts. Workers in Greece want the pain to stop. Tonight, we are live in Athens where people have been taking to the streets to vent their frustration. We'll be asking how fast can the euro zone and the (INAUDIBLE) put their plan together? The EU says pretty quickly now and we'll have the action on the markets as investors track every twist and turn of this crisis.
Greece is racing to meet tough conditions which will allow it to qualify for desperately needed emergency loans. In the last hour, it's been reported from the Greek prime minister spokesman that the aid on (ph) offer from the IMF and the EU, the negotiate today (ph) is worth a lot more than originally thought, $160 billion over several years and it will come at a dear price. The government hammering out the final points of this austerity plan which will inflict deep cuts on an already angry nation. The job of the prime minister is to make sure the trade unions don't block the necessary measures.
Diana Magnay joins me now live from Athens and as you can see, those are some of the demonstrations that she is witnessing tonight as the prime minister has been trying to impress upon the nation the importance and the negotiations for the austerity measures. Diana, let's begin with you. What has the prime minister managed to negotiate?
DIANA MAGNAY, CNN CORRESPONDENT: Well, Richard, we were talking to union leaders (INAUDIBLE) details of this second round of austerity measures. These demonstrators (INAUDIBLE) actually teaches (INAUDIBLE) they're just worried about them and there have been minor scuffles and as you can see from those pictures, it looks like there will be a few more scuffles. But I'll just give you a sense as you turn back to me, what those austerity measures in the second round are. For example, the 13 and 14-month salary, now that is something specific to Greece where you get essentially a two-month bonus at Christmas and in the summer in compensation for possibly a lower base rate salary throughout the year. That's going to go.
There are going to be hikes in (INAUDIBLE) and in indirect taxes such as tobacco, such as fuel. There's also going to be hikes in the basic rate of taxation, would increase cost of living, poor people in this country with lower salaries and there will be wage freezes. So all in all some very drastic measures and these people demonstrating down there don't even know about them yet. The trade union leader we spoke to earlier who was in those talks today Richard with the Greek prime minister, also gave us a sense of the timing of when these measures will be.
(BEGIN VIDEO CLIP)
ILIAS ILIOPOULOS, ADEOY GENERAL SECRETARY (THROUGH TRANSLATOR): It's complete from what we established today. Some final details remain for the weekend, so for Monday, the agreement will commence being effective from the EU IMF.
(END VIDEO CLIP)
MAGNAY: As you said Richard, this aid package substantially larger than we did initially think (INAUDIBLE) 120 billion euros over three years and it does remain to be seen how well people down there will cope with those new austerity measures.
QUEST: Di, what I can't gauge this hour is the size of that demonstration and how widespread it is say for example within Athens. Are we just looking at a little bit of argy bargy (ph) between demonstrators and police or is this likely to spread?
MAGNAY: No, this is as you say essentially a bit of argy bargy. This has been the only sort of slightly larger demonstration that we've seen today. There are certainly more planned on (INAUDIBLE) on Saturday. You can expect much larger riots -- this isn't really a riot -- much larger demonstration than this next Tuesday and Wednesday. There will be a general strike so you can expect there to be much more widespread anger at these measures once they are actually unveiled this coming Monday Richard.
QUEST: Diana Magnay in Athens, many thanks for that Diana. We'll of course be following the events that I've been talking and we've been hearing about in Athens and we'll be continuing to monitor those events come way may. Now earlier, I was speaking to a man who knows about this Greek debt crisis inside and out. In fact, some say he's the man who got to this place in the first place. Professor George Alogoskoufis was finance minister from 2004 to 2009, now professor of economics at the Athens University, a professor of economics and business. Obviously there was much to talk to him about not least his own role in the proceedings. But I started by pointing out economically things now were desperate.
(BEGIN VIDEO CLIP)
GEORGE ALOGOSKOUFIS, PROFESSOR OF ECONOMICS: I think it's a very difficult situation obviously because there were many delays in the process of adjustment after the crisis started hitting Greece. Now we are in a very difficult situation, essentially Greece is out of the markets and the only solution as far as I can see is to put in place a new austerity program and rely for some time on the European support (INAUDIBLE)
QUEST: What we don't know is whether Greece is insolvent. The "Financial Times" and the "New York Times" makes clear, the question of whether Greece is actually bankrupt is not clear yet.
ALOGOSKOUFIS: I think what (INAUDIBLE) because this is what insolvency means. But this will require a very --
QUEST: ... complex business (ph)
ALOGOSKOUFIS: It (INAUDIBLE) because the market is closed, but that interest rates that would be normal, Greece is certainly not insolvent. What is a bother now, Greece is facing a confidence crisis and then clearly it takes time to get out of a confidence crisis and this time, I think we can provide a barrier against (INAUDIBLE)
QUEST: We clearly can accept that these 60-70 billion that may be (INAUDIBLE) in dollars may not be enough and what we're now seeing is 100- 120 billion over multi-year programs. What's your understanding?
