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European Banks To Undergo Stress Tests To See If They Can Withstand Extreme Economic Challenges.

Aired July 8, 2010 - 14:00:00   ET


RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: Stressed up to the nines, Europe's banks are under scrutiny, but investors stay calm under pressure.

A World Cup final in the sky, KLM and Iberia scramble to get their fans to Jo'burg.

And Wall Street hedges its bets on Lebron James, which way will he go?

I'm Richard Quest. We have an hour together, because I mean business.

Good evening.

Two-thirds of Europe's banks are to be subjected to stress tests to try to make sure the financial system is shock proof in the future. If regulators find that it isn't, then government could ultimately have to pick up the pieces if the worst happens. And already some critics are warning the tests don't sound stressful enough to be meaningful. Some are also saying it is a bit late to be seeing just how bad the situation is after, of course, its all been sorted out.

The head of the European Central Bank, Jean-Claude Trichet, welcomed the exercise nonetheless.


JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: And the stress test, I would confirm, of course, to you that the ECB was pulling these stress tests to be as, I would say, well conducted as possible. And not only at the level of macro (ph) stress test, as had been envisaged since a long period of time. Bit also at the level of individual banks. And we were very happy when it was decided, by the European Council, that it would be done at the level of individual banks.


QUEST: President Trichet on the stress tests. The United States, of course, has already undergone its own stress testing of U.S. banks. And many have said that Europe was very slow at undertaking-but what exactly have they decided?

Come and join me in the library. This is how it is going to work. As they do it. It will be 91 banks that will be stressed tested. That is 65 percent of the banking sector. Now, the way you test it, you literally, I suppose like steel, put it under pressure. But in the banks cases, you create computer models and you give a variety of scenarios. So, for example, if GDP numbers were 3 percent lower than originally forecast; if sovereign risk, for example, you assume that they have to take a 16 percent haircut, as one scenario, on Greek government debt. And you also look at the so-called tier one capital. You put all that into a melting pot, and you see how the bank would perform in terms of non-performing loans.

What, of course, happens is major banks, particularly the U.K. banks, the large German banks, large French banks, they are expected to be OK, if for no other reason than they're national regulatory authorities have all ready put them through some pretty testing times. It is the smaller banks, even the lender's banks, like Caja (ph), in Spain. They could be the ones that will cause some trouble.

In the United States a rigorous stress testing led to an infusion of capital into many of the big banks, which in turn raised their tier one capital. Then net effect was believed to have been a success, if perhaps maybe something of a sham, it did draw attention to what was taking place.

My next guest, behind me, joins to talk about the question of whether the tests is suitable tough. Ralph Silver is with me from the Silva Research Network.

You don't like these tests?

RALPH SILVA, DIRECTOR, SILVA RESEARCH NETWORK: Oh, I love the idea of having tests. I don't love this particular set of tests. They are simply not strong enough. They are not covering enough financial services organizations. They are not the same across borders, so we can't compare banks from one country to the other. So they're flawed. The tests themselves are flawed. But the concept of testing I absolutely approve of.

QUEST: But which bit of it don't you like? Because at the end of the day the scenario is, 3 percent lower GDP, haircuts on bonds, all the things that are worrying the markets at the moment.

SILVA: Sure but the banks that are in most trouble are the smaller ones. Last year we lost over 100 American banks, and the vast majority of them were tiny banks, small ones.

QUEST: And none of them were of any systemic importance to the economy.

SILVA: And if we lose one or two I completely agree with you, but how about if we loose 10, how about if we loose 20 of them? Because there are a lot of banks out there that are still in trouble. And they are primarily the small ones.

And secondly, there is another issue is that the regulators are in the banks like paint on walls. They already know what's going on. This is not a surprise to the regulators themselves.

QUEST: But you'll agree that if you take the U.S. example, Citi got recapitalized, Bank of America, got money. And everybody, admittedly leading up to the stress test, so by the time they got to the final line, they knew what was happening.

SILVA: And that is exactly what is happened here. We've seen a lot of money going into banks very quietly. And that is exactly the way it should be, because we cannot afford to have a problem with the banking industry right now. It is the only way that we can get money into the economy, we need to keep them alive, we need to keep them going.

QUEST: If we look at the European bank stocks, at the moment, you can see how they performed during the course of the day. It was-look, you can't argue with the market. Lloyds up 4 percent, Deutsche up 3 percent, Dexia, Credit Suisse.

SILVA: Well, Trichet would not have focused the attention of the world on the bank stress tests, if he thought the banks were going to fail. It is very simple, is that the traders know that the banks are going to pass this, by and large. There is going to be some sacrificial lambs. But by and large, they are going to pass, and that is why the market is buying in.

QUEST: If you are right, then this is a deeply cynical and a waste- of-time operation?

SILVA: It is a waste of time right now. We need the concept of stress testing. We absolutely do and we should have it. But after somebody breaks their legs, you don't make them run a marathon. And that is the problem with the banks now. They're hurting, we need them to recover. And then we need to test them from there, that moment onwards.

QUEST: When we look at the banks, at the moment, there is still a hording of cash. We are still seeing a liquidity problem-and a capital problem in the market.

SILVA: We're seeing problems everywhere. But that's-

QUEST: Very weakened as a result.

SILVA: They are slightly weakened. There is lending going on but not all lending is created equal. They are not lending to entrepreneurs or now businesses that actually hire people. They're lending to securitized areas, big organizations, that don't really need the money, but they're taking it because it is cheap money. We need to change their focus.

QUEST: Finally, I just want to talk about a story yesterday. The parliament, the European parliament has approved a cap on bonuses. It has approved a regulatory framework. Is Europe about to shoot itself in the foot or lead the way?

SILVA: It's going to shoot itself in the foot, quite frankly, if you put a cap on bonuses. Or if you actually regulate bonuses at all, where does this road lead us? Does it mean that every privately held organization is going to be subject to government regulation? And that is a slippery road we absolutely don't want to go down.

QUEST: Ralph, you and I will talk more about this in the future. Many thanks, indeed.

Now, the growth (ph) surrounding the banking sector, those numbers that you just saw, the major banks up 2, 3 percent, even 4 percent, not surprisingly the European stock markets roared. Banks were the top performers in all the major bourses. The FTSE obviously has a much higher percentage of banks within its realm, which is why at it went up 1.8 percent, along with the mines and the commodities-positive news around, all around.

The International Monetary Fund raised its global forecast. There were some encouraging numbers on the U.S. employment claims. The Bank of England and the ECB, both kept borrowing costs on hold, record lows, banks were the top performers.


Now, in the U.S. markets at the moment. There you are, the Dow Jones up 37 points. Over 10,000, I won't say comfortably, we're obviously there overnight. But it seems to be holding it at the moment. The stocks are clinging to the gains that they saw in the previous day's advance.

OK, when we come back in just a moment we'll turn our attention to the economy. Things may be getting better but it can't mean we relax. The chief economist of the IMF will tell us about the hidden dangers lurking among the green shoots of recovery.


QUEST: The world economy's recovering faster than expected, so says the IMF. On the surface it new survey of global growth is pretty upbeat. Raising the worldwide forecast for 2010 to 4.6 percent from an earlier estimate of 4.2 percent. That little bit, 0.4, makes all the difference. Scratch the surface of the IMF and the message is this: You take such a rosy scenario for granted at our peril. It is warning risks are rising. The chief reason is the familiar and the size of government deficits in the Euro Zone. The fund said there is a danger banks will be less willing to lend, and they're worried that government's huge debts will destabilize the system. At the same time, consumers will save rather than spend, and businesses unwilling to invest. All the while the public sector slashes its expenditure.

The priority, says the fund, is to rebuild stability by getting some discipline back into the government finances, make sure banks are soundly capitalized-sounds like what we've just been talking about-thus ending the uncertainty over financial reform. Andrew Stephens spoke to the IMF's Chief Economist Olivier Blanchard.


OLIVIER BLANCHARD, CHIEF ECONOMIST, INT'L. MONETARY FUND: Our baseline doesn't have a double dip. It has a bit of a slow down, but no double dip. Now, can a double dip happen? Some of the downside risks that you mentioned, could materialize. Europe could have a very serious financial crisis, and fiscal crisis, in which case Europe might well have a double dip. If Europe has a double dip then the rest of the world might as well.


QUEST: Olivier Blanchard. On this program we're looking and holding the great economic debate. Is it time for governments to cut spending to sustainable levels, or stimulate their economies for all their worth (ph)? The growth versus austerity argument; we've heard from some of the world's most influential voices. The Nobel prize-winner, Paul Krugman, is an advocate of more government stimulus. Terrified the whole thing is going to go down the toilet. Harvard Professor Ken Rogoff, a former chief economist at the IMF, said prudence was the order of the day. And Joseph Stiglitz, another Nobel-winner, and a former economist at the World Bank, agreed. And we had Olivier Blanchard on where the IMF stands on the great debate.


BLANCHARD: Well the IMF view is fairly clear. It is that there has to be fiscal consolidation, we cannot continue with the deficits we have. But it should be done in what we call a credible medium-term plan. Which is a plan which basically takes many years to achieve stability of debt to GDP ratio, and then decrease. But the important point is we think that front-loading might be counter productive.


QUEST: Stephen King is the global chief economist from HSBC.

Good evening, Stephen.


QUEST: All right. Where do you stand on this great debate? Is it too much austerity all at once in the system? Or should there be more growth.

KