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QUEST MEANS BUSINESS
Britain Implements Austerity Measures; Tony Hayward Travels to Russia; Argentina vs. Greece
Aired June 22, 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, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: With a dose of austerity Britain starts on the long road back to fiscal prudence.
Avoiding the crowds but courting the Kremlin. BP's Tony Hayward goes to Russia.
And Argentina versus Greece, on the pitch it looks like a mismatch, but how do they compare economically?
I'm John Defterios in for Richard Quest. This, of course, is QUEST MEANS BUSINESS.
U.K. Finance Minister George Osborne says for the next five years Britain will be paying for its past and unavoidable result of an unsustainable amount of debt. It's figures like this that lie by behind the budget for austerity right now, $1.3 trillion. That is how much Britain owes its creditors right now. Osborne, today, told the British parliament that he has the formula to bring down those debts without jeopardizing growth. But the figure itself a one point $3 trillion is quite staggering. And it is going to be a five-year path to going lower.
We'll look at the budget in just a moment, but first, this just in to CNN, the U.S. federal judge has jus blocked six-month moratorium on deepwater drilling in the Gulf of Mexico. U.S. President Barack Obama ordered the moratorium after the accident in the Gulf in April that killed 11 people and sparked the biggest oil spill in American history. The White House says it will appeal the ruling. We'll have more news on that throughout the hour.
Now, back to our big story today in the U.K., at least, the combination of tax increases and spending cuts amount to the biggest reduction in Britain's budget in a generation. So, who looses out? Consumers, government employees, banks, people on welfare benefits, people nearing retirement. You could basically say everybody is going to pay the price. Let's take a look at the real key, headline numbers from today. This is something living here in London, of course, you were anticipating, that is the valued added tax going up. From 17.5 percent to 20 percent; it is a flat rate right across the board that affects everyone. That higher rate, which is interesting here, is going to be in effect in January 2011, because they didn't want to boost the inflationary pressures from 2010 to 2011, because there is some pressure on inflation right now. So that will kick at the start of next year. That is expected, kind of optimistically here, to raise $19.1 billion a year.
Now, the other kind of headline number here, the bank levy, $2.9 billion. This is slightly lower than many had anticipated, the banking sector paying its part now because of the financial crisis. This is across the board for the U.K. banks. This is a coordinated effort on the international front. Germany and France also announced similar taxes today. Keep in mind this GA G20 meeting at the end of month, in Canada. This is an important issue, of building a reservoir in protection of the next banking crisis.
Now let's go to the spending numbers. This is the deepest headline number that we can single out here; $47 billion a year, by the year 2015. Cut most government spending by 25 percent over the next four years. Welfare benefits are going to be cut back, there is going to be a freeze on pay for public sector staff, except for those on lower wages. George Osborne said today putting off action on any of the deficit really wasn't an option at this stage.
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GEORGE OSBORNE, FINANCE MINISTER, UNITED KINGDOM: Unless we now deliver on that promise of action with concrete measures, that credibility, so hard won in recent weeks, will be lost. And the consequence for Britain would be severe. Higher interest rates, more business failures, sharper rises in unemployment and potentially even a catastrophic loss of confidence and the end of the recovery, we cannot let that happen.
This budget is needed to deal with our country's debts. This budget is needed to give confidence to our economy. This is the unavoidable budget.
(END VIDEO CLIP)
DEFTERIOS: Let's get a feel for how the budget is being received in the business community in the U.K. Digby Jones was he head of the Confederation of British Industry for six years and was a minister for trade and investment under the previous government, and he joins me now.
First off, Digby I'd like to raise this point of whether you can have everyone contribute. Does this really sell within the British public, evenly across the board, in your view?
DIGBY JONES, FMR. DIRECTOR GENERAL, CBI: One of the points that the chancellor of the exchequer raised today in his speech, is that even the queen has said that she will not be-she hasn't had any extra money from the taxpayer for years and she is not asking for any now, either. And right down to the bottom, where VAT, as you said in your introduction, is going to hurt everybody, because everybody in the country pays more when they buy stuff in the street.
So, it is as if a feeling in the nation that this has to happen and everybody shares some pain from a rich banker down to a low-paid worker, then it is something the country is ready for. And one thing is a highlight of today is that we put a big sign up over Britain saying, Britain is open for business. We are a very open society. We are not protectionist, we don't do all that stuff. And we are actually here saying, still come, bring your money, invest here, create jobs.
And business has been told, right, well, you are the guys who have to pull this country out of this problem. You are the people that are actually going to have to create the wealth, create the jobs, pay the tax, and so with a reduction in corporation tax, we have seen a reduction at the bottom end of an employer's insurance payment, in other words, employ somebody, you pay tax on that, that has been reduced. And at the same time, right at the bottom end, we are saying to smaller businesses the first 10 people you employ actually you'll pay no employers tax at all.
I think business, today, will be saying we've been set of it here, now we've got to do something with it.
DEFTERIOS: Yes, in fact, that raises an issue, a point, Digby, because there was a lot of alarming numbers put into the market over the last 10 days. So, delivered very alarming news. And he kind of delivered below the bar on some medicine that is not that severe, if you are a businessman.
JONES: I think that is absolutely right. You know, the alarming stories of capital gains tax at 40 to 50 percent. It came in at 28. Also, there was going to be much higher rates on income tax and not such a lot of cuts in corporation tax. So it was a little bit of over threaten and then everything is good news.