ALOGOSKOUFIS: My understanding is that we will need to use all that money. Actually if Greece puts in place an austerity program that works in the next 12 months and it would need probably about 40 billion euros or dollars and then, it should go back to the market. It should test the market again in a year's time after there's clear improvement in its fiscal position. After the market has calmed down after all this discussion about what the restructuring has ended.
QUEST: Can you understand why Germany taxpayers are saying, why should we bail out Greece's luxury pensions as indeed one German newspaper had it today?
ALOGOSKOUFIS: To some extent I can understand it and to another extent, I think there's a misunderstanding there. Germany is not going to put up taxpayers' money. It's going to put up loans, essentially Germany will borrow at low interest rates and will lend Greece at much higher interest rates. So that the German taxpayer is going to be making money out of this process, because I don't think that Greece will ever default. Greece will repay its debts. So the idea that the German taxpayer is bailing out Greece, yes, it's true to a certain extent because we need the loans now. The markets closed. We haven't relied on the markets as we have been relying on the markets for so many years. But the German taxpayer I don't think will pay anything.
QUEST: Why not let Greece default and I know the contagion argument is that Spain or Italy or Portugal next. But save the money for a country that might actually be in a better position to be saved. Because where Greece is concerned, so much money needs to be spent. One's tempted to say let is go and build a (INAUDIBLE) again for the next one.
ALOGOSKOUFIS: I think Greece is (INAUDIBLE) and the money they're thinking about concerning Greece is not that much if you consider that a lot of the Greek debt is being held by German banks, U.S. banks, UK banks.
QUEST: But the problem is that the mere talk normally, if you talk it up, (INAUDIBLE) enough to stop it, not enough to create confidence. But the Europeans and the IMF have been talking about (INAUDIBLE) for a long time and it hasn't stop the rot (INAUDIBLE)
ALOGOSKOUFIS: Sure, we have a clear case of (INAUDIBLE) market tests all the commitments that are being made and what is important now is to have money on the table and Greece will have a serious, realistic program of adjustment.
(END VIDEO CLIP)
QUEST: That of course was the former Greek finance minister. The EU monetary affairs commissioner Olli Rehn who's been part of the negotiations now says that they are moving forward fast and that it's likely that aid will be flowing soon.
(BEGIN VIDEO CLIP)
OLLI REHN, EU MONETARY AFFAIRS COMMISSIONER: In the past 10 days, the experts of the commission, the ECB (ph) and the IMF worked extremely effectively and hard with the Greek government and other operatives to work out the program that will reverse the (INAUDIBLE) of Greece and restore its overall economic (INAUDIBLE)
(END VIDEO CLIP)
QUEST: Now let's pull together all our Greek, Athens coverage tonight by just very quickly bringing you up to date on how everything terminated or at least ended the day. Greek borrowing has now sort of come down, I won't say to normal levels, but it is at 9.7 percent. That's on the 10-year bond. Remember the two-year bond had been (INAUDIBLE) had been over 15 to 17 percent, 20 percent. This is now down. It's still a good (INAUDIBLE) 3 1/2, 4 percent, that's still 4 or 5 percent above the German bond. But the mere fact things are getting better or potentially money will flow and indeed austerity measures. The Athens composite was up 7 percent which is a remarkably strong performance and it was broad-based in the market. What took place in Greece assisted to European (INAUDIBLE) where we had good gains on the DAX and the CAC. If banking stocks actually were a little bit more resilient, what was interesting in all the markets, it was the mineral stocks. It was the minings of course and on the back of good corporate earnings, we saw some strong industrials gains as well. Interesting market numbers today and things seem to have been a little bit quieter.
OK, you're up to date with the events of what's taken place in Greece. Now you need the news headlines (INAUDIBLE) at the CNN news desk.
UNIDENTIFIED CORRESPONDENT: Richard, here's some of the stories making news. Top U.S. government officials are heading to the Gulf coast to help deal with a massive oil spill and the Louisiana governor has declared a state of emergency. The spill is much worse than previously believed with a sunken offshore rig leaking up to 5,000 barrels of oil a day into the Gulf of Mexico. The oil could reach the shore as soon as Friday.
Another shocking attack on school children in China Thursday, a man waving a knife crashed into a kindergarten classroom full of four-year- olds. He stabbed a security guard who tried to stop him and then slashed 28 children. Five of the students are in critical condition. Two teachers (INAUDIBLE) third such attack in a month.
