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QUEST MEANS BUSINESS

Will Middle East Investors Back BP?; Austerity v. Stimulus Debate Continues; Donald Trump Wants to Build World's Greatest Golf Course

Aired July 7, 2010 - 14:00:00   ET

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


MAX FOSTER, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: BP are on an international charm offensive. Can Tony Hayward convince investors to take the plunge?

In the great austerity debate the head of the OECD tells this program budget cuts don't have to mean long-term job losses.

And get ready for the greatest golf course in the world. Donald Trump is as modest as ever about his latest controversial project.

I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.

Good evening.

BP looks like it is on a mission to court investors in the Middle East. The CEO Tony Hayward has been meeting key power brokers in Abu Dhabi today amid speculation that he is seeking a white knight to protect BP from a hostile takeover. The company's shares are rising in New York, right now, following big gains in London. In the two months following the Deepwater Horizon disaster the value of the stock has almost halved amid persistent selling.

Mr. Hayward met Crown Prince Mohammed bin Zayed Al Nahyan, that's been the big meeting today. But he's also met business partners in the region, in the Middle East, Abu Dhabi, particularly.

"The Wall Street Journal" cites an unnamed source saying BP would be happy to see Middle Eastern investors take a stake of 10 percent. Also, a Saudi newspaper says Saudi businessmen want 15 percent of BP. Such an investment would amount to a public vote of confidence in the company. And it would say that actually BP is better than many people think.

BP does have a long-standing partnership with Abu Dhabi, the national oil company there. Kuwaiti investment authority says no extra investments are planned for now. It already holds a stake in BP, so it is out of the picture as far as we know.

No other Middle Eastern investors have a large stake, so far, i.e., holding more than 4 percent. Now, BP has been asked by the U.S. government to give advance notice of any major financial transactions. The U.S. Department of Justice demands 30 days notice, so it is watching these developments no doubt. BP hasn't yet responded to that demand, so we haven't had any formality yet. It is a lot of it is speculation, but it is not being denied actually. BP shares gaining nearly 5 percent in London, amid all of that speculation.

Let's find out how all the speculation is going down with investors in the Middle East then. John Defterios from CNN's "MARKETPLACE MIDDLE EAST", joins me now. Excuse me, from Beirut.

John, you have been speaking to some key players there in the region. What are they saying to you about this?

Well, number one, Max, even here in Beirut, which is far away from Abu Dhabi, there is not great surprise that there are discussions underway. Let's just put it this way, no great revelation that BP would do a road show. In fact, it was in Russian and Azerbaijan before this. He's visiting places where he has existing partnerships. You mentioned Abu Dhabi, it has assets in Qatar, Libya, and Kuwait. Kuwait still has a 2.8 percent stake. It is worth noting in the early `90s the Kuwait investment authority had a better than 15 percent stake, and Mrs. Thatcher, Margaret Thatcher asked him to divest that and bring it down. And that is why they today they didn't think they needed to bump it up.

But if you take a look at the countries where they have the assets, in these countries in the Middle East, and add up the sovereign funds from those countries, we're looking at better than $900 billion, in those sovereign funds. So if BP was going to be looking for an investor Russia would make sense, because of BP TNK, and that relationship. But obviously the Middle East would make sense as well. I think it is also worth noting that spokes people from Abu Dhabi today, denied the fact there is a to go ahead and push ahead with an investment. But if I was Tony Hayward and I needed to raise money, and I wanted to fend off ExxonMobil or a Shell, than that is a discussion even here in Beirut today, with say and investment banker. The CFO of a bank that I had. This would be an obvious place to look.

FOSTER: Am I right in say, John that this is the new fashion. If there is a company with problems, in the west; they head out to the Middle East to try to get some sort of solution. There is a track record for this type of deal. OK?

DEFTERIOS: Absolutely. Just go back to the global economic crisis that we have had over the last three years, and you co to Credit Suisse and Barclays and you had investments form Qatar, and Abu Dhabi, on won. And Qatar in the other, they held those stakes until the stocks went up. And some held smaller stakes at the end of the day, but they made a lot of money in the long run. And it was a strategic investment as well.

I think it is also worth noting while some divest those stakes to make money in the short-term, they are very long term investors. They have track records of taking stakes in Citigroup, Apple Computer, when they had troubles, you saw Kingdom Holdings going in to Apple. Again, held the stakes for years and made a lot of money. So, not surprisingly, because people know they have the wealth here, strategically, if it makes sense to one of these sovereign funds that have the investment, and they are already partners in some of the energy assets here. It seems to offer value.

In fact, the head of the National Oil Company of Libya said, at this sort of stage it is an opportunity for everybody. It is just whether the price is right. Whether BP wants to hit a magic number. You mentioned 10 percent on one side, and 15 percent on the other. The people I spoke to on the phone tonight, one Middle East investment banker said, that 15 percent is a magic number to keep ExxonMobil and Shell out of play. That is combining it with asset sales, so, up to a 15 percent stake, where some particular investor, and then selling off assets worth $10 billion, could them over the hump.

FOSTER: And what do you make of the way BP is handling all of this?

DEFTERIOS: Well, one final thing I would say on that, if you know the region, we spend a lot of time in the region, obviously, discretion is the name of the game. And I don't think some of the people that he's met with here in the Middle East would be too terribly happy that this leaked out. Number one, they would like to buy the assets at a discounted rate, and this has already changing that scenario right away. This hasn't been a great 60 days for Tony Hayward, of course, in terms of managing the media flow. So it hasn't been very-done in a very delicate way if I can say that.

And number two, they-some see Tony Hayward as a sacrificial lamb, as one person I spoke to tonight, expressed it. Number one, he has to stabilize the Gulf spill. That is one priority for him and almost a duty as one explained it. Secondarily, he needs to find a strategic investor, because he wouldn't want to leave a legacy of BP going into the hands of an ExxonMobil, or a Shell, or somebody else. So these are two priorities for him right now.

FOSTER: OK, John Defterios, thank you very much, indeed, for joining us with your perspective.

Now, back in 2008 Barclays Secured (ph) released cash to bolster its balance sheet. If it worked for them, could it work for BP?

I'm joined now by Mandj Ladwa, he's senior trader at ETX Capital.

Thank you for joining us.

Are there parallels with the Barclays deal here, from what you can make out?

MANDJ LADWA, SR. TRADER EXT CAPITAL: They certainly are, Max. At the end of the day, BP needs the funds. This clean up of oil and the compensation costs, they are going through the roof at the moment. They are saying around about $3 billion, if the relief well doesn't work, then they are likely to escalate further.

And going back to the credit crisis, Barclays desperately needed the funds in order to stay away from government control. And here BP, if they are not going to go to the boards (ph); they're not going to go bust, if they don't want to go down the route of issuing more equity, they don't want to fire sale of their assets, which would go at a cheap rate. So, they've got very little option, other than to go to the Middle East and to raise funds there.

Now, the Middle Eastern investors are value investors, they are brand buyers, they are going to buy goods on the cheap. So, it makes perfect sense to tap them up for further funds. Abu Dhabi has a huge sovereign wealth fund. I'd say right around $500 billion. The U.S. would be pushing for this to happen. In the background, they would be happy that BP is looking to alternative sources of income as well.

So, all around this is a positive for BP and we've seen it in the share price today.

FOSTER: But is it really, when you consider politics within the United States, because when Middle Eastern investors have got it, they are involved in other deals, involved in companies, U.S. companies, at least, the public generally don't really like it. They don't support the politicians in getting the Middle East involved in U.S. business.

LADWA: Well, for instance, we saw that with Barclays as well, whereby the investors involved in the Middle East were asked first to invest in the company and the smaller shareholders, even the institutional shareholders were left to one side. And the Middle East investors were able to buy up assets, buy up a stake in Barclays, at a cheap rate. And this is the danger. That could also happen with BP as well, whereby only a small handful of individuals are able to make large sums of money, whereas the majority of the shareholders miss out. So this is a problem for the wider share owners, for the wider public as well.

FOSTER: Do you think we're going to look back on this period in financial history and see that the Middle East did really well out of this?

LADWA: I think so. I think that if they are going to invest in BP they are getting a good price. There is still a lot of uncertainty. If they don't manage to plug the well, if they don't manage to clean up the operations in the Gulf of Mexico, then BP could continue to struggle. And, possibly the U.S. operation could go into Chapter 11. But if things do turn around for them, then the Middle East investors have picked up a very asset at a very good price.

FOSTER: Mandj Ladwa, ETX, thank you very much for joining us.

Now, BP is thought to be ahead of schedule drilling a relief well, which has been described as the last hope of stopping this oil spill. Retired U.S. Coast Guard Admiral Thad Allen says the relief well is very close to being completed. He says it could be ready sometime in early or mid-August, with engineers taking the final stages, a 100 feet at a time.

That is what's happening now, though, out there. Relief well, obviously, isn't in place just yet. Gene Beck is an associate professor, a petroleum engineer at the Texas A&M University. He says BP isn't going to rush it.

(BEGIN VIDEO CLIP)

GENE BECK, TEXAS A&M UNIVERSITY: The 20 feet that they are talking about is lateral feet from the well bore, so going sideways into the well bore. They still want to drill vertically into the well several hundred more feet. But the real key is not the distance right now. It is the fact that, you know, at this stage of the well they are going to take their time and make sure that everything is absolutely safe. You know, for the crews drilling the well, for the rig, and to make sure that this well bore maintains its integrity through the kill operation. Because, you know this is not a one shot-this is not a one-shot process. We all hope it works in one shot, but the relief well will give them access to try numerous methods for killing the well.

(END VIDEO CLIP)

FOSTER: Now the head of the company that operates the 13,00 kilometer oil pipeline across Alaska is expected to resign, CNN has learned. Kevin Hostler, the man in charge of Trans-Alaska Pipeline, is likely to step down this Wednesday amid claims that cost-cuts are increasing the risk of an oil spill.

Trans-Alaska, one of the world's largest pipeline systems is 80 percent owned by BP. U.S. lawmakers have been examining claims that cost cutting is putting the pipeline at risk. Some BP managers have also criticized the way the pipeline is run.

Across Europe, stimulus is out and deficit reduction is in. One government after another have spelled out spending cuts, tax increases, or both. Some think they are making a mistake, though. We'll look at both sides of the debate. That's next.

(COMMERCIAL BREAK)

FOSTER: Germany's government has reached agreement on its financial priority, which is tackling the budget deficit. Ministers today backed an austerity plan that aims to shrink the deficit by $103 billion by 2014. Parliament will now have the final say on whether the cuts go ahead. If they do, Germany will join a long list of European countries that are tightening their belts. They are rejecting the advice they are getting from the other side of the Atlantic. Over there, the view is governments should keep on spending to stimulate economic growth.

Let's get right to the heart of economic debate we're holding here on QUEST MEANS BUSINESS all this week. Does the rate of recovery call for greater fiscal discipline or the continued injection of government cash?

I'm joined by David Blanchflower, professor of economics at Dartmouth College. And a man who is familiar with the kinds of decisions that policymakers around the world are wrestling with right now. He was a member of the Monetary Policy Committee, at the Bank of England from 2006 and 2009, is it?

Is it easier to watch on this, from that position?

DAVID BLANCHFLOWER, PROFESSOR OF ECONOMICS, DARTMOUTH COLLEGE: Yes, that's right.

FOSTER: Rather from being within the Bank of England?

BLANCHFLOWER: Well, I think, yes. It probably is now because the Bank of England are meeting today and they are all going to sit on their sit on their hands, I assume. Now, on the outside, it is pretty worrying times I think. Everybody-what's the famous phrase, it is all over, it's all over, don't worry. We can retrench. And the worry is it is probably not all over, as the data suggests. So, I think it is worrying times. It is worrying if you are sitting as a policymaker, but if you are sitting as a commentator on CNN I think you should tell the audience that it is surely not over.

FOSTER: Your view is to throw money at the problem?

BLANCHFLOWER: Well, my view is not to throw money at the problem necessarily, my view is that we need to see growth coming. And you take the stimulus off gradually, because it is like thinking a patient is on life support and there are two views. One says the patient is fine take the life support off. And the great danger is that they'll die.

