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G20 Divided on Government Spending

Aired June 28, 2010 - 14:00:00   ET



ADRIAN FINIGHAN, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: A balancing act. Do you spend or do you save? The G20 comes to an agreement of sorts, but is saving too much the beginning of the end for the recovery? We hear a chilling warning.

And bracing for a big blow. A real storm is brewing for BP, America's oil soaked Gulf Coast prepares for a battering.

Hello, again. I'm Adrian Finighan in for Richard Quest. This is QUEST MEANS BUSINESS.

Good evening.

Well, the leaders of the G20 are in complete agreement. The top priority is to make sure they keep their economies growing. Except for those countries where it is more important to get spending under control. The communique they issued on Sunday was a case of having your cake and eating it. It said, in effect, stimulating growth and being fiscally prudent where both the top priority. The dual approach highlights the divide within the G20.

The U.S. and other countries, we'll call them the spenders are anxious that recession might return if governments cut stimulus spending right now. But the savers, lead by the European, are more worried about borrowing spiraling out of control. Well, the communique lets both claim victory. While the highest priority is economic recovery, sound finances are essential to sustaining the recovery, allowing the savers to economize, as long as it is in a growth friendly way. Now the wealthy countries will therefore halve their budget deficits by 2013. But that's pretty much as they planned to do, in any case.

And financial institutions were also discussed at the weekend. The G20 agreed rules are needed to make sure banks have a financial cushion against future crisis. Leaders won't get into the detail of that until the end of the year when they meet again in Seoul.

So the amount of concrete action resulting from talks in Toronto seem to be, well, on the face of it, pretty limited.

CNN's Dan Lothian is at the White House right now, but was in Toronto at the weekend.

Back down with a feeling of what must be, sort of, what was all that about?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, that's right. And I mean, I think you saw going into the G8 and G20 summits that everyone was trying to sort of temper expectations. As we were talking to U.S. officials about what they really expected to come out of this, you didn't hear anyone with any sort of grand pronouncements as to, you know, what they thought could be accomplished.

Just that you continue on the course of trying to make sure that the global economic recovery continues. It is very fragile right now, and of course there is a lot of concern about what could happen, you also pointed out in the lead in, that there is a lot of concern. That if you start pulling back to quickly that it will only reverse the progress that has been ongoing. And so, you know, the United States, President Obama came into this, this summit, trying to get European leaders on board and continuing to pump federal dollars in the form of stimulus into their economies, in order to create jobs.

But of course, a lot of European leaders are spooked by what happened in Greece. And they are really focused on, you know, cutting their deficits, the exploding deficits. So that is where you saw the divide. And what is interesting is that U.S. officials tried to play it down, you know, saying that it really isn't that big of a divide there. But clearly there is. There are two sort of schools of thinking, those who want to spend, and those who feel that now is the time to cut. And I think what you saw in the communique is saying, well, some will spend and some will cut.

FINIGHAN: And of course, Dan, with 20 varying economies, one size will not fit all. I mean, let's face it. This, this summit in Toronto was all about laying the groundwork for Seoul later in the year, wasn't it?

LOTHIAN: It really was. I mean, that is perhaps where you will see the real work and you know, the sort of real progress hammered out. But you are right. I mean, one size does not fit all. And I think that is the big conundrum here, because the United States can come in and say, listen, this is what has worked for us. And you heard Timothy Geithner say that, listen, when the economy was on the verge of another Great Depression, not only in the United States, but around the world, in many countries, everyone really got together. There was this unity. And people seem to rally behind that, no matter what the size of their economies were.

But now, those smaller economies, those who are really having hard time dealing with their deficits are saying we need to pull back here. And so, you are right, one size doesn't fit all, and that is what makes it so difficult. And you saw it play out when President Obama met one-on-one with the new British Prime Minister Cameron, David Cameron, and they really tried to play up the unity. But there were clear differences on how to move forward. You know President Obama sent out that letter to G20 leaders, leading into the G20 summit. Saying that, you know, now is the time to continue this stimulus.

At the same time, Mr. Cameron, the new prime minister was raising taxes and talking about cutting spending. So, you know, he was not shy about saying that there are differences there, but they tried to play up the various things that they saw on the same page, Adrian.

FINIGHAN: All right, Dan, great to talk to you as always. Many thanks indeed. Dan Lothian, there, battling the construction noise. I don't know if you could hear it on your TV, but it sounds like at the White House they've got the builders in at the moment.

Now, critics say promises made at the G8 and G20 summits are often broken. At last year's G8 summit, in Italy, leaders promises $22 billion for food security. And so far they've only come up with $880 million. Back in 2005, in Glen Eagle, Scotland, G8 countries pledged to double aide to Africa. Up to $50 billion, and to date they've only delivered $18 billion of that money. Also, in 2005, remember the G8 promise that every AIDS patient would get access to life saving treatment. But so far only 4 million people are receiving treatment. Another 9 million AIDS patients aren't.

So, not a great track record. Earlier CNN's Ali Velshi asked the European Commission President Jose Manuel Barroso how governments coming from different economic perspectives could work together.


JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: Look, I was in a meeting and I can tell that there was a great convergence, speaking out views, of course, we all want growth. Growth is the key. We need sustainable growth. The question is how can we promote growth? In Europe we believe that you cannot promote growth without restoring confidence in the fiscal sensibility of some our member states. This is the question. That is why we are for fiscal consolidation, but we call it consolidation, growth friendly. What does it mean? It means that it takes into consideration the different position of the members states, of our countries, also that it should be more addressed to reduce expenditure than to raise revenue.

ALI VELSHI, CNN CORRESPONDENT: Would you call it stimulus in anyway? Because if you are going to encourage certain areas of growth, but you are going to withdraw from certain other areas growth?

BARROSO: Overall, this year, our economy is still expansionary in terms of stimulus. During the last two years we have made a huge (ph) stimulus of almost 5 percent, if we count the very strong automatic stabilizers that in Europe we have, because of our social protection systems. So there has been expansion in terms of the fiscal stimulus, but now we have to come back to, let's say, normalcy and we are going to do it in a, let's say, gradual manner. And I think this is our contribution for growth.

Look, as you know, there were some problems in terms of the sovereign debt of some of our member states. So, is we contribute to the stability of the euro, that is a great contribution for global confidence. I think it is in the interest of nobody to have a crisis with the euro. And that is why we are, in fact, taking very, very ambitious and courageous measures in terms of fiscal consolidation, in terms of true (ph) core (ph) reform and creating some mechanism, also, to address the problems of some of the sovereign debts.

VELSHI: What do you do with those countries that have not shown the necessary discipline and that have cost Europe, and the euro, so much. We are looking at Greece, we're still looking at Spain, we are still looking at Portugal. How do you get everybody to live up to the standard that his required for the euro to reestablish its strength?

BARROSO: Those countries are taking, in fact, they are already implementing extremely courageous reforms and very, very ambitious programs in terms of reduction of debt.

VELSHI: Tell me about the euro. We're obviously very concerned here in the United States. A weakened euro hurts a recovery in the United States for goods and services, it makes it easier for us to travel to Europe, but we ultimately understand that without strong European consumers, and their ability to purchase, our recovery is being affected. What is your short-term and long-term view for what happens to the euro?

BARROSO: There should be no doubts. Europe will do whatever it takes to assure its financial stability of the euro and the strength of the euro. There should be no doubts about it. And that is not just talk. The European Union countries put a lot of money. Now, the mechanism of 500 million-billion, I'm sorry, 500 billion euros, and if you consider the contribution, also, with the IMF. It is more toward 250 billion euros. So, in dollars, $1 trillion is there to support any country that could have a problem.


FINIGHAN: Jose Manuel Barroso, the president of the European Commission there, in conversation with Ali Velshi.

A quick look on how stocks are doing on Wall Street. Right now the Dow Jones is up 19 points. That to do with an increase in consumer spending; we'll tell you more about that later.

And also, still ahead, a stark warning to the G20, a prominent economist says, but if you cut spending too quickly, you might not get recession, it could be depression. Be right back.


FINIGHAN: Now one of the most respected financial commentators in the U.S. is out with a warning about the global economic outlook, and what might happen if governments abandon their stimulus measures too soon. It is the latest shot to be fired in the debate over fiscal austerity. And CNN's Maggie Lake is in New York, live now with the story.

So who is this guy?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: You know, Paul Krugman is who we are talking about. And G20 leaders over the weekend, they have been talking about keeping the global economy growing and protecting this recovery. But Paul Krugman out with a very sharp op-ed in "The New York Times" today warning that their current policies could push the global economy into depression. That's right, D, depression.

Now, economists do now use that word lightly. But Krugman is out saying that today and here's what he had to say. And I'm quoting, "This third depression will primarily be a failure of policy. Governments are preaching the need for belt tightening, while the real problem is inadequate spending. The cost to the millions of lives blighted by the absence of jobs will be immense."

Instead of worrying about inflation, Krugman says they should instead be worrying about the much greater risk of deflation. Now, to be clear, Krugman is sort of the extreme on this. But, here in the U.S. even prominent deficit hawks say it is very important to make a distinction between short-term, and long-term problems.


DAVID WALKER, CEO, PETER G. PETERSON FOUNDATION: Right now, we're still concerned about whether the economy is going to fully recover and we have a very high level of unemployment. And so therefore, you don't raise taxes, and you don't cut spending in that type of situation. In fact, if it is properly designed and effectively implemented, you could argue doing somewhat more, in the short-term, in order to try to get unemployment down, in order to try to ensure that we're not going to have a double dip recession.

At the same point in time we need to start to take steps to deal with the truth threat to America and our families' future. And that represents the structural deficits that will exist after the economy has recovered.


LAKE: David Walker there, by the way, former U.S. comptroller, sometimes talked about as a possible budget director in the future. He argues, and others, that you can do both. You can spend targeted spending short-term, while at the same time tackling these longer term deficit issues. But I have to say it has been politically very hard to achieve here. Republicans and conservative Democrats, in Congress, has so far blocked attempts to push through some new spending, to extend unemployment benefits that are about to expire, for millions of Americans. And to also send state aid, new money to states, whose budgets are really crunched. Now, at the G20, President Obama accused some of these people playing politics.

Meanwhile, the American people get more and more frustrated. We have a monthly jobs report coming out on Friday that is expected to show that nearly 15 million Americans remain out of a job, Adrian.

FINIGHAN: What about investors, Maggie? How are they reacting to this deficit debate?

LAKE: You know, it's very interesting. In some ways it is a similar problem that the politicians have, which is there is a lot of concern about long-term deficits, in fact. But in the short term you start to see the global economy go south, that won't matter. So, you've got them kind of worried about both things. And interestingly, Adrian, at the moment, certainly giving the U.S. benefit of the doubt, in terms of its ability to tackle the longer term deficit. But Krugman warning about deflation, a lot of people are starting to talk about that a lot more just this week. We're looking at the 10-year bond here in the U.S, getting very close to 3 percent yield. So, he may be on to something when it comes to deflation.

FINIGHAN: All right. Maggie, many thanks, indeed. CNN's Maggie Lake, live in New York.

Well, later this week the monthly U.S. payrolls report will give us an important indicator of how the economy is performing right now. In one sector, at least, the recovery seems to be on. And that is Wall Street where firms are adding jobs for the first time in two years. Now some media reports stay guarantees of multimillion dollar payouts are back as banks look to recruit key personnel. Let's bring in Constance Melrose, managing director of eFinancial Careers. She joins us now live from New York.

Constance, thanks for being with us. So, the good ol' bad ol' days are back?

CONSTANCE MELROSE, MANAGING DIRECTOR, eFINANCIAL CAREERS: Well, I don't know if I would say the good ol' bad ol' days, in quite that phrase, but what I will say is, you know, the business environment actually has been improving. You can see the signs that have been out there, for the past couple of months. And for Wall Street, in particular last year-I mean, it is a complete understatement to say this, of course-but last year was so full of uncertainty that they really didn't know where to, I think, make the investments that they were going to need to make. Well, things are improving and now you see hiring recruitment activity has returned. And in fact, on, we see that the job count has increased 31 percent, year-over-year.

FINIGHAN: So, who is offering these multimillion dollar guarantees and why?

MELROSE: Well, they are going to be certainly a number of firms who may do that for very, very highly skilled particular talent that can build a specific franchise. But I think we also want to look at what is happening more broadly, on Wall Street, in terms of what' happening with compensation. What's happening with retention. And so recently, for example, we talked with the financial professionals who visit our site. And they told us that they are getting, I'd say it is over 70 percent of them have received a call from-at least one call from a headhunter this year. And, you know, that's-I would say also nearly half of them say that type of activity is up. Areas where there has been a lot of turnover, some of those areas are foreign exchange, derivatives, and another area, not surprisingly is regulatory affairs. And that is also an area where we see very strong increases in job count, year-over-year, on our site.

FINIGHAN: All right, Constance, are these people who are coming off the unemployment pile, if you like, people who lost their jobs in the downturn? Or you mentioned headhunting there, are we seeing people being poached?

MELROSE: We are seeing people being poached. What we are seeing is that, what is happening is that candidates now, really have-they have multiple offers out there. And people who have track records and abilities in very specific areas, and again, compliance is one of them, investment banking is another one of them, regulatory affairs, risk management. All these different kinds of areas, the good candidates are getting multiple offers and speed to hire has now become and important part and an important issue on Wall Street. It is getting that offer to your candidate first and persuading that person to come onboard with you. And being attentive to what you need to keep your employees in place, as well.

FINIGHAN: Constance it is great to talk to you, many thanks indeed. I suppose it is all good news. It shows that at least the economy is getting back on track. Many thanks, indeed.

Constance Melrose, there, the MD of eFinancial Careers.

Now, would it be full steam ahead for Hamburg? Germany's second city is making a big investment in green public transport. In "Future Cities" tonight, we look at the commercial case for alternative energy sources.


FINIGHAN: Now, the German city of Hamburg, owes it prosperity to one form or transport, shipping, which made the city one of Europe's busiest ports. Now, though, it wants to lead the way in the transport of the future, a green public transit system. As part of our "Future Cities" series, Richard Quest takes a look now at what is coming down the track.


RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS (voice over): Strolling around Hamburg, and there seems nothing unusual about its public transport system. But if you know what you're looking for, you can catch a glimpse of the future; quiet and non-polluting with its signature puffs of water vapor this is one of Hamburg's six hydrogen buses.

It is all part of a pilot scheme started in 2006 to test whether hydrogen fuel cells could one day power an entire fleet of buses.

STEFAN SCHURIG, THE WORLD FUTURE COUNCIL: Hydrogen technology is still on the research and development stage. Nobody can say, at this stage, whether hydrogen technology will be the leading technology for vehicles, in the future. Because electric cars still have lots of issues with its batteries.