Belgium's parliament is set to vote on a bill that would ban full face Islamic veils. If it passes, Belgium would become the first European country to take such a measure. Women violating the measure could face a $20 to $30 fine or up to seven days in jail. Rule makers are trying to pursue the legislation before parliament is formally dissolved.
And the leaders of Britain's main political parties are preparing for their third and final televised debate. Prime Minister Gordon Brown is struggling to move past yesterday's gaff. He was overheard referring to a voter on the campaign trail as bigoted for her views on immigration.
Stay with CNN for live coverage of the debate as part of a special edition of connect the world with Becky Anderson and you can follow it all online. Connect the world will host a running commentary on their blog and take your comments. Go to cnn.com/connect for details. Richard in the meantime, back to you.
QUEST: Thank you for that (INAUDIBLE) Sweeney. We're just putting the finishing touches here, seven more companies get the Q25 treatment. Our exclusive index helping you to see exactly how the earnings season is progressing. Does ExxonMobil get a green or is it seeing red? In a moment.
QUEST: The (INAUDIBLE) is pretty much clear so far isn't it? The greens greatly outnumbering the reds, so much so, we've had to take the wind out of the balloons on the greens. This is the Q25, meaning the trend in company earnings so far this year has been positive and we have more names to do tonight. Hopefully I've got enough buckets of greens and reds to see us through this one. Let's find out what we're going to offer up. Joining us tonight is Felicia Taylor (ph) at the New York Stock Exchange. Good evening Felicia. You'll be with us in just a moment to talk about what we're going -- the last one and give us some market insight into that.
Maggie Lake (ph) is in New York as well and the market is up 134. Maggie, where do you want to start, which one, ExxonMobil I think is where we should begin, a green or a red?
MAGGIE LAKE, CNN CORRESPONDENT: We've got to give Exxon a green Richard and the simple fact is they earned $6.3 billion and it would be hard to give a company that earned that much a red, 38 percent profit rise. It's not that it's all smooth sailing though. The results did disappoint. There's some pressure on the refining area of the business, so there is a negative in there, but bottom line, $6.3 billion, a lot of money, so we give it a green.
QUEST: (INAUDIBLE) that's a green one. Viacom, which also -- I mean it's a studio. It's a television company. It's an advertising group. It's a wide conglomerate. We had a minor discussion on Viacom.
LAKE: We did. Interesting, it's been so clear cut all week. Today was a little bit more -- Viacom certainly fell in there, but overall, most of the headlines were good, net profit up 38 percent above expectations. One of the things that we've been seeing and it's reflected in Viacom too, advertising trends starting to turn and that is a real positive. But revenue was on the light side and the big problem spot seems to be Hollywood. Paramount pictures a weak spot there, but their cable and video game area was more than enough to offset that. So I say they get a green.
QUEST: Is it a green or is it a GG, (INAUDIBLE) and green?
LAKE: I think it's a green. (INAUDIBLE) I think it's a green.
QUEST: You pause for breath. I'm just going to very quickly do one that we had on this side of the Atlantic, France Telecom which had numbers down, business sales down. It performed badly. It didn't have particularly good outlook. I have no hesitation in tonight on this side of the Atlantic giving a red to France Telecom.
Procter & Gamble, we liked it, not a lot. It was a green. What happened?
LAKE: No I don't think it's going to stay green. This one was really the tough one of the day wasn't it and we went back and forth and we kept flipping. I think in the end though we're going to stick with red. Listen, it was a good overall headline that we all thought to begin with, unit volume up 7 percent. I think that was the strongest in something like four years. But then you look underneath, a lot of that was because they're cutting prices and (INAUDIBLE) most aggressive price war in the consumer products area in 20 years. And then their earnings fell 1 percent. They lowered their full year sales forecast. So when you start to dig deeper, this doesn't really look like a great story, especially when some of their competitors are doing well in that quarter. So I say in the end it gets a red. It might be turning. It might win that price war. Where does that leave profits?
QUEST: All right, so it's a reluctant red, but a red nonetheless. While we wait on for the next one, because you're going to do Bristol Myers Squibb. I'm just going to go quickly to Unilever. Unilever on this side of the Atlantic, (INAUDIBLE) for men, male grooming profits, good strong performance across a range, new products, new product performing well. I sound like I'm doing an advert for them, but frankly the numbers were just so good. Unilever gets a green. Quickly Maggie, Bristol Myers Squibb.
LAKE: Indisputable green, profits up 16 and a half percent. They beat expectations, looked great, get the green.
QUEST: OK, now we turn to the difficult one, another of our difficult ones and we're joined by Felicia Taylor here at the New York Stock Exchange and look, Motorola. Motorola which used to have the razr phone which was (INAUDIBLE) and but this time it's (INAUDIBLE) I'm still under 50 (INAUDIBLE)
FELICIA TAYLOR, CNN CORRESPONDENT: (INAUDIBLE)
QUEST: (INAUDIBLE) Motorola, a red or a green?
TAYLOR: You know what, honestly, I wish there was another color here. I'm going to give it a yellow to tell you the truth. Motorola -- there's kind of a (INAUDIBLE) rivals iPad. Obviously it's sold a lot of their Droid phones, profit beat forecasts. It has a good outlook. It's not really surprising though that we're hearing this chatter that they could be collaborating on a rival to the iPad. Here's a really interesting point for though Motorola. Their best division was enterprise mobility. That makes police radios and bar code scanners. It's been making a lot of bar code scanners. That means people are buying. It took an almost $2 billion and its profit doubled from a year ago. But here, a lot of traders think this is an underperforming stock. If you compare Motorola to Nokia about two or three years ago, in 2007, Motorola was at $20. Nokia's high was $40. So people think it's an under performing stock. I'm going with yellow.
QUEST: Fine, great, lucky for you, we haven't got a yellow balloon but we do of course have the traffic lights which can flash yellow for you. OK, Felicia Taylor at the New York Stock Exchange. Maggie, Felicia's managed to ruin our counting of the Q25. We'll have to find another form of balloon for that. That's what happens when you let amateurs have a go at this. We'll be back with you guys tomorrow in New York.
Three dimensional on next, from hearing aids to airlines, (INAUDIBLE) to skyscrapers. People who design things use the latest software. My next guest (INAUDIBLE) in just a moment.
QUEST: European traders weren't focusing exclusively on Greece this session. Some well-known companies reported quarterly results and we can look at the big ones. The software company Dessault Systemes has raised its target for the year. First quarter earnings jumped 16 percent EPS. Revenues little changed compared to a year ago. Doing an extremely good job of integrating the parts of IBM that it bought. Earlier Bernard Charles, the CEO of Dessault Systemes joined me. I was most interested to know what the business climate feels like at the moment.
(BEGIN VIDEO CLIP)
BERNARD CHARLES, CEO, DESSAULT SYSTEMES: All sector are now seeing signs of growth, even manufacturing. If you notice this week, all the announcement from (INAUDIBLE) manufacturers. They are all talking about product lines, (INAUDIBLE) electrical car. If you want to have something in 2012, 2013, you better have to give up (ph) them now. This is what we provide. (INAUDIBLE) products.
QUEST: Which is why I ask you, are we seeing a recovery that is faster or more broad based than you had originally thought?
CHARLES: But if I look at the macro economy part of the market we serve, I think the signs are quite modest. If we look at the degree of confidence, the trust that companies are getting to be (ph) for the future, it's growing faster than the signs on the economy.
QUEST: Why is that disconnect?
CHARLES: Disconnect is skewed to the cycle time. The cycle time is those companies working to deliver for this year. Of course (INAUDIBLE) this year, but they're going (ph) to deliver for the next three years, four years. On the long cycle time makes it that they have to do investment now, if they want to be competitive in three years from now.
QUEST: The danger is that you end up with a Greece situation or some extraneous event that means that optimism or that planning never comes to fruition. How worried are you about Greece?
CHARLES: Well, it's difficult to relate that topic to the real business we do, very difficult. I think it's good to see the (INAUDIBLE) between (INAUDIBLE) I see a lot of positive comments from my customers right now because in Europe, only six months ago, everyone was blaming the euro dollar exchange rate. Now no one is saying anything about that except bankers or countries. But from a business standpoint, it's good news this evolution of the exchange rate.
QUEST: The economic numbers that we are seeing (INAUDIBLE) suggest things are moving faster and better. The stock market suggests and even your own prices (ph). But what you're telling me is that there is this different (INAUDIBLE) if you like.
CHARLES: My assessment right now talking with a lot of prestigious companies is we all agree that there is a certain kind of disconnect between consumer expectations on what companies are offering. There are certain sectors which are busy, but the reality is beyond these incredible economical slowdown last year, the values on the way customers and consumers are going to select future product is unclear right now. Is it going to be green? Is it going to be sustainable products? What are the new values in each of the countries. This is a significant question for companies who are planning the future. I believe that this would be a key factor for the speed of the economy.
QUEST: Turn to our traffic lights if you will please. If you had to choose where you think we are, looking at from your vantage point of your company in the economic cycle, would you like a red, an amber or a green?
CHARLES: For two reason I take the green.
QUEST: Go on. Tell me the two reasons.