I think the third level of this, which is very important for the nation, is that the public sector is going to have to understand that they're in this, too. And for too long the public sector has basically thought this is a problem for everybody else. We actually have our jobs cut, we are not in the same productivity drive all the time. And today, pensioners, who pay tax, who support the public sector, businesses, people all over Britain will be saying, well, actually, the public sector should stand up to the plate and share some of this burden.
And there won't be that much sympathy for that tonight, for a public sector employee, but on the other hand, they have sheltered the bottom end of them, too. They have said at the bottom end, the bottom quarter, won't see a pay freeze, they'll see some pay rises. So, in a way he's trying very hard to be tough, but to be fair. And I think the nation will say, well, he set this out for a five year parliament. He's actually said this is strategic for five years, and they'll give him the break to see what he delivers. But the big crunch will come next year because next year, of course, the unions and the public sector will say, ah, anybody but me.
And then, of course, you've got real problems because you might have strikes, and then this government-this coalition government-have they got the strength and the solidarity together to see the nation through that. That will be the next big call, about winter time next year.
DEFTERIOS: OK, he had to frontload all the bad medicine now while he had the political capital, is what you are staying.
JONES: Well, turkeys don't for Christmas during an election, do they?
DEFTERIOS: Yes, exactly. Good to see you. Thanks very much.
JONES: My pleasure.
DEFTERIOS: Digby Jones joining us for some budget analysis.
Well, the government says the actions it is now taking will reap benefits for Britain in the long term. Something that Digby Jones just talked about. The pain in the short term is what most people are focusing on right now, however. The chancellor admitted today growth will be lower than previously expected. He's predicting 1.2 percent in 2010. In 2011 he's looking for 2.3 percent. Well, below the previous prediction of 2.6 percent, which was from the government's own Office of Government Responsibility. Is that realistic, 2.6 percent? The year after that, he says growth will pick up speed expanding to 2.8 percent.
Well, one man who has some idea of the task facing the government is Norman Lamont. He was Britain's finance minister during an earlier time of economic stress back in 1991, '92 and '93. And the early `90s was a very challenging time for the pound. I ask him if it was inevitable that spending cuts would basically kill off growth?
(BEGIN VIDEO CLIP)
NORMAN LAMONT, U.K. FINANCE MINISTER, 1990-93: Yes, I think you can. I think history has demonstrated that several times, both in Britain in the early `80s and in the early `90s, where we cut borrowing and growth resumed, gradually, but accelerating. George Osborne's economic forecasts are lower than those of the Labour government. But he is predicting that growth will resume in the second year.
(END VIDEO CLIP)
DEFTERIOS: We'll hear from Norman Lamont later about what the U.K. budget means for the British economy when it comes to joint business in Europe and internationally.
Well, shares in Britain had a tough day. It was their first significant drip in two weeks. They were already in the red before the chancellor got up to speak, and didn't fall any further in reaction to the budget. I guess that is the positive. Across Europe the recent run up gains, across Europe, lost ground today. They came to a halt. The CAC 40 in Paris fell after closing higher for nine straight trading days. Worries over Europe's debt crisis were backed-fueled by the rating agency Fitch, which cut its ratings of BNP Paribas' credit worthiness down.
But the pound climbed against both the euro and the dollar. Possibly a reflection that the U.K. may avoid being stripped of its AAA credit rating. The latest numbers there, you can see, 1.2066, and against the U.S. dollar, 1.4845.
It has been a seesaw session on Wall Street, so far today. Let's check in with Alison Kosik at the New York Stock Exchange for the latest on the U.S. market.
Alison, what is the reaction, if any, from the U.K. budget? We are just on a path to cutting. Is it accepted over there?
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: I'll tell you what, so far to day, John, it has been a really quiet day. We've had low volume, not many trades going on here at the New York Stock Exchange, as usual. The major U.S. averages? They've been stuck in the pretty tight range through out the session.
We did get a disappointing report on existing home sales. That is weighing on sentiment a little bit. Analysts were looking for a 6 percent increase in sales in May, instead, it was a 2 percent decline. Still, some investors are all right with that, if they could maintain pace with the housing market.
DEFTERIOS: They didn't understand that?
KOSIK: As homebuyers are trying to lock in tax credits that expired at the end of April. To qualify homeowners had to close on those homes by the end of this month. But for the most part, it is a light day. We've got low volume. Investors are building on a-sort of sitting it out waiting for the Fed meeting to wrap up tomorrow. That is when we are going to find out what they are going to do with interest rates. It is highly expected that interest rates will remain at historically low levels, where they are right now. The focus, John, will be on the policy statement, that comes out with that decision, John.
DEFTERIOS: OK. Alison Kosik, at the New York Stock Exchange. Thanks very much for that.
In just a moment, we're on the trail of BP Chief Tony Hayward, but we're not off to the U.S. We are taking you Russia instead. Meanwhile, here in London-
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UNIDENTIFIED FEMALE: (UNINTELLIGIBLE HECKLING)
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DEFTERIOS: Even at the event he didn't attend, the knives were out for BP's CEO, we'll bring you that story, coming up.
DEFTERIOS: A U.S. federal judge has just blocked the six-month moratorium on deepwater drilling in the Gulf of Mexico. U.S. President Barack Obama ordered the moratorium after the accident in the Gulf in April that killed 11 people and sparked the biggest oil spill in American history. The White House says it will appeal the ruling. Let's get a response from the White House right now, and join Suzanne Malveaux.
Did you get a quick response to this announcement, Suzanne?
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, certainly John. And obviously this is a loss for the White House. They are fighting this decision. We just got a statement. This was a statement that happened, from Robert Gibbs, during the briefing, when they were given this news. I want to read it to you very quick here. Robert Gibbs saying, let's see here-"We will immediately appeal the Fifth Circuit. The president strongly believes, as the Department of Interior and the Department of Justice argued yesterday that continuing to drill at these depths without knowing what happens does not make any sense. It puts the safety of those involved, potentially puts the safety of those on the rigs, and the safety of the environment and the Gulf at a danger that the president does not believe we can afford right now."
John, essentially this is a president who had pushed for additional deepwater drilling at some point. A major reversal for the administration after that oil spill, said we have got to have this six-month moratorium. We no longer believe this is safe. There are too many questions, a lot of assumptions that were simply turned on their heads, and now, the White House having to fight this position.
It is one of the most difficult things, John, that the president has dealt with, because those in the Gulf Coast Region, they have been the ones, the ones most affected, the most hurt by this. Who have been pushing not to have this moratorium in place, because they believe it is only going to make matters worse, economically. That they are suffering, that they are loosing their livelihoods because of this moratorium. They want to see this drilling go forward. That is what has been ruled in the court. And the White House, again, has to come back and say no, we want to put an end to this.
And that is one of the reasons you saw, John, very recently President Obama making this deal with BP some $20 billion to help out compensate those who are filing claims for damages. A $100 million for these oil rig workers who are losing their incomes, their families, they are going broke. He's trying to demonstrate that he understands. He gets the economic crisis that they are in, but he does not believe that it is a good idea to continue with the deepwater drilling in that region. The White House is not winning that argument so far, John.
DEFTERIOS: It's very interesting, Suzanne, because the political pressure on the White House, obviously, didn't translate to the court. Did that come into any of the comments from the court itself, or is it just a straight ruling and we go to the appeal process right away?
MALVEAUX: Well, you know, we'll have to ask the Justice Department and the Supreme Court, produce some of those details about that. We have not really been privy to that. What we do know is that this is something that they were looking at. And that this is something, essentially, that the White House can fight, and can fight right away. But from our understanding, and the producer, Bill Meirs (ph) who was there covering the Supreme Court, is that this drilling can begin rather quickly, rather immediately, and it is up to the White House to make sure that this stops.
DEFTERIOS: OK. Suzanne Malveaux, giving the latest on that moratorium, lifting, from the White House. We'll follow that story throughout the hour.
Well, avoiding protestors and courting the Kremlin, a Kremlin source told CNN BP's chief executive was on his way to Moscow on Monday. But Tony Hayward's whereabouts remains unclear. Officials in the capitol are believed to be concerned BP might be hoping to sell some of its Russian assets to help pay for the Gulf of Mexico oil disaster. BP generates a quarter of its oil output from Russia.
So, just how important is it for Tony Hayward to court the Kremlin? I've been asking CNN's Senior International Correspondent Matthew Chance, who of course, is in Moscow.
MATTHEW CHANCE, CNN SR. INT'L. CORRESPONDENT: I think that is the point that Dmitry Medvedev, the Russian president was making at the St. Petersburg economic conference recently. That when he said he was watching very carefully what BP was going through, in the United States, and was concerned that it would still be able to, essentially, meet its commitments, that it has with Russia.
Russia and BP are in a strategic partnership to develop oil resources in the country, to embark on offshore drilling in the Arctic and the Caspian Sea. And to develop gas fields as well. And Russia wants to know that BP is going to be in the financial position to provide technological expertise, that it is contractually obliged to do. And that it is not going to fold under the pressure of the compensation claims, and the other claims against it, as a result of the spill in the Gulf.
DEFTERIOS: You had that spat between TNK and BP in this joint venture, just in 2008. Is there any reason to believe that this could flair up again as a result of the challenges that BP faces in America?
CHANCE: Well, it is not clear. Certainly they reason for that dispute have been overcome. The two sides have come together. BP and TNK, both owning, of course, a 50 percent stake in that joint venture. And they've selected a new Russian chief executive to run that joint venture. That seems to have overcome the problems. Robert Dudley, of course, now in charge of the clean up operation in the United States, was the person in charge of TNK BP, here in Russia, during that initial dispute over management.
I've spoke to TNK over the past couple of days and they've said that they have been hearing these reports, too, obviously about the BP potentially divesting its assets in Russia. But they have been assured by BP that it does not intend to sell any of its stake in TNK-BP. At the same time, TNK says that if it were to sell any of its stake in TNK-BP, then they have contractually the first right of refusal, and so they'll be the first people wanting to buy up any stock that BP wants to get rid of in that joint venture.
DEFTERIOS: Let's turn the tables a little bit here. Some discussion in London and also in New York, about Gazprom, or even LUKOIL taking a percentage in the group of BP here, for a cash injection and to buy the stock on the cheap. Are you hearing the same in Moscow?
CHANCE: You know we're not hearing anything officially, but again there is a lot of talk in the markets. There is a lot of speculation that, you know, because the share price of BP has plunged, what, nearly 46 percent from its highs before this spill in the Gulf of Mexico. It does leave it somewhat vulnerable to a hostile takeover, by whoever may be interested in doing that. There has been talk that perhaps BP might be better served by making a bid for a merger with the Russian gas monopoly, Gazprom, it would get better terms in that sense. And in some ways it makes some sense that there would be a merger between Gazprom and its vast operations around the world and in Russia, and BP and its global operations as well. It would certainly make it a very formidable corporation, indeed.