QUEST: Built into the roof of the bus, hydrogen fuel cells work rather like a battery. The hydrogen gas combines with oxygen, and it is converted into water, in the process, it produces electricity. And it is this power that runs the bus' electric motor. Back at the depot, refueling is pretty simple, too. Just like filling up your car. If it all seems to good to be true, then it might very well prove to be the case. The infrastructure and the hand manufactured fuel cells are astronomically expensive.

Hydrogen buses work out at four to five times more pricy than regular diesel buses. So, the main issue is commercial viability.

The hope is that costs will fall when demand triggers a switch to mass industrial production. Of course, it is the economic chicken and egg scenario.

CHRISTIAN MAASS, MINISTRY OF URBAN DEVELOPMENT: Of course, it is quite an expensive issue, the hydrogen buses. But we do see that we have a responsibility as a rather rich city, and overall, to promote new technologies. And someone has to be the pioneer to do it first and see how it works.

QUEST: Fuel hydrogen has been used as an industrial gas for more than 100 years. But on its own, it is not a natural resource, it has to be manufactured.

SCHURIG: The question is where do you take the energy from to produce the hydrogen? And that is the key question to judge the overall environmental balance.

QUEST: Hydrogen can be deceptively dirty. It is almost entirely produced using fossil fuels, oil, gas, or coal-but not in Hamburg.

SCHURIG: The hydrogen buses in Hamburg are actually running off hydrogen produced with renewable energy. So that is a good thing.

QUEST: Hamburg's hydrogen is made by electrolysis, or splitting water, H2 O. The electricity needed is generated exclusively by wind power. Even if hydrogen production can be green, the critics still say fuel cells will always be energy losers because it takes up far too much energy to produce the hydrogen in the first place.

WOLFGANG LOHBCK, GREENPEACE: If I'm asked, do you like this, because it is so green? It is just producing water? I cannot say yes, because if you look on the energy used for fueling these buses, and for producing the hydrogen, it is two and three times more the energy. The whole pathway down is the cascade of losses.

SCHURIG: I would personally say, why not using the electricity, directly, for the vehicle? And why produce hydrogen first and then burn the hydrogen, in fuel cells, in cars.

QUEST: The answer to this question my lay in the limitations of lithium iron batteries in large public vehicles.

HEINRICH KLINGENBERG, MD HYSOLUTIONS: If you have a look at batteries today they are still some issues that have to be overcome. And one is for sure is that the energy density you have in batteries compared to the weight. It is not sufficient that you can, for example, use only batteries on a bush, and allow the bus to run for two shifts a day, like we do here in Hamburg.

And so, therefore, you need what we call a range extender, beside the battery. And therefore maybe in the next generation of diesel-powered (ph) buses, that could be a diesel generator, but later on, it definitely has to be hydrogen.

QUEST: Hamburg is entering the second phase of its commitment to champion hydrogen technology. This current fleet will be grounded later this year. Next year, 10 shiny new hybrid buses will grace the Hamburg City Center, together with a state-of-the-art refueling station. These will run primarily off a lithium battery, which will work in tandem with those hydrogen fuel cells. It a nod to the future, as it appears now, without fossil fuels.

KLINGENBERG: If you think about the preparations you need in a public transport company. We have to prepare today for the time frame of let's say 2030, here. None of us can be aware what the cost of diesel in 2030 will be-and if there is any available at all.

QUEST: As the wheels of the 21st century roll on, hydrogen fuel cells will play their part in revamping public transport around the world. Other cities may scoff at Hamburg's fate in a hydrogen economy, so full of uncertainty. And yet, in its unrelenting way, technology will evolve. On these streets they'll be riding the hydrogen express, full steam ahead.


FINIGHAN: Richard Quest in Hamburg. And next week for "Future Cities" we're in Istanbul on the divide between to continents. We visit the Marmaray Tunnel, the first-ever rail connection between the two sides of the city, easing the flow of people in a congested metropolis.

That looked a lot like Hamburg and not Istanbul to me. But we're in Istanbul next week on "Future Cities". When we come back tonight, the score sheets read balance sheets. Instead of team formations we'll be looking at economic tactics, it can only be the Economic World Cup, and it's Brazil versus Chile. Coming up.


FINIGHAN: Welcome back.

Live from London, this is QUEST MEANS BUSINESS from CNN.

In for Richard Quest, I'm Adrian Finighan.

let's get a quick check of today's news headlines right now.

A new development in the controversy surrounding Iran's nuclear program. Iranian President Mahmoud Ahmadinejad says that he's calling off nuclear talks with the West temporarily. Mr. Ahmadinejad announced that he's postponing the meetings for two months because of what he calls "bad behavior" by the West, including new United Nations sanctions.

An Israeli commission says that Prime Minister Benjamin Netanyahu will be its first witness as it formally opens an investigation into Israel's deadly attack on a Gaza aid flotilla. Nine Turkish activists were killed when commandos stormed the fleet back in May to prevent it from breaking the blockade of Gaza. Two international observers are monitoring the panel's deliberations.