And the other line, which is my line, which is that, well, the patient is on life support. We'll remove the life support gradually, if you like, take off the training wheels. And then pay off all these deficits. The problem of those who say take off the life support straight away is the patient could easily die.

FOSTER: But, if we take the U.K. for example. Fierce cuts, as you know, I know you've been following it in some detail. If they don't do that, foreign investors aren't going to invest in the U.K.-and they won't be able to borrow anything, so they're not going to have any money at all.

BLANCHFLOWER: There is absolutely no evidence for that. The only person who seems to think that is George Osborne. The markets have not responded in that way. When there was even a possibility that the Lib-Dems and the Labour Party were going to form an alliance, the bond markets didn't move at all. We have been borrowing money at very low, long-run rates of interest. We're not Greece. We're not Spain. We have a central bank of our own. We have an independent currency. And we have a sense of a fiscal regime. What you need to do is have a policy in place that will generate growth and keep revenues rising. You don't need to kill off growth at birth. There is not this crisis in the markets and there is Cameron and Osborne and their cronies actually create one.

FOSTER: OK, a lot of talk here in Europe about the stress test that the banks are facing and how that is being handled here in Europe, particularly.

BLANCHFLOWER: Yes.

FOSTER: From your perspective over there. What have you made of the news today? What do you think is going to be the headline in the papers tomorrow?

BLANCHFLOWER: Oh, that is a tough one. Trying to predict what is going to be on headlines in the papers, is probably the results between Germany and Spain.

(LAUGHTER)

I think this whole issue of whether the banks are fixed and whether this is all over, is clearly-it is clearly and ongoing one. We'll see, but I just think that the banks are still not lending yet. And that is what makes this crisis different to everything else since 1945. The banks are still stressed. They are still not lending. And actually, you might think we have no data points since 1945. The daily points we should look at for the `30s, and for the 1870s. So it is important that the banks are fixed. It is important that they get their balance sheets right. But it is important to get them lending again. And they're not around the world. So this is central to the concerns that I have.

FOSTER: OK, Professor Blanchflower, from Dartmouth. Thank you very much indeed for joining us on the program, as ever.

Now already on QUEST MEANS BUSINESS we have heard from some of the world's most eminent economists, Professor Blanchflower being just one of them. On Thursday we get the views of Stephen King. He's the chief economist at HSBC. Where does he stand on the question of whether to slash or to spend? Find out on QUEST MEANS BUSINESS on Thursday. Everyone has got a different view. No one's decided.

Ever since the financial crisis broke, bankers have been hearing threats of a crackdown on their industry. Now the EU is finally moving to change those rules. The European parliament today approved measures restricting cash bonuses and requiring banks to keep more of their funds in reserve to see them through possible shocks. It is part of a drive to reduce the risks taking, that most observers think played a part in the crisis.

And bonuses, the EU won't set the limits on their size but from January 2011, a bank won't be allowed to pay more than 30 percent of any upfront bonus in cash, or 20 percent in the case of very large bonuses. Jim Boulden has been looking at what this means in practice.

Because, Jim, it is all just numbers to me.

(LAUGHTER)

JIM BOULDEN, CNN INT'L. CORRESPONDENT: Well, remember, up until now, if you get a bonus based on your performance, whenever that performance may be, and you may get it all in cash at the end of the year. We see people going out and buying their Ferraris and that sort of thing. And the idea was to stop that. Not to have all the money upfront, not to have it all in cash, hold some of it back in case the bank gets in trouble.

So that is one the critical issues here. Have that money available. Have whatever the reserve is, available for three to five years, in case the bank gets in trouble, or you don't hit the performances. And that way some of the money can be called back if in fact, that is what the government would decide to do.

Now, we thought, well, let's look at some examples. Let's take some people in Europe and see exactly what this might mean for somebody. Let's say you are a banker and you are on $200,000 a year. And you know that your bonus will be 10 percent of your income for that year. Under the new rules, you would get $6,000 in cash. The rest of it would have to go into this sort of contingency fund, to get, you may be able to get it later. Hopefully, you would get it later.

Let's move it up a little bit. Let's say you are a top level manager. You earn $1 million a year, and the company decides you have a 15 percent bonus coming to you next year. That would be $45,000 in cash. And I can tell you that is a lot less cash-wise than somebody would expect to be getting in a bonus. But that is what you would get if you were a banker, working at any bank, in the EU, starting next year.

Now, you are a CEO, Max, you are on $10 million a year. The board decides, fantastic year, going to give you a 30 percent bonus. Now, this is $600,000 bonus, based on the idea that you would only have 20 percent in cash. So the bigger your bonus the more likely you are only going to be able to get 20 percent of it in cash. What we don't know, is what is a big bonus. We still have a months to decide-

FOSTER: Is this a cop out, because the bonus hasn't been reduced?

BOULDEN: No, no, not at all.

FOSTER: So what does this actually mean?

BOULDEN: Some people are this the cap on bonuses, but what we don't have yet is a cap on bonuses yet.

FOSTER: No, it is just the way they're paid.

BOULDEN: It is the way they're paid, to try to take the risk out of it. Now some people say there is a cap. What the European Union legislation says is that the banks using broad guidelines can decide on capping a bonus based on the salary. But what if they double the salary?

FOSTER: Yes?

BOULDEN: You know, that is what some cynics say. First they say, look, there is a way to get around it. Just increase people's salary, that way you can increase their bonus. Other people say I'm going to live in New York. I'm going to live in Hong Kong, where those rules haven't been put in place yet. I don't have t worry about this.

FOSTER: At least we don't have t worry about it.

(LAUGHTER)

It's not a big problem for us.

Now, Donald Trump is immodest, often outrageous and outspoken, but can he live up to his latest boasts. His people are work in Scotland, building what he calls the world's greatest golf course, no less. When we return we'll hear from Trump himself.

(COMMERCIAL BREAK)

The 150th Open Championship begins in St. Andrews in Scotland, just a week, tomorrow. Many people consider the course to be the best golf course in the world. But Donald Trump says he can do better. He would. As Alex Thomas now tells us Trump is busy just outside Aberdeen in Scotland, building what he calls the world's greatest golf course.

(BEGIN VIDEOTAPE)

DONALD TRUMP, REAL ESTATE DEVELOPER: Hi, everybody.

We're going to produce something for Aberdeen and for Scotland that is really going to be superior.

ALEX THOMAS, CNN INT'L. SPORTS CORRESPONDENT (on camera): Donald Trump has renamed this area the Great Dunes of Scotland. And you can see why. Stunning, with giant dunes, difficult to walk down, but they are hoping to have golfers in action here by the summer of 2012.

TRUMP: These are not exactly great times for people. So, I'm doing something that is a little bit counterintuitive. I'm building something, sort of crazy times. But I've done that before, and you know, a lot of times it is good. You build in bad times, and you open it up in good times. So, let's see what happens.

THOMAS: Do you think you are letting your heart rule your head over this one?

TRUMP: Perhaps. And you know, that's OK, too. You have to understand, I've bought phenomenal golf courses. At less than it would cost to build them. And the reason I got it a very good price (ph), because is the economy is tanked. So, I said, it would be crazy to build a golf course, but here I am building the biggest, grandest golf course of them all. And that's OK. I mean, if you can afford to play the game.

Now, eventually it will be successful. I can't tell you when. But I will say this. The dollar has gone up and the pound has gone down, so I've saved 25 percent already. I'm an artist. And this is probably the greatest piece of canvas that anybody has ever worked on, in terms of the world of golf.

THOMAS (voice over): But it hasn't all been plain sailing for the development, which has faced strong opposition from local residents, and in particular, Michael Forbes, who owns some of the land on which Mr. Trump hopes to build his hotel.

MICHAEL FORBES, LANDOWNER: The Forbes clans is known for being stubborn.

(LAUGHTER)

THOMAS (On camera): And is that going to change?

FORBES: No, no, no, no. The more he pushes the worse I get.

THOMAS: What about the objections to the project? Are they going to hold it up at all?

TRUMP: There is a little fringe group and it is very, very small. As an example, I heard there is going to be big riots at the airport when I landed. There were three people and a dog.

I think that Forbes, and his little group, just want publicity. They love the publicity. Every time I see him he's dressed like a slob. But when he's in the press he's wearing a kilt.

THOMAS: Even if it is the best course in the world, will enough people want to come here and play it?

TRUMP: Well, I can't tell you that. I think the answer is yes. And all of the controversy is actually been good. You know, you can say what you want about controversy, but it does bring people. So, I think the answer is yes. But the good news is, I'm rich, so it doesn't matter.

I'm very much into having No. 1. I don't buy something or build something if it can't be, you know, the best or among the best. This is something that really can be something beyond all else. So, I look forward to getting started with it.

I know what they want, also, "you're fired," right? You ready?

(LAUGHTER)

(END VIDEOTAPE)

FOSTER: Alex Thomas, Donald Trump, part of the next version of "LIVING GOLF" which tees off this month in Scotland. See that on Thursday, 17:30 in London; 18:30 in Central Europe.

Now, the jobless rate hit a post-war high in the OECD countries in the first quarter. After the break we'll find out from Angel Gurria, the organization's head. He's worried that it will get even worse.

(COMMERCIAL BREAK)

FOSTER: Welcome back. I'm Max Foster in London. More QUEST MEANS BUSINESS in just a moment. But first let's check the main news headlines.

Baghdad has been rocked by a series of deadly bomb attacks. At least 33 Shiite pilgrims are dead and more than 100 others are wounded. The attacks targeted neighborhoods taking part in religious festivals. An interior ministry official says -- a ministry official says the worst attack was in a Sunni neighborhood in Northern Baghdad, where a suicide bomber killed at least 28 pilgrims walking to a Shiite service. Two roadside bombs in the city's eastern sector killed five other people. The bombings came despite heavy security in the area.

In other headlines, French President Nicolas Sarkozy is denying allegations his 2007 election campaign was financed with secret and illegal cash payments. Prosecutors are investigating claims Mr. Sarkozy received almost $190,000 from L'Oreal heiress Lilian Bettencourt. A woman identified as Bettencourt's former accountant says she prepared envelopes cashed for Mr. Sarkozy and his labor minister. Mr. Sarkozy calls the allegations a smear.

A French court has sentenced Manuel Noriega to seven years in prison. The former Panamanian leader was also fined nearly $3 million, with equals the amount of drug money France says he laundered through French banks. Noriega has already spent two decades and U.S. federal prison. His lawyer says he could apply for parole next year.

Well, relatives who lost loved ones in the 7/7 terror attacks are holding private memorials in London today. It is the fifth anniversary of the coordinated suicide bombings on the city's public transport system. Fifty-two people were killed in the attacks. Some 700 others were wounded.

The developed countries need to create 17 million jobs to get employment back to pre-crisis levels. That is the conclusion of the Organization for Economic Cooperation and Development. The good news is that unemployment may have peaked. The jobless rate hit a post-war high of 8.7 percent in the 31 countries of the OECD in the first quarter. Forty- seven million are without a job in the area today.

Earlier in this hour, we were talking about the European governments cutting public spending heavily and clearly putting jobs at risk if they do so.

Earlier, I spoke to Angel Gurria.

He is the secretary general of the OECD.

And I asked him if cuts in Europe meant unemployment will rise.

(BEGIN VIDEOTAPE)

ANGEL GURRIA, SECRETARY-GENERAL, OECD: This is a bit of a false dilemma. You cannot think about medium and long-term growth without dealing with the question of the deficit and the debt. What the U.K. have done very courageously is to recognize this and to say, OK, we're going to bring down the deficit, we're going to bring down the growth of the debt so that medium and long-term with good structural policies, we can recover growth and sustain it. Otherwise, the drag of the debt and the deficit will be a very great weight on your capacity to take off and sustain growth.

Now, this will cost jobs, in the short-term, yes, especially public sector jobs. But if you have a sustained growth in the medium and long- term, you'll be able to pick that up. Otherwise, you know, what you need is a new ballot. It's a false dilemma that you can choose the recovery or choose a fiscal consolidation as 100 percent choices. You have to do both, in a way.

FOSTER: But what are you saying about government policies generally toward the jobless?

Are you concerned that governments aren't caring enough, effectively, for the labor force?