But it is all just speculation at the moment. Currently, what we understand is that BP is trying to raise the billions of dollars it needs to contribute to that compensation fund, through selling assets around that aren't necessarily as strategic as some other assets.
DEFTERIOS: Very quickly, Matthew. The dust up between Belarus right now and Russia, halting supplies going into Europe; only 20 percent of the overall Russian supplies go through Belarus. What do you make of it?
CHANCE: Well, it is obviously another one of these spats with Russia's neighbors. It fell out with Ukraine, in 2009, and of course, in 2006, earlier than that. It is much less serious than that spat. Simply, of course, for that reason, that only 20 percent of Russia's oil exports, Russia's gas exports go though Belarus; 80 percent go through Ukraine, and so obviously the knock on complications and implications for Europe are much less. But still, worrying for those end consumers in Western Europe, John.
DEFTERIOS: That is, again, Matthew Chance joining me from Moscow, a little bit earlier in the day.
Well, it has been a white knuckle ride in South Africa today as World Cup reaches a crucial stage. We'll look at the latest match ups and not just on the pitch, the Economic World Cup resumes when we come back.
DEFTERIOS: In a moment, the Economic World Cup, but first a reminder of today's scores. Quite an interesting day. Dogged by controversy France's World Cup dream came crashing down to earth today. With a 2-1 loss with the host, South Africa. The turmoil for France continued today with the center Albuwaeem Harapuna (ph).
Uruguay beat Mexico, 1-0, that means both of them go through to the next round, while South Africa and France bow out. In a few minutes from now two other decisive games get underway. Nigeria plays South Korea, and Greece take on Argentina. All four have a chance to qualify for the knockout stage, depending on tonight's results.
Well, our Economic World Cup isn't quite a knock out contest, but a chance to weigh up the relative strengths of the finalists. And for that we bring back in Jim Boulden, who has been doing this since the start of the World Cup.
Pretty interesting matches today.
JIM BOULDEN, CNN CORRESPONDENT: Yes, it is.
DEFTERIOS: To get France loosing because of the turmoil within the team. They didn't really-I didn't think they would perform that poorly.
Worth stacking up now, we have Group A, Uruguay and Mexico going forward.
DEFTERIOS: South Africa and France go home, despite the victory for South Africa.
BOULDEN: They do go home. However, when you look at the teams, but then you look at the economies, as well; of course, very different economies. But I did find some bright spots for South Africa, which I thought was quite interesting. You know, there public debt is nowhere near as bad, as France's. They had some decent growth this year, in the economy. Of course, France suffering like a lot of the countries here in Europe.
Now, when you get to something like unemployment, of course, it is not fair. I mean, huge unemployment in South Africa. Officially, 25 percent, unofficially, probably a lot higher. And, of course, France such a big economy. So, if I had to say off the pitch, economic-wise, South Africa doing well, and they could get a blip. You know we saw a blip, I think, in the French economy in '98, when they hosted the World Cup. But of course, they won the World Cup. So, this time, who knows if South Africa will get a blip.
DEFTERIOS: There is also this potential for the infrastructure build up, that came with the World Cup.
DEFTERIOS: The motorways, the trains, and the rest.
DEFTERIOS: That this could actually be a big facilitator for FDI, foreign direct investment, in the future.
BOULDEN: People always talk about the stadiums, and yes, it is always controversial what happens to the stadiums afterwards. But it is all that other infrastructure that is built, the Chinese, of course, very interested in African infrastructure.
DEFTERIOS: Yes, South Africa has had some real power problems leading up to this World Cup, because they had some rolling blackouts, well before the World Cup. But they seem to have sorted it out for the big event, at least.
DEFTERIOS: We have behind you here, the Group E, Argentina, Greece, Nigeria, South Korea. This is not really a fair match up on the pitch. Argentina, Greece, being a Greek-American, I have to kind of root for the Greeks.
DEFTERIOS: But it is not an easy match up.
BOULDEN: Not on the pitch, but actually, economic-wise, I was surprised. Argentina, as we can see, over here, 30th biggest economy in the world by some measures. Greece, 27th, so a bit close. Look at this, Argentina's debt only-less than half the debt of Greece. We know the problems Greece has had. Let's not forget, of course, Argentina defaulting on its loans a while ago. I wouldn't say Greece is going to do that, as well, obviously. But you can see some match ups and some comparisons between these two economies. So, I think it is really interesting that they are going to be playing this match now.
DEFTERIOS: Yes, this is interesting with Greece, though, if you look they rank in the top 30 with per capita income, which is surprising. I think it is a result of this wave of having the euro for10 years and that wealth effect creation, there. Argentina, we fluctuate between 7,500 to 10,000 in terms of per capita income.
DEFTERIOS: They've been living in the shadow of Brazil, in terms of commerce (ph).
BOULDEN: Sure, absolutely. But you can see Argentina, some of us were talking about later, if Argentina and Brazil play each other, maybe closer to the final, that is going to be a heck of a time and we can compare those two economies and that will be really interesting.
DEFTERIOS: OK, Jim Boulden, thanks a lot for the update. Pretty interesting games tonight, nevertheless, that's for sure.
Well, we want to see how you are managing to keep up with all the World Cup action while you are at work. Send us your pictures and stories of your "World Cup at Work". You can find us, of course, right across the platforms, on Facebook or e-mail, Quest@ CNN.com. Richard would love to hear from you. Or Twitter, @RichardQuest.
So, you can find us on all the platforms. We love the pictures that have been coming in so far.
Well, slash and tax, Britain unveils its new budget. We'll look at the long road back to fiscal prudence, with another key player from the early 1990s, on the budget cuts.
DEFTERIOS: Welcome back. I'm John Defterios in London. More QUEST MEANS BUSINESS in just a moment, but first let's get a check of the main news headlines, to the hour.
DEFTERIOS: Welcome back.
I'm John Defterios in London.
More QUEST MEANS BUSINESS in just a moment.
But first, let's get a check of the main news headlines for the hour.
The top U.S. commander in Afghanistan has a lot of explaining to do these days. General Stanley McChrystal is being summoned to Washington after a magazine interview portrayed him and his aides as critical of President Barack Obama and other administration officials. McChrystal has fired his press aide over the controversy and apologized for what he calls a mistake reflecting poor judgment.
Brazil's president, Luiz Ignacio Lula da Silva, has called an emergency cabinet meeting to deal with the devastating floods in the Northeast. So far, 40 people are dead and hundreds reported missing. More than 100,000 are homeless after days of driving rain caused rivers to burst at their banks.
Torrential rains are also to blame for nearly 200 deaths in China. More than two million people have been evacuated from the 10 provinces in the south. The situation worsened Tuesday, when a dike burst, spending -- sending thousands fleeing for their lives.
Well, two World Cup matches getting underway right now in Group B, Greece versus Argentina and Nigeria versus South Korea. Nigeria have not made a point in the last two matches, but could still advance if they win and Greece loses. South Korea defeated Greece, but lost to powerful Argentina. Argentina playing Greece right now. Argentina has dominated Group B and may not need any more points to advance. Greece will have to put up quite a fight to avoid elimination.
We're going to bring you back to our top story tonight, Britain's emergency budget. We knew it was going to be very tough. We now know how touch it will be. VAT will be raised to 20 percent in January. A new tax on banks is on its way now. That should raise close to $3 billion annually, a little bit lower than many expected. Spending will be slashed by $47 billion a year, the deepest cuts in a generation. Government departments will also have to tighten their belts and one unit will be abolished altogether.
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GEORGE OSBORNE, U.K. FINANCE MINISTER: Yes, one does fit out in a coalition agreement. This government will not be joining the euro in this parliament. Therefore -- therefore, Mr. Deputy Speaker, I have abolished the treasury's euro preparations unit...
OSBORNE: Yes, one does exist. And the official concerns has been redeployed to more productive activity.
(END VIDEO CLIP)
DEFTERIOS: Now, let's take a look at how the U.K. economy is faring in comparison to its European neighbors. The U.K. economy, Britain's economy expected to grow 1.2 percent for 2010. Now, that is slightly lower than expectations we saw just last week. The chancellor of the exchequer told a packed House of Commons, as you saw there, that growth will increase at 2.3 percent in 2011. Consumer price inflation is expected to peak at 2.7 percent at the end of this year. And U.K. unemployment could touch 8.1 percent in 2010, before declining.
There's some concern, of course, that inflation would spike up with this increase of the VAT. They're still thinking that growth will come in at 1.2 percent.
Now, let's take a look at Spain, the slow growth scenario for 2011. Output is predicted to edge higher by 1 percent in 2011. Still, the service salaries will be slashed by 5 percent this year and frozen in 2011. More than $7 billion will be cut from public investment. They're trying to rein in the regions there.
Portugal growth -- Portugal is expected to resume this year, but to remain very sluggish. The unemployment rate for 2011 is forecast to dip slightly, to 10.4 percent, down from 10.6 percent in tighten. Portugal has also unveiled a slash and tax budget to rein in its budget deficit after all the activities we saw in -- in Greece. So the unemployment rate 10.4 percent.
Let's hear it again from Norman Lamont, a former British chancellor of the exchequer, or the finance minister.
I asked him if you can do all these cuts that we just saw right now and this unemployment pressure and still grow.
NORMAN LAMONT, U.K. FINANCE MINISTER, 1990-93: Yes, I think you can. I think history has demonstrated that several times, both in Britain in the early '80s and in the early '90s, where we cut borrowing and growth resumed gradually, but accelerating. George Osborne's economic forecasts are lower than those of the Labour government. But he is predicting that growth will resume in the second year. All right, not quite a trend growth, but getting on that way. You can do both.
DEFTERIOS: You're suggesting that the finance minister is in a very strong position right now because the budget deficit and the long-term debt are so bad.
Is that -- is that the case, that he has the political clout?
LAMONT: Well, I think he's got the political clout because it is a new government and he is a new chancellor of the exchequer and this is a very big problem. That's why he's in a strong position, because there's a very big problem, he's a new man and I think the public are, therefore, prepared for difficult decisions to be taken.
And if he didn't take them now, I'm sure he would regret it in a few year's time. I think he's quite right to do so much up front.
DEFTERIOS: As you know, Greece, Portugal, Spain all linked to the euro and going through this difficult reduction process right now. The U.K. has a bit more freedom.
How would you compare the budget we see today versus the countries putting forward these deficit reduction measures in the Southern Mediterranean?
LAMONT: Well, what I think it does is that this brings Britain more into line. Britain had been an outlier, as is the United States, for different reasons. But I think Britain is vulnerable in a way the United States is not.
But if all over Europe, in the Eurozone and countries not in the Eurozone, deficits are being reduced, I think people would start to ask, why is Britain not doing this?