A remarkably peaceful process -- that's what international observers are saying about weekend elections in Kyrgyzstan. More than 90 percent of voters approved a new constitution. It reduces the president's power and sets the stage for parliamentary elections. Turnout was high despite fears of violence in the wake of this month's deadly ethnic riots.

The president of the French Soccer Federation has resigned. Jean- Pierre Escalettes is quitting his post after the team's fiasco at the World Cup. They blew it, scored only one goal in three games, as they collapsed amid internal squabbling and friction what the coaching staff.

And some big names on the bench in today's group of 16 matches in South Africa. The Netherlands remain undefeated in the 2010 World Cup. They advanced to the quarter finals today with a convincing 2-1 win over Slovakia. Slovakia had knocked out defending world champion Italy in the opening round.

And the late match has just kicked off in Johannesburg. Brazil are taking on Chile. The samba kings are many people's favorites to win the competition. They'll meet the Dutch in the quarterfinals if they can get past a determined Chilean side. So far, the match is goalless. So far, the match is goalless.

All right, so that's the action on the pitch.

But what about the Economic World Cup?

We're pitting the countries against one another from the perspective of financial strength.

And with us once again, of course, CNN's Jim Boulden -- hey, Jim.


FINIGHAN: So, Chile versus Brazil.

BOULDEN: What I like about these two -- two games today, these two matches, is that you've got countries from the same continent playing each other.


BOULDEN: So, in some ways, it's -- it's a bit more realistic to look at their economies with each other.

So you look at here. You've got Chile, Brazil -- obviously, Brazil a much bigger economy -- much bigger. It's the eighth biggest economy in the world.

But you look, GDP growth, 6.5 percent this year. And the only word you really need to use for Brazil at the moment is oil -- oil, oil, oil.

Chile very different, of course. It's a much smaller economy. But its growth -- good growth this year. And, of course, Chile has suffered from an earthquake this year. But the numbers haven't been as bad as people per -- expected. So decent growth this year. They've also recently joined the OECD. The rebuilding is actually helping the economy at the moment, because there's a lot of construction going on. They've even had an upgrade of the bonds in Chile, which is extraordinary given the fact that we've seen downgrades all over the world.

So very close, I would have to say. The growth numbers very close, as well.

But you kind of have to look at Brazil...


BOULDEN: -- because of the oil. You kind of have to look at the growth that's going on there.

FINIGHAN: Yes. And -- and as you say, eighth strongest economy in the world, whereas Chile (INAUDIBLE)...


FINIGHAN: I mean do you ever see the day -- I mean, as you said, they're such close neighbors, you'd think their economies would be -- would be pretty similar. But Brazil, it's all about the oil.

Do you ever see a day when Chile perhaps is -- is closing the economic gap on oil -- on (INAUDIBLE)...

BOULDEN: Well, a lot of people say Chile is one of the richest countries in South America.


BOULDEN: So it has a whole -- it does have that going for it. But the problem, of course, this year, was the earthquake.

FINIGHAN: Yes. OK. I'm glad you remembered it was Brazil and don't blame Chile, by the way.

So many football teams and football games at the moment, my head is buzzing with a lot of it. I don't know about you.

What about the game earlier today that we saw, the Netherlands knocking out Slovakia?

BOULDEN: Yes, like I said, of course, you know, from the same continent.


BOULDEN: So we start from a good place. But look, the Netherlands, the 16th largest economy in the world. The ranking for Slovakia much smaller, obviously. A Central European country. And the -- the jobless rate, 14 percent.

FINIGHAN: Look at that.

BOULDEN: Very high.

FINIGHAN: Fourteen percent?

BOULDEN: Yes. Very high for a country that uses the euro, that's very much part of the European...


BOULDEN: -- you know, European Union, as, of course, the Netherlands is. The jobless rate much lower. And if you look at the growth numbers, the Netherlands, like a lot of the -- the Western countries, it's not going to have a lot of growth this year, 1 percent.

Slovakia, 3.6 percent. So when you're talking about countries...


BOULDEN: -- coming from a smaller base...


BOULDEN: -- more growth this year.

FINIGHAN: But with growth like that, then, perhaps that...


FINIGHAN: -- that jobless rate (INAUDIBLE)...

BOULDEN: -- could come down.

FINIGHAN: Any idea why that's so high?

I mean it's one of the periphery...


FINIGHAN: -- I suppose, of the European Union...

BOULDEN: It is...

FINIGHAN: -- whereas the Netherlands, obviously, you know, part and parcel of the E.U. for quite some time.

BOULDEN: One of the richest countries in the world.


BOULDEN: Certainly if you were to look at poverty rates, you would look at per capita rates, the Netherlands would win hands down. But that - - that's a longstanding issue. If you're talking about Slovakia coming from a smaller based and then obviously growing faster at the moment. So as far as growth goes, I would give it to Slovakia this year.

FINIGHAN: OK. All right.

Jim, many thanks, indeed.

That's our Economic World Cup.

And you'll be back, of course, as the competition goes on.


FINIGHAN: We'll see you again tomorrow.

BOULDEN: Thank you.

FINIGHAN: And we'll go through it all again.

Many thanks, indeed.

All right, as oil still gushes into the Gulf of Mexico, there could be more bad news on the way. A storm is headed in their direction.

Also coming up, we'll be looking at the human costs of the BP oil spill. We'll introduce you to a family that's about to go out of business.

We'll be right back.


FINIGHAN: A little relief this evening for BP's shares. They gained just over 1 percent in London this session, after dropping on Friday to a 14 year low. Various reports say that the oil giant's first relief well aimed at ending the Gulf of Mexico oil lick -- leak, could be completed within weeks.

But some bad news could be brewing for BP and for people who live along the Gulf Coast.

Guillermo Arduino joins us now with details live from the CNN Weather Center -- hey, Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hey, you know that we do not know yet what's going to happen and things may change a little bit. Two aspects to bear in mind.

First, we have a tropical storm likely to become a hurricane. You see here two days from now it becoming a hurricane, according to the progressions. Now, the waters in the Gulf of Mexico are extremely hot. So that would be conducive for development.

Now, direction is the most important thing, again, to take into account in this case. And we're going to go ahead with the spaghetti models. These are numerical models. At the same time, I want you to know the red line is where the National Hurricane Center thinks it's going to be happen.

So this is a staple of Tamaluipias in Mexico. This is Texas. We have Brownsville here; Matamoras on the other side; San Fernando a little bit inland. So all those areas may see -- on Thursday -- winds of over 150 kilometers per hour. A category two hurricane. It's going to intensify.

What -- this is the track, then, with the National Hurricane Center again. So you see the progression.

What happens apart from the warnings that we have already in store?

What happens if, with the winds and with the direction, the system moves a little bit toward the other side -- toward the oil slick?

On the other hand, we're going to see, regardless, a lot of thunderstorms in the area. Wind is picking up there and it's dumping a lot of rain.

Secondly, we have swell, which will be very significant regardless. The closer it goes to the east, the more swell it's going to be. Waves are going to be up to three meters. And we imagine those booms that are trying to contain the oil are going to be overtopped, no doubt about it.

Now, another important thing is what happens if it does affect the oil is the cyclone moves closer to the east. Well, there are some positives. It's going to mix it altogether. But the negatives are more important -- the winds that then distribute it in a wider area and also the storm surge.

Finally, the position is very important because it -- if it moves a little bit to the left or a -- or to the right or to the left, the -- the rotation of the winds is going to determine if the oil is going to go toward the coast or away of the coast, depending on what side of the storm we are. So we have to stick with the National Hurricane Center forecast right now and take it one day at a time -- Adrian.

FINIGHAN: Guillermo, many thanks.

We're keeping our fingers crossed that...

ARDUINO: Definitely.

FINIGHAN: -- that it goes in the right direction and back out at sea.

Many thanks.

Now, the tourism sector in the Gulf Region is trying to pick itself up. It's running they've commercials at the moment to show that many of the beaches are safe and that it's still a beautiful place to visit.


LUCY BUFFET: I'm Lucy Buffett (ph) and I love my gorgeous Alabama beaches. We're keeping a close eye on the beaches so you can enjoy them, too. So get on down here.


FINIGHAN: Well, the summer season on the Gulf Coast should now be in full swing. But the oil spill is putting a lot of people off holidaying in the area.

Robert Reid is the U.S. travel editor for "Lonely Planet," the travel guide publisher.

And he's just been to the region.

So, Robert, what's it like down there at the moment?

ROBERT REID, U.S. TRAVEL EDITOR, "LONELY PLANET": Well, it's like what you've been talking about. I mean there's kind of a -- a new mantra lot of locals are doing there. They're saying see it while you can. I mean they -- they know the oil is coming. Some of it has come, but it hasn't closed the beaches yet. In fact, many of the beaches that we see reported, like in Alabama that you just saw there or Pensacola, where Obama was a little over a week ago, are -- are open -- open beaches there. And, in fact, I just spoke with Pensacola again today and they had a -- a full crowd at the beach yesterday. So people are out there swimming.

That the -- the water is clean right now, at least for the time being.

FINIGHAN: So what are business owners saying to you about -- about what's happened to them and the fact that people have been put off vacationing there?

REID: Well, tourism is -- is the number two part of the local sector, as far as the -- the economy. So this is a major problem for the region. It couldn't come at a worse time, because they're just starting to recover completely from Katrina five years ago.

And you have 140 million people that go to these four states every year. And they've already seen the effects. In Mississippi, I've seen reports of 50 percent down have cancellations in hotels. And until a week ago, they had had almost zero oil there.

So unfortunately, the perception that these places are places that you can't go to, it has really hurt tourism so far.

FINIGHAN: All right, I mean tourism in the -- the usual sense of -- of the world in that you go somewhere for a beach holiday to relax. But, of course, it has spawned -- or has the potential to spawn a -- a new kind of vacation, doesn't it, ecotourism, that people can actually go and help clear up the mess that this spill has caused?

REID: Well, to be honest, actually, you can only work with wildlife or areas that are affected with oil if you've been trained. So they're looking for trained volunteers or actually paid crews that can do that. What tourists and locals can do if they're not trained is they can, A, expand the eyes and ears of local crews. When I was there, I went with a National Park volunteer and we found some netting that was on a beach. We reported it to a crew and within five minutes, it was disposed of and taken away.

FINIGHAN: All right, Robert, really appreciate you coming on to talk to us about -- about the situation in the -- on -- in these states. And let's keep our fingers crossed, as we were saying with -- with Guillermo. Let's -- let's hope that it -- the affects are short-lived for those people -- the -- the tourism business gets back to normal pretty quickly.

Robert, many thanks, indeed.

Now, we're going to stay with the Gulf disaster and the devastating imp[act on a man who fled his native country, Vietnam, for a fresh start in the U.S.

As T.J. Holmes reports, after the oil spill, a happy ending to this story looks very far off.


JENNIFER LE, JENNIFER LE SEAFOOD: And usually during the summer, imagine the (INAUDIBLE) stacking high upon the ceiling.

T.J. HOLMES, CNN CORRESPONDENT: How long has it been like this now?

J. LE: He said ever since the oil spill.

HOLMES: Ever since the oil spill?

So is this the last of it?

This is the last of the Jennifer Le...

J. LE: Yes.

HOLMES: -- crabs?

J. LE: It's the last of it.

HOLMES (voice-over): After a decade, the Jennifer Le Seafood Company in Biloxi is down to this -- a few baskets of fresh crab. And the owner, Ty Van Le (ph), has no hopes that more crab is on the way anytime soon. So as of Monday, he's shutting down the company he built from scratch -- the company he named after his only daughter.

(on camera): Do you have any ideas yet what you're going to do?

T. LE: Me?


T. LE: I only know what (INAUDIBLE)...

(Through translator): He says like coming over to America, he had nothing in his hands. So this is just like the same thing again.

HOLMES (voice-over): The oil disaster forced the closure of the Gulf waters where Le's suppliers catch crab. His supply has essentially been cut off. Le and other Vietnamese-Americans in the Gulf are in a particularly dire situation -- 80 percent of them work in the seafood industry. Many have been doing this work since they fled their country after the Vietnam War to start a new life in the United States. And it's all they know how to do.

TOHN NGUYEN, SHRIMPER: This is my job. This shrimp boat -- it's my - - my job. Shrimper is my job, right?

I don't pay for no one.

HOLMES: Tohn Nguyen is a shrimper who's been getting by working on the vessels of opportunity mobilized by BP as part of the oil spill cleanup.

(on camera): How long can you sustain this?

How long can you make it going out and working for BP before you run out of money?

NGUYEN: I have no idea.

HOLMES (voice-over): The Les are ready to start over, but for sentimental reasons, not quite ready to let go of this place.

(on camera): Why not just sell it?

J. LE: He says how much are you offering?


HOLMES (voice-over): T.J. Holmes, CNN, Biloxi, Mississippi.


FINIGHAN: Lucky we saw a smile at that. OK.

Some companies are making a big production out of the economic revival currently underway in Germany. We'll take you to Berlin after the break for a look at the German rebound, as Europe works to reignite the wider economy.

Plus, India's government has found a new way to save taxpayers money, but the result is making drivers unhappy.

We'll be right back.

Stay with us.


FINIGHAN: Now, as investors look ahead to a key jobs report due out of the U.S. at the end of this week, some workers in Europe are getting something of a surprise. They're being offered over time.

In Germany, CNN's Diana Magnay has been visiting an auto parts company where the production lines are going into overdrive.


DIANA MAGNAY, CNN CORRESPONDENT (voice-over): Last time I visited this firm was a year ago, when CEO Olaf Jelken was having to put his staff on part-time work to compensate for a sharp drop in demand for the truck parts he produces. Now, things couldn't be more different.

OLAF JELKEN, CEO, VIELMETTER (through translator): We got such a swing in demand at the end of January that we started working every Saturday and then had to put up three shifts a day because we just couldn't satisfy all the orders.

MAGNAY: That was a bit of a shock for workers like Benjamin Schmidt, who'd got used to the four day week, the so-called Kurzt arbeit (ph) scheme gave him.

BENJAMIN SCHMIDT, VIELMETTER (through translator): Working all this extra time is quite a burden, because you're just physically not used to it anymore.

MAGNAY: He's glad at the extra work, though. Kurtz arbeit meant more free time, but you weren't paid your full salary. It was a government funded incentive to encourage firms to hold onto their staffs until export markets picked up. And in Vielmetter's case, it's paid off.

JELKEN (through translator): There are big growth markets, not so much here in Germany, where things are pretty stagnant, but we're getting new customers from all over Southeast Asia.

MAGNAY: Some economists say Germany is too export dependent and Chancellor Merkel's government should do more to stimulate domestic growth. Others argue that that's missing the point.

JAN HAGEN, EUROPEAN SCHOOL OF MANAGEMENT & TECHNOLOGY: Germany is -- is criticized for being maybe too austere, but I think what you have to keep in mind is that the whole issue about being able to -- to spend depends on -- on market financing of the deficits. And so far, Germany has had the confidence of the markets that it would repay its debt.

MAGNAY: That's partly because the markets have confidence in the resilience of German industry. Just a year after production lines ground almost to a halt, small and medium sized companies like Vielmetter, which form the backbone of the German economy, are bouncing back.

Diana Magnay, CNN, Berlin.


FINIGHAN: Well, it was touch and go, but European shares managed to snap their four session losing streak today. Shares in miners and basic resources companies were particularly in demand. Some analysts say that we could see volatile trading for the rest of this week, as we approach the -- the end of the year's second quarter. The FTSE up .5 of 1 percent.

The XETRA Dax up 1.75 very nearly.

The CAC Courant in Paris up 1.6 percent now.

In Asia, the week kicked off on a pretty mixed note, it has to be said. Japanese exporters coming under pressure, sending the Nikkei lower. Manufacturing giants like Toyota and Sony finishing well in the red today. The Nikkei itself down by nearly .5 of 1 percent. But other markets did pretty well. The SENSEX in India adding more than 1 percent as you can see today, closing just below its highest score in 11 weeks.

And we're going to stay in India for a moment or two longer. A lot of people got a sharp kick in the wallet in the past few days, as the Indian government did some belt tightening. Prices for petrol, diesel, cooking gas and kerosene -- all of them shot up.

CNN's Mallika Kapur explains now what's been going on.


UNIDENTIFIED FEMALE: Come on, let's play with the ball.

MALLIKA KAPUR, CNN INTERNATIONAL CORRESPONDENT (voice-over): The Patwardhans live in Central Mumbai -- a young couple, they're careful with their money.

SAUMITRA PATWARDHAN: Salaries haven't jumped the way the government jumped petrol prices, but, you know, costs have gone up, whereas it's -- it's not reached a point where it's impossible, but it's getting difficult.

OK, get on the wall.

KAPUR: They're making small changes to their lifestyle, which includes the daily school run.

SUMAN PATWARDHAN: Yes, the price of petrol going up the way it is, is a big factor. It obviously works out much cheaper for us to send her either in a carpool or by a school bus.

KAPUR: Petrol has gone up three rupees, 50 pesos -- or 29 cents a gallon -- to more than $4.50 per gallon since Friday, after the Indian government took a bold decision to stop subsidizing it. Its price will now be determined by the market.

S. SUNDARESHAN, INDIAN OIL SECRETARY: This price, which is likely to be very reasonable, being market determined, can be easily accommodated by the users of petrol in the country.

KAPUR: The prices of diesel also went up, though it will continue to receive some subsidies for now. The cost of cooking gas and kerosene were hiked, too, triggering protests in several cities over the weekend.

BRINDA KARAT, OPPOSITION LEADER: Hikings can only happen if a government is so totally insensitive and callous and arrogant toward what is happening with the people of this country.

KAPUR: "It hurts me, the common man, the most," says this tea vendor, who uses kerosene to fire his stove. "I may have to start charging my customers more," he says. "If I do that, I fear no one will buy it."

(on camera): The government says it will use the money saved by scrapping subsidies to reduce India's massive fiscal deficit, which is key to keep the economy growing at its current pace.

(voice-over): Economists welcome the move, which will save India around $5 billion a year, but raise a red flag about its impact on inflation. Already above 10 percent, a hike in fuel prices could push it higher still -- affecting everything from the kitchen to the car.

Forget the spontaneous drives for fun, say the Patwardahns. Even maintaining their car won't be easy.

Mallika Kapur, CNN, Mumbai.


FINIGHAN: All right, with just an hour to go now before the end of the trading day on Wall Street, let's take a look at what the -- the Dow Jones is doing. Traders gearing up for the end of the second quarter this week. We'll see if that's having any effect on trading. Well, perhaps it is. It's up 31 points at the moment. We'll tell you a lot more about what's going on in the markets when we come back on QUEST MEANS BUSINESS.


FINIGHAN: All right, so trading on Wall Street entering the final stretch for Monday. After a week of pretty Saturday losses. The Dow looks to set -- looks set to finish this session, anyway, slightly higher, as traders wait for the much anticipated jobs report due out at the end of the week. The Dow up 32 points at the moment.

Of course, consumer spending rose more than forecast in May. We heard that news today. And that's a sign that households are gaining confidence in the recovery. And the job market and gradually improving labor markets should continue to support spending, too. Longer hours, over time all contributing to that rise in consumer spending.

And here's an interesting one, stock prices mirroring government bonds more than ever -- bond yields more than ever -- a signal to bulls that shares may poised to rally, would you believe?

That jobs report will be keenly watched here in Europe, too, when it comes out today. Shares in this region closed higher for the first time in five sessions. The FTSE 100 slipping into the red at one point, but climbing back into positive territory, lifted by gains from natural resources stocks.

And that's QUEST MEANS BUSINESS for Monday.

In London, I'm Adrian Finighan.

A special edition of "WORLD ONE" is up next.

CNN's Fionnuala Sweeney is live in Poland for CNN's I-List.

And "WORLD ONE" starts right now.