CHARLES: One is new company (INAUDIBLE) a new sales force so new reach and second is a unique offer (INAUDIBLE) to the competition.
(END VIDEO CLIP)
QUEST: The head, I should say the chief executive, the current chief executive of Dessault Systemes with the green (INAUDIBLE) colors on tonight's program.
Earlier in the hour, we spoke to the man who did run the Greek economy for five years. The country's problem is a crisis of confidence, he told me. In just a moment, you'll hear more of the interview, including the years that he spent in the hot seat.
So what blame does he bear for what took place?
Did he deceive and misguide the numbers, in a moment.
I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
Tonight, an impossibly large oil slick is now within 20 kilometers of Louisiana's fragile marshland. This is what is used to being used to try and stop it. The oil booms act as water level barriers. They're meant to try and keep hundreds of thousands of gallons of oil from reaching Louisiana's rich fishing grounds and then onto the shores of Florida, which would cause devastation, not just to fishing, but to tourism and to the environment.
Despite these efforts, the oil may reach the coast as early as Friday.
A short time ago in the White House, addressing a teachers' gathering, the U.S. president said his administration will help however it can.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Earlier this week, Secretaries Napolitano and Salazar laid out the next steps for a thorough investigation into what precipitated this event. I'm sure there may be a few science teachers here who have been following this issue closely with their classes. And if you guys have any suggestions, please let us know.
(END VIDEO CLIP)
QUEST: Shares of BP fell on Thursday because of the oil spill. They were down 6.5 percent in London. The market value of the company is down - - was down around $10 billion. BP's being held responsible, obviously, in law. And the president actually said that BP would be responsible for the cost of cleanup operation, a law that was introduced after the Exxon Valdez in 1990.
How about is this going to go? (ph)
Let's go to Texas and talk to Barbara Shook, the Houston bureau chief of Energy Intelligence.
And Barbara joins me now.
There -- there's two sides and we'll look at both of them.
First of all, the -- the cleanup side.
How optimistic are you that in the cleanup and in the handling of this, Barbara, they're going to be able to make decent and sizeable headway?
BARBARA SHOOK, ENERGY INTELLIGENCE: Richard, I don't think they're going to make significant headway before the oil hits the -- the land, probably no later than tomorrow night. And in addition to the environmental damage, we could see significant economic damage. This -- there's a great possibility that the flow of oil could cut off the entrances to the Mississippi River. And if that does happen, it's going to interrupt commerce that normally flows down the Mississippi River. And that will have a significant impact on the economy of New Orleans, Baton Rouge...
SHOOK: -- and those areas.
QUEST: So, as we look at this -- and we've moved swiftly into the economic aspects, let's just dissect which parts of the economy are likely to be affected. You've just there talked about intrastate and shipping traffic down -- down the rivers and the Mississippi and the like.
But what about things like tourism and fishing itself?
SHOOK: Well, fishing -- shrimping -- those are multi-billion dollar industries on the U.S. Gulf Coast, intersecting the shrimping and fishing industries as far away as Florida on the east and Texas on the west. We don't have shrimp boats going out from Galveston, Texas, we've learned already. And I assume the same thing is happening over in Florida.
The oyster beds may be contaminated. Other fish may be affected. We know that once boats are -- are contaminated by the oil, they will not be allowed back in their ports. Then, as far as exports, agricultural exports, textile exports that normally would go out of Louisiana...
SHOOK: Those will not move.
QUEST: But if we can now turn our attention -- since we are a business program, we have to talk and look at the plight facing BP. The shares down 6 or 7 percent in the London market. And BP looks like it's going to end up with the bill for cleaning up this -- this massive spill. This is extremely difficult for BP to weather.
SHOOK: Well, let's look back at the Exxon Valdez disaster in 1989/1990 and remember that Exxon spent several billion dollars in dollars of that day. I would say that today, with inflation and with higher environmental standards that will have to be met, that BP's costs could easily be $5 billion.
QUEST: And can BP withstand that, do you think?
I know it -- I know that's very early days and, of course, it's how long is a piece of string?
Can BP withstand that?
SHOOK: Yes. BP has the capability to withstand it, but it's certainly going to affect its growth opportunities, its ability to take advantage of exploration and -- and development programs that it had already on its -- on its books.
QUEST: Barbara, many thanks, indeed.
Barbara Shook, please join us again on another program to talk more about this as this unfolds and help us understand what's happened.
Barbara Shook joining us there from Texas.
We thank her.
And before -- we -- well, we mustn't forget that 11 people actually lost their lives, of course, when that oil rig exploded and sank. We must never put dollars before lives.