GURRIA: I would have wanted to see this one time opportunity, which are those stimulus packages, to be more focused toward employment. And what we are saying is, yes, you're going to have to cut the budget at some point, in some cases sooner rather than later. But don't cut those things that are growth friendly. Don't cut the things that are going to sustain growth in the medium-term. Don't cut education. Don't cut research and development. Don't -- maintain the markets open, by the way, both for trade and...

FOSTER: But you have to get rid of the jobs because...

GURRIA: -- investment...

FOSTER: -- they're often the biggest costs, aren't they?

GURRIA: You have to get rid of some jobs, but you have to have a working, functioning government and you have to create the framework conditions that will give confidence to the private sector and to investors to create jobs in the private sector.

FOSTER: OK, so if there's any advice you can give to governments, what are you going to say to them?

If there's a government, for example, that has to halve a budget in a government department, that means half the jobs are likely to go.

How can they help the labor market in that situation?

They just have to get rid of the jobs, don't they?

GURRIA: Governments were never meant to be the ones who created the jobs. Governments should be well equipped to deliver the services that the public needs from them. But the -- the job creation has to come from the whole of the economy, from the private sector and from investors who are looking at opportunities. And those are the things that we have to focus on for the future.

The economies that the governments are going to be making, which may cost some jobs, in the short-term, are going to bring down the deficits. They're going to bring down the debts. They're going to create confidence. And that confidence can compensate for at least part of the negative impact of the cost cutting.

(END VIDEO TAPE)

FOSTER: As for the long-term worry, unemployment around the world. But in the short-term, it's all about soccer. It is a tense time for Spanish fans around the world. The world is watching as they take on Germany in South Africa.

But who will score?

At the Economic World Cup, these are live pictures. Tension mounting as we head into the first half.

(COMMERCIAL BREAK)

FOSTER: And the World Cup semi-final is underway right now in Durman -- Durbin. Germany is taking on Spain. Just a few minutes into the game, it is 0-0. The game is a rematch from the euro 2008 Finals. Spain won that game 1-0, impressing the football world with their style on the pitch. But Spain's game is a bit of a -- a roll reversal if you listen to the commentators. Spain has struggled in this tournament, losing their opening match to Switzerland, while Germany had been electric on the pitch with a young side.

And that's the actual on the pitch then, still, all play for, but who is leading in the Economic World Cup?

We know one thing for sure, Jim, it's a European country.

JIM BOULDEN, CNN CORRESPONDENT: Absolutely. And you were mentioning electrified on the -- on the -- on the -- on the pitch. I think you could say the same thing about Germany, as well.

Obviously, like most countries, Germany has suffered economically in the last couple of years, but we are going to see some growth in the first quarter. A jobless rate of 7.5 percent, more -- you know, higher than you -- you might think you might see in Germany. But certainly getting better. And when you compare that to Spain, of course...

FOSTER: Yes.

BOULDEN: -- look...

FOSTER: Twenty percent is rather the worst in Europe, I think it is, isn't it?

BOULDEN: Twenty -- 20 -- you know, 20 percent is really, really bad. Spain has some specific problems with the way the economy has operated. The fact that it had a housing bubble, so a lot of people were employed in the sector building houses and it was obviously a bubble and that burst. And that's made it very difficult for Spain, as well.

So in this case, it's interesting to be able to compare it to European countries...

FOSTER: Yes.

BOULDEN: -- as you say, not countries from disparate parts of the world. And, of course, the final will be two European countries, which also makes that interesting. So it will be an interesting comparison for those two, as well.

FOSTER: Yes. So what does that say about the Economic World Cup looking back that you have Europe, which is in desperate economic dire straits...

BOULDEN: Yes.

FOSTER: -- and they're actually ahead in the -- in the football?

Any comparisons?

BOULDEN: Well, everybody thought that, you know, you'd have a South American team in the final or, you know, that usually that -- no one thought it would be Uruguay, but I have to say, looking at the figures, I was most interested in Uruguay and Chile, actually.

FOSTER: Yes.

BOULDEN: Learning about those two countries doing the Economic World Cup.

FOSTER: Yes.

BOULDEN: We've seen the -- you know, that they're doing better, but we don't really maybe pay that much attention to what's happening there. But fast growing economies, not so high unemployment. A lot of it's feeding off of Brazil, of course, which you would have to say not only economically, but, obviously, in the World Cup...