I think there is another problem in the world, which is that we are running out of lenders of last resort. Governments are right up against their limits, having bailed out the banks. The banks, who they've rescued, are lending to the government and are getting in trouble again. The international institutions like the ECB are dependent on the governments that are borrowing in order to finance them.
If we had another banking crisis, it wouldn't be very easy for governments to bail them out yet again. So I think it's a -- another reason why it's right to reduce deficits now. If you are a Keynesian, you ought to believe that you ought to have the money in your locker to do these things for future crises.
DEFTERIOS: You know, this is contrary to what President Obama is suggesting within the G8, G20 context to keep the stimulus on the table right now.
Does this in any way fray the transatlantic relationship on these grounds?
LAMONT: Well, the stimulus isn't all being withdrawn at once. The stimulus is being gradually removed. Britain will still have a very high budget deficit for several years to come. And we are adding to our stock of debt.
I think people who argue it's wrong to remove this stimulus sometimes ignore the fact that the stimulus is only being gradually removed. Borrowing is a stimulus.
DEFTERIOS: A final question. The pressure perhaps on the pound. You had this challenge when you were chancellor in 1992-93.
Does this put a question mark over the value of the pound because of the deficit or does it bring back credibility going forward?
LAMONT: No, I think this will definitely bring back credibility going forward. Of course, there is one big thing that still remains to be done. A large part of these expenditure savings have to be negotiated in the public expenditure round, which is to happen in October. And he is projecting 25 percent reductions in most of the departments.
That's a tall order. You've got, actually, to find the savings. They're there in headline terms. You've just got to find the specific projects. That's a big task, but I'm sure he'll do it.
(END VIDEO TAPE)
DEFTERIOS: Once again, Norman Lamont joining me from Parliament Square a little bit earlier.
The IMF's former chief economist, Ken Rogoff, will be a special guest on "CONNECT THE WORLD" a bit later on CNN. Find out why he calls the cuts in the U.K. budget a small downpayment. And what's coming forward later in the future seems to be very similar.
That's "CONNECT THE WORLD," starting at 21:00 in London, 22:00 Central European Time.
Well, we heard a bit earlier that the chancellor of the exchequer, George Osborne, is dismantling the U.K. treasury unit that's supposed to oversee preparations for joining the euro.
Poppy Harlow from CNNMoney.com caught up with someone who says he's adding euros to his portfolio right now, the U.S. investor, Jim Rogers.
Let's check in with Poppy Harlow and find out why he's serving as such a contrarian.
I think long-term, he's not so bullish on the euro, but short-term, he sees an investment opportunity -- right, Poppy?
POPPY HARLOW, ANCHOR, CNNMONEY.COM: That -- that's exactly right, John. And that's a very important point. He's a legendary investor, Jim Rogers. He's known for taking the other side of a bet when people are retreating. So as we've seen this retreat from the euro, Jim Rogers is buying them right now.
He spoke to us about the reasoning, the rationale behind that. It's a very short-term bet.
And he also weighed in heavily on China's currency announcement over the weekend, how that affects it all.
Take a listen.
(BEGIN VIDEO CLIP)
JIM ROGERS, CHAIRMAN, ROGERS HOLDINGS: I bought the euro a week or two ago because there was gigantic pessimist -- pessimism around it, including me. Everybody was terribly bearish, again, including me. And I realized that whenever that happens, you normally should step in and take the other side of the trade. Normally, I'm not brave enough to do it, but I -- I did this time. And so far, so good.
If -- if they sort out their problems, I mean the Germans say that they're now going to enforce discipline with a -- with a tight hand. If they do and if they make everybody shape up, then the euro could have a -- a nice run for a while.
HARLOW: But haven't you also said that eventually we're going to see the destruction of that currency?
ROGERS: Yes, I'm very skeptical that it's going to work. I -- I don't expect it to be around in 10 years. But, Poppy, I'm worried about the next 10 days or 10 minutes, for that matter.
HARLOW: What about China's move over the weekend, saying they're going to float their currency?
Of course, this coming right ahead of the G20 meeting.
Does that impact your thesis on the euro at all?
ROGERS: No, not really, because all China did was, they said that they're just going to continue the process they started in 2005 and continue to open their currency up. I don't see any great reason to be excited. I'm very happy that they're -- they are letting it become -- be more flexible. But I don't see any great change.
HARLOW: Do you think, Jim, is China posturing here a little bit before the G8 and G20?
ROGERS: Well, of course they are. Everybody postures before meetings like that. They want to have as little criticism as possible.
But I mean China, certainly, even though it had been pegged to the dollar in the last two years, they have continued to open up. They are letting more and more of their trade -- traders and their neighbors trade in the Renminbi rather than you have to use international currencies.
So they're continuing to process. I think they should do it a lot faster. It would be better for the Chinese and for China if they did it faster. But they don't listen to me. There's no reason they should.
(END VIDEO TAPE)
HARLOW: Interesting little self-deprecating there from Jim Rogers, saying, listen, they don't have to listen to me when it comes to currencies.
But I should note, John, he says that China's move, if we do see them follow through on floating their currency, it's not really going to have a beneficial effect to the U.S. economy.
He said, you know, what's the U.S. going to sell to China that they're actually going to buy?
And he said he's incredibly worried and he thinks Washington should be worried about the fact that we're the largest debtor nation in the history of the world. He said he's certainly not buying U.S. debt right now. He's waiting to short U.S. debt.
He talked about our Treasuries as one of the big bubbles that's developing right now.
A lot of his take on currencies, on BP, on equities, you can see all of it here on CNNMoney.com.
But, obviously, not very bullish when it comes to the U.S. economy right now -- John.
DEFTERIOS: Yes. Some of the challenges ahead in terms of cutting that budget deficit.
DEFTERIOS: Thanks very much.
Poppy Harlow from CNNMoney.com.
Well, the head of one of the world's biggest banks says he's banking on Brazil these days. Stephen Green tells us why the biggest economy in South America looks set to boom and how he plans to be part of it.
DEFTERIOS: Jim Rogers may see the single currency as an eventual casualty of the financial crisis, but the boss of one of the world's biggest banks predicts the downturn will have another consequence -- it will teach the world how to adapt to changing times.
Stephen Green, the chairman of the London-based HSBC, is keen to focus on emerging markets. HSBC is demonstrating its enthusiasm for all things Brazilian these days by sponsoring a festival devoted to the country. Banks says Brazil will become the world's fifth largest economy by the year 2025. The event is underway here in London.
When I spoke to Stephen Green earlier, I began by telling -- he began by telling me why Brazil is important to his company right now.
(BEGIN VIDEO CLIP)
STEPHEN GREEN, CHAIRMAN, HSBC: Brazil is, for us, an important market. We have 1,000 branches in Brazil. We have a broad-based banking business there. And, of course, it's one of the great emerging markets of the world.
DEFTERIOS: A population of nearly 200 million people and a vast array of natural resources in Brazil, even offshore oil and gas, which was discovered. But it's the new relationships emerging from Brazil. President Lula going to the Middle East, going to Russia, going to China.
Is that what you're trying to track here?
GREEN: Well, indeed. I mean the fastest growing trade link in the world within recent years has been that between Brazil and China, for instance. The fact that Brazil is a member of the G20 -- and I think it's a broader point -- the G20 is something which the historians will comment on as one of the most significant things to have arisen out of the financial crisis in recent years.
You bring together the governments of the countries that are important to the solution of the world's global problems. The marginalization of the G7, G8, and the arrival of the G20, with countries like Brazil as members of it, shows what's happening in the world.
DEFTERIOS: In the G20 context over the last 12 to 18 months, they've been talking about a restructuring of the financial services sector to include, perhaps, a bank tax to build up a reserve and even to (INAUDIBLE) proprietary trading.
A consensus by the end of the month when the G20 meets in Canada?
GREEN: We'll see. I think a consensus by the end of the month is unlikely. I think consensus by the end of the year on the broad framework of reform of the financial system, I think that's something we should all strive for and should expect.
And I think there are some very tricky issues of calibration. And there's a growing awareness in -- in -- in -- in the public domain, amongst regulators and amongst the private sector of the importance of getting this right.
On the one hand, one says there can be no return to the status quo ante. We have to strengthen the financial system. It's in the collective interests that we do so. And, on the one hand, we need to get this right or too much regulation could lead to choking off the economic recovery and that's in nobody's interests.
DEFTERIOS: Specifically, what don't you like that's on the table right now?
GREEN: Well, I think there are aspects of the current version of the Basel III proposals that need a fair amount of deliberation. And some work is being done, both in the private sector and also in the public sector, on the macroeconomic impact of all this. And we need to take that into account. We need to ensure that you aren't so de-risking the system that it can't perform its natural function of supporting economic and social development.
DEFTERIOS: If a tax to build -- build up a fund -- a tax to build up the fund...
GREEN: It remains to be seen how that comes out. And very important in all of this is the need for international coordination if you're going to get -- have solutions that make sense for the system as a whole.
DEFTERIOS: This new government here in the U.K. delivered on this concept of breaking up the financial services authority. But more responsibility to the Bank of England.
In practice, does it work in the next two years to implement?
GREEN: Well, it's extremely important that it should work. I think there are many aspects of the new proposals that make a great deal of sense. I do think it's important that they've introduced a new committee charged with macro prudential stability in the economy, because this economy badly needs that.
One of the key lessons in -- particularly in the case of the U.K., but not only the U.K., is that there was an increasing imbalance at the macroeconomic level and you needed not only the inflation management tool, which the Bank of England has now had for -- for -- for 12 years, you also need an ability to manage at a macro prudential level the flow of credit through the economy in good times as well as in bad.
DEFTERIOS: So monitoring debt levels...
GREEN: That's in place now with the -- with this new arrangement, that's in place. I think it's an extremely important and very welcome development.
(END VIDEO TAPE)
DEFTERIOS: Once again, Stephen Green, the chairman of HSBC there on Canary Wharf, looking at the emerging markets and also the budget challenges.
UK budget day was a beautiful day on the weather front.
Let's get the latest across the board from Guillermo Arduino, who's at the CNN International Weather Center -- Guillermo.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Hey, John.
I think you're going to have a lot of days with nice conditions all across Great Britain. In fact, we see Dublin maybe with some rain showers. Apart from that, we have to concentrate on what's going on in the south and in the Balkan Peninsula.
So let's see, some rain showers to the north. I was checking out and Stornoway is reporting some bad weather.
But you know what?
We have to focus a little bit on the French -- on the Wimbledon going on there. Conditions are going to be fine Wednesday, Thursday, Friday for matches. You know, all is good. The high pressure prevails in the west. That means that it's going to be OK.
This is the area where we have the problems. So Serbia; also, Northern Greece, Hungary, Croatia are going to see some bad weather. And the bad weather is going to push all the way into the Black Sea while the warm conditions will prevail on the other side.
Gradually, I would say because of the highs moving away, the western parts of Ireland and Northern Ireland may see some increasing clouds. You see here is a new system coming by. But England is going to remain fine. France is going to be OK. I'm so happy for all those people in -- attending Wimbledon now that the weather is going to be really, really nice. Glad for you guys.
Rome with some windy conditions. Some parts of Italy also with bad weather. But you see all greens indicate here that there are no problems. Even in Dublin, where we see some rain showers moving in, we do not expect problems at airports.
Vienna with the windy conditions. It's not going to be that terrible, so we're happy to report that all across the continent, things are going to be OK, especially to the west.
Warm in Madrid at 31; 25 in London. You see pretty nice for Wednesday.
Also, I tell -- I told you about Greece, the northern sections.
What about Istanbul here in Turkey?
Also, other sections of Turkey in the next two days are going to see some storms going through.
I saw that you were reporting on conditions in Brazil now that it's wintertime. The Racife area, where the bad weather was, conditions are fine, maybe a little bit windy. Nothing compared to what we see in China. The rain, unfortunately, will continue -- John.
DEFTERIOS: OK. Guillermo Arduino in the CNN Weather Center.
Well, there has never been a better time to get in on the eReader revolution. Still ahead, a price war triggers steep discounts on several popular models. We're live in San Francisco with all the details.
DEFTERIOS: Some analysts believe the multi-functional iPad could eventually spell the end of the eReaders. But makers of the Kindle and Nook are determined to stay competitive. They're now trying to stimulate sales by slashing prices big time.
Jon Fortt is senior writer for Fortune.com and he joins us now from San Francisco. He's with "Fortune" magazine, of course.
Jon, nice to have you back on QMB.
This is amazing. You -- you almost see it as a race to the bottom in terms of pricing.
As we go to eventually get to the stage where they think this is the breaking price point of $150 for one of these devices?
JON FORTT, FORTUNE.COM: Well, we'll definitely get there. And just to give a little bit of perspective, this was not unexpected. Amazon drops the price of the Kindle every summer. Last year, dropped it to around $229. This year, people thought they were going to drop it to around $199, they dropped it to $189, with competition from Barnes & Noble's Nook, another eReader coming on up.
But really, the issue here also is iPad, which is lurking in the background. Of course, this is Apple's kit device that does a lot more than just read eBooks. Apple announced today that they've sold three million of these things in 80 days. That's a pace that's about five times what people expect to -- Amazon to sell this year in Kindles. And the iPod starts -- the iPad starts at -- at more than twice the cost of the Kindle.
So this is something that's more than twice as expensive. It's selling about five times faster. It's really a concern when you're looking at eBooks and Amazon's long-term prospects. Some folks say, well, Amazon's OK. The Kindle software also works on the iPad and on the iPhone and all sorts of other devices, so they're well positioned. But I think Amazon's really got to be careful, because Apple does really well with software and services. And their iBook software is going to work not just on the iPad, but now on the iPhone, also, and on the iPod Touch.
So once we've got that huge ecosystem of Apple devices running Apple's eBook software, you never know, Amazon could get overwhelmed.
DEFTERIOS: So what are we suggesting?
Are they going to be nudged out of the market -- these readers going to be nudged out of the market that quickly?
That's quite a revolution if it happens in the next year or so?
FORTT: Well, I'm not saying in the next year it would be nudged out. But there are two ways to make money in this game. There's on the reader itself and on the books. Amazon has said that they want to look at this as two different businesses. They want to sell readers and they want to sell books.
Well, Apple has come into the readers' business with the iPad, iPod and iPhone. And they've got multi-functional devices that people really want, as is evinced by these sales figures that Apple announced today.
On the other end, you've got the books. Amazon's got somewhat of an advantage there. But it's not really clear to me how much longer they can hold onto that. Apple's got really sophisticated software that can show more than just text. It can also show color images, magazines, things like that.
The Kindle, remember, is black and white. It doesn't really show images very well.
DEFTERIOS: OK. I think we've been spoiled by all the whiz bangs on the iPad, to be honest.
Jon Fortt, thanks very much, joining us from "Fortune" magazine in San Francisco.
Well stay right there. After the break, we're going to check the market numbers and the reaction to the U.K. budget in Europe, Asia and the United States.
DEFTERIOS: Let's get an update of the markets before we leave you for the day.
The Dow Industrials under a little bit of pressure as we've talked because of some lower than expected housing numbers for the latest month. Let's take a look at the -- the drop of about 112 points, 10330. That's a drop of just over 1 percent. The Federal Reserve, of course, meeting. The interest rate cut is not expected, nor did the housing number, which was worse than expected. And they were keeping their eyes here on the deficit reduction measures in Britain. And that kept some pressure on the -- the British market. It was the first significant drop in two weeks for the U.K. market. And the reason, a run of gains ground to a halt right across Europe today.
Let's take a look at the numbers. The FTSE down nearly 1 percent, not bad considering the bitter medicine that's being offered right now. The Xetra DAX down just over .3 percent and the CAC Courant down .8 of 1 percent. Again, some scrambling here -- where the euro is going to go vis- a-vis the pound, can these cuts still go forward?
In Asia, it was a down day, too, but markets didn't completely get back the previous day's strong gains. The Shanghai Composite Index was the only index to finish slightly higher on the day, with a gain of just above the line, a fraction up, 1 percent, with the Nikkei down 1.25 percent.
And that's QUEST MEANS BUSINESS for this evening.
I'm John Defterios in London.
"WORLD ONE" starts right now.