One piece of breaking news I must bring to your attention in the last hour, CNN has confirmed lawmakers in Belgium have approved a ban on the wearing of burkas and other Islamic garb that covers a woman's face. The bill must still be approved by the upper house of parliament before it becomes law. But at least lawmakers in the lower house have now approved that ban.
When we come back, when we return in just a moment, tonight, it is the last debate in the U.K. election between the three leaders. The economy is going to be the big question.
My next guest believes that if they don't get this right, Britain's looking for a double dip recession.
In just a moment.
QUEST: It's just about an hour from now and it is the last debate between the three leaders vying to be Britain's next prime minister. They will be discussing the economy. And voters get their chance to see how the men will perform.
The party leaders will set out where they think the economy is heading -- Jim Boulden, as we move to this last debate, the economy is the big issue.
How are things looking in the markets?
JIM BOULDEN, CNN CORRESPONDENT: Well, until now, we haven't seen much in the markets react to any reaction in the last few weeks to this election. But today, we have seen a little bit. It's the pound against the dealer.
Now, the pound has been weakening over the last few days because of the Greek crisis. The dollar is seen as a safe haven. But today we saw the -- the pound bouncing back. And a couple analysts have said they think, actually, that whoever deals -- whoever becomes the next government, even if it's a coalition, a hung parliament, a coalition government, they looked at Greece and they thought, wow, we can't let this happen to us, not that we're anywhere close to that. But there is some hope that the budget deficit here in this country would be tackled. And I'll show you those numbers in just a second.
The other area that people like to look at, of course, are the bonds. We know what's happened to Greek bonds. But the U.K. bond yielding -- the 10-year gilt -- below 4 percent. It's not bad at all. It's quite close to Germany. It's still AAA rated. There were some speculations in the markets and some speculations over the politicians that this could be under attack. But right now, the -- the Britain pound, the Britain gilts, the bonds, are very safe, indeed.
Now, the one area that everyone will be listening to tonight is the budget deficit. The U.K. budget deficit is over 11 percent of GDP. We're talking about more than the U.S., not as much as in place like Greek and Ire -- Greece and Ireland.
The big question is, though, is that one party, the Labor Party, the ruling Labor Party says we should not tackle the budget deficit this year. It's a fragile economy and we should not put it back into recession.
You look at Greece, you look at Ireland, they are going after the budget deficits, but they are in recession.
The Conservatives, the Labor Democrats have said a little bit about cutting this and cutting that. But, Richard, what we haven't heard and we're going to see if we hear tonight anything more specific, because that's what the market is looking at -- who is going to do what, how fast could it be, how devastating could it be to the economy or how important it is to do it this year as opposed to next year.
QUEST: Jim, you'll analyze that for us as the week goes on as we go toward the election next week.
Jim Boulden with that part of the story.
One man who's helped us throughout the election is Professor David Branchflower, former member of Britain's MPC interest rate setting committee.
He joins me now on the line.
David, you see the scenario now. Tonight's the economic debate.
DAVID BRANCHFLOWER, PROFESSOR OF ECONOMICS, DARTMOUTH COLLEGE, BANK OF ENGLAND POLICYMAKER, 2006-09: Yes.
QUEST: And the question becomes, why do you still think, if they get it wrong, or if they don't tackle these issues and they do tackle the deficit, we are looking at a -- at a double dip here in the U.K.?
BRANCHFLOWER: Well, we've had a very serious financial crisis. This shock to the system has been enormous. And the government has had to step in and -- if you like, and prevent us going over a cliff. We've had data out in the last week or so which says the recovery has just started. We had positive growth for the first quarter of 2010 of .2 percent.
So this is very early in recovery...
BRANCHFLOWER: -- it's -- if you like, it's the spring. And we -- yesterday here, we had snow. So you don't put out plants very early because the frost will come.
BRANCHFLOWER: The early stages of a recovery is like that. And so the danger is if you cut too soon, you push us back into a recession...
BRANCHFLOWER: -- or worse.
QUEST: But so...
BRANCHFLOWER: So you have to get growth going.
QUEST: But surely tonight, at least you want to hear where the governments or proposed governments are going to go. The ifs, Institute of Fiscal Studies, you'll have seen the report earlier this week that says the biggest lie in this election is that they're not being honest about the severity of cuts as and when they come.
BRANCHFLOWER: Well, it's pretty difficult to forecast ahead. And I understand the ifs report and the amounts of money are huge and the path is -- all three of them have actually not come clean on what they propose to do.
But the big problem is that they're -- even those forecasts depend upon an unbelievably strong growth forecast. So before you get to talking about what are you going to do about the finances, you've really got to hear about what are you going to do with the growth to make sure that the economy grows enough that revenues will rise before you start talking about where you're going to cut?
That's the big issue. It really depends on that growth and that's the big problem. If you don't have that growth, then we have a real problem. And the logic is you've pulled out the public sector to let the private sector go on.
What I want to hear is how are you going to make sure that the private sector isn't on its back?
So that's the problem. And to say where you're going to cut depends upon growth. And you really need to hear -- the public needs to hear what's the growth strategy of each of these parties.
BRANCHFLOWER: And if the growth is less than they think, the cuts will be even bigger.
QUEST: All right. Growth versus cuts -- you and I will talk about that next week, after the election, hopefully, when we can actually put some -- some forecasts into that and we can -- and you can tell me why I'm wrong once again.
David Branchflower joining me from -- from Dartmouth.
Now tonight, we're going to be -- we're over this like a cheap seat (ph). All aspects are being covered. In fact, we're going to talk about the reaction to it.
Max Foster joins me now from the London Business School, I believe -- and, Max, what -- what are you going to be wanting to hear from the people you're with, besides the, obviously, quality of them enjoying our program tonight.
MAX FOSTER, CNN CORRESPONDENT: Well, we're trying for the reaction, Richard. We've got a big screen there and we've got a group of students all watching here. They're going to be here throughout the evening watching CNN.
The big issue, of course, is economics. You've already mentioned that. The debate very much defining this election. So this is the last one. It's crucial. But it's also about personalities. We're going to speak to some students here. They're from all over the world. So we're going to get a good perspective here.
But we should start with Amin (ph). He's from the U.K. And you're actually going to be voting.
AMIN: Yes, sir.
FOSTER: So your voice matters most.
What -- what are you thinking?
AMIN: At the moment, we really want to hear some clarity on how they're going to cut the deficit. At the moment, we've heard nothing really clear from anyone.
FOSTER: You're not going to get any clarity because they're not going to say where the cuts are.
AMIN: No, I know. But we want to hear at least some authenticity. So if we hear any of the leaders coming out and making a credible answer to the questions about how they're going to cut the deficit, then I think we'll have some reassurance about who we're going to vote for.
FOSTER: So, OK, any speed in that direction?
FOSTER: Sean (ph), you're from the U.S.
SEAN: That's right.
FOSTER: Debates are nothing new for you.
SEAN: That's right.
FOSTER: So what do you make of all of our fuss about this and -- and our obsession with the personalities as a result?
SEAN: I'm really glad to see this. In the U.S., the debates are typically two party type of affairs. But this is really coming across as a legitimate and lively three way debate.
FOSTER: But what's hit you about the personalities, then?
SEAN: Yes, I'm really surprised that Nick Clegg, as a third party candidate, has come across so credibly and convincingly. So I'd like to hear what he has to say on the economy tonight.
FOSTER: From past experience, do you think Gordon Brown can actually make a comeback from his disastrous bigot comment yesterday?
SEAN: I -- I think he might. I think he can. He's a (INAUDIBLE)...
FOSTER: How can he do that?
SEAN: If he can present a compelling case about the economy, I think people will quickly overlook that -- that comment yesterday.
FOSTER: OK. Daniel (ph) from Canada. You've heard a lot about hung parliaments during this general election campaign.
We're all panicking about it here in the U.K., as I'm sure many will agree. You're used to hanging parliaments. It's a very similar political system.
So what do you make of all that?
DANIEL: Well, I think it's -- I think it's partly overblown. I think in -- in Canada, we've had hanging parliaments for the last five odd years. And it's -- it's something for the -- for the election -- the election spin. It's something for -- for everyone to get excited about. But I think come the seventh of -- the seventh of May, it will end.
FOSTER: So what do you make of the third party becoming really strong and us having a three party political system when it was really a two party?
DANIEL: Well, I think it adds a new dyna -- dynamic. But I think it's something that, again, this parliamentary system can handle pretty well.
We're going to wait to see what happens in the debate, Richard. But we're primed for the reaction.
QUEST: Well, bearing in mind you've got a bunch of students there, I hope you're going to buy them a drink if you're going to get them to say anything decent before the -- the night is out.
Max Foster, put it -- put it on QUEST MEANS BUSINESS'S bill. We'll pay the bill.
Max Foster joining us from the London Business School.
This is the Palm III. But perhaps next time you see one of these, it will have Hewlett Packard, H.P. On the back. We'll talk about HP buying Palm in just a moment.
QUEST MEANS BUSINESS.
QUEST: A big new player is zeroing in on the Smartphone market. Palm is now part of HP, one of the best known names in personal computers and, of course, in printers.
HP is paying over a billion dollars. It's getting a lot -- a loss making business -- certain -- a couple of hundred million -- several hundred million in the bank. It made a splash a few years back with the Palm Pilot. It had a huge hit with the Treo. But its latest device, this is the Palm Pre -- mine, actually, which, of course, the battery has run down on -- has -- has a good operating system, but not been that well received.
We're joined by Dieter Bohn from SmartphoneExperts.com, who always helps us understand this.
What are people -- what are people that know about these things saying about HP buying Palm?
DIETER BOHN, SMARTPHONEEPXERTS.COM: Well, the -- the folks that are interested in webOS from a technical perspective and use it as phones are really, really excited, actually. We ran a poll on Pre Central and like 88 percent of 10,000 various said that they were really excited about the merger.
QUEST: But analysts...
BOHN: These people -- go ahead.
QUEST: But these -- you know, the people who are on Pre Central and elsewhere, they -- they tend to have an -- an undisguised love of -- of Palm and its products.
So don't they feel that they are being sort of taken over by the big enemy?
BOHN: Well, there is a little bit of fear of that. But the big thing here about HP is they have got a ton of cash relative to what Palm has. And they seem very eager to use that cash to make webOS a success. So while a lot of folks at Pre Central are loyal to Palm, what they're really interested in is having a really great system on their phone. And it looks like that's going to continue because of this buyout.
QUEST: WebOS, which is the system that Palm now operates on, it's been a critical success and a commercial -- well, I would not say flop.
What would you describe it as, a critical success, but a commercial...
BOHN: I wouldn't say flop wouldn't be too far off. It's a -- it's been a commercial nonstarter. They -- they certainly haven't sold as many phones as they were hoping to.
QUEST: And -- and they blamed a variety of reasons.
Was it inevitable that Palm was going to get into bed with somebody, it was just a question of who?
They could no longer stay independent?
BOHN: It's been inevitable for probably about the -- the last six months. There was always the hope that they would have some sort of a breakout success with -- with the device when they got on new carriers. But after the -- the launch on Verizon in the U.S. didn't go so well, it was pretty clear that Palm just didn't have the funds to -- to keep going without some help.
QUEST: Right. Now I'm holding in my hand -- and you can't necessarily see this, but I'm holding in my hands something that perhaps is what everybody really gets terribly excited about. It is the Apple -- it is the Apple iPad. And...
BOHN: I have one here.
QUEST: Ah, there we are. I'll bet yours has far more interesting things than mine has. But at the end of the day, it is this -- it is the - - it is that you're really getting -- getting your juices flowing, isn't it, Dieter, the possibility...
QUEST: -- of Palm and HP doing something to rival this?
BOHN: Yes, when HP had their investor call and in their press release and everything, they literally couldn't stop hinting that they wanted to build a tablet or slate device running webOS. And if you think about it, one of the -- one of the limitations with the iPad is you can only do one thing at a time because it runs Apple's, you know, single tasking operating system right now.
And with webOS, it's so easy and fluid to switch between multiple tasks with their card system that the idea of having that on a really big screen is actually really exciting. And I'm really hoping HP can pull it off.
QUEST: A quick final question -- and be brief. Steve Jobs today saying that Adobe Flash will not be on the iPhone and therefore the iPad. He says it has too many bugs in it.
Is he just blowing a lot of hot air on that?
BOHN: Yes and no. I mean it -- it's definitely coming to webOS and other devices, Android. But he's right that it hasn't ever performed very well on mobile devices. And so while it's coming to webOS, I don't think that it's going to perform especially well.
QUEST: Dieter, you're always welcome to make sense on these difficult issues for us, helping those of us over 40 understand what gadgets we should be using.
Dieter joining us from Miami.
To the New York markets...
To the New York markets, where the Dow Jones is currently up. It's a strong session on the New York markets, largely on the back of earnings. It is up more than 134 points, up 1.2 percent, 11817.
I'll have a Profitable Moment after the break.
QUEST: The Q25 this week has been clear and unequivocable. Companies are taking advantage of the nascent recovery and we are seeing strong earnings -- such strong earnings -- 80 percent of the S&P companies that have reported so far -- 80 percent have beaten expectations. Those companies that haven't performed well are being punished by investors.
Just look at it. It's overwhelming. It's proving exactly what we always thought it would.
And can this continue in the quarters ahead?
This is entirely dependent on the wider economic situation. In theory, a virtuous circle is created. Good earnings leads to job creation, higher consumer spending and back to greater earnings. There'll even be increased tax revenues to help cut deficits if this is the story of the future. That's the theory.
As the green balloons show, a start has been made. With Greece's uncertainty, we're still some way off this circle being completed.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable.
"AMANPOUR" is next, after the headlines.