FOSTER: Yes.

BOULDEN: -- in football, you would have thought would be here. And then if you could have compared Brazil to one of these countries...

FOSTER: Yes.

BOULDEN: -- Brazil might have been the best.

FOSTER: But does that fact perhaps reflect, you know, the fact that you have these European teams in the final, going into the final. It reflects that actually the South American countries are a good story, but still risky for investors.

BOULDEN: It is, yes. I mean, you know, we talked about Brazil as a place to invest as far as property goes. And it's interesting that Europeans are looking at that. Brazil, obviously, getting into the World Cup, the next one getting into the Olympics after London. So a lot of the tension -- tension is now focused there.

But it hasn't been that many years ago that we had default in -- in Argentina, you know, a huge inflation problems. We had the earthquake in Chile, of course. So there's always this kind of backdrop of, you know, would it come back to being bad again.

But right now, of course, things are going pretty well.

FOSTER: OK, Jim, thank you very much for all your work on the Economic World Cup.

BOULDEN: Yes.

FOSTER: It was just brilliant.

And if you keep up with that match that we were talking about with CNN on Twitter. Follow World Cup CNN on Twitter, the update from the semi- finals as they happen. There's only one left, so as it happens. And after the final whistle, we'll have reports, video interviews -- all at CNN.com/worldcup; also, of course, here on the TV networks.

Now, the East Coast of the United States is baking under a blistering heat wave, meanwhile. They haven't got a football team to watch either -- Jenny.

JENNY HARRISON, CNN METEOROLOGIST: Yes, that's true. That's true, Max. That's -- yes, it is a bit completely, as you say, boiling temperature. We've got some records that have been broken in the last 24 hours.

Let me start up by showing you the current temperatures right now. In New York, 37 Celsius. And we've got some other temperatures. It's a similar sort of level around the Mid-Atlantic. But of course, it feels warmer than that because of the humidity. So New York feels like 40 degrees Celsius. And you can see by the shading where the heat is in place. In fact, the heat is beginning to build across much of the South. Again, but here's some of the records that were broken on Tuesday -- or steps, I should say, of course, on Tuesday. New York City, 39 Celsius; Philadelphia, Pennsylvania, 39. The average, by the way, is about 28 degrees. So you can see why this is so significant. And also, remember that it might -- that might have been the actual temperature, but it was, in most cases, feeling warmer because of the humidity. And then also that heat, of course, transferring all the way up into Eastern Canada. So Ottawa, Montreal, Toronto and Quebec also really feeling that heat.

Now, the heat is going to stay in place over the next few days. There will be a little reprieve as we head toward the end of the week, especially in New York. Temperatures will be suddenly coming down. We've actually got a front on its way through. But even so, temperatures will still be above average by, really, about five or six degrees Celsius.

Toronto, the same sort of story, but it will be seeing a lot better there by Friday. The front reaches Toronto first. And you can see it here sweeping its way across the entirety of the U.S., but also across much of the central areas in the northeast -- the southeast, I should say, of Canada.

So that is what will bring some reprieve over the next couple of days.

Travel wise, if you're heading across to the U.S. or trying to get out, Chicago and Dallas, where we've got that line of rain showers and thunderstorms coming through, that could actually delay you just a little bit.

But guess what?

The heat is also set to build in Europe. This large area, you can see this clear area. That is where high pressure is dominant. And that high will be sitting in place over the next few days. And so the heat, of course, the hot air coming from the much hotter African continent. And so that is taking temperatures about 10 degrees above average.

Madrid, for the next few days, the heat, as I say, will be on and feeling a bit warmer. Now, this humidity not such an issue. But Paris, as well, the heat set to increase over the next few days. And eventually it will be pushing into Berlin, as well, certainly as we head into the weekend.

But there's rain showers in the northwest and we'll keep an eye on this, as well, Max, more rain, unfortunately, for Romania. But the heat is certainly the story.

FOSTER: OK. Jenny, thank you very much, indeed.

That is QUEST MEANS BUSINESS.

I'm Max Foster.

Thank you for watching.

Richard is back tomorrow.

But "MARKETPLACE AFRICA" starts right now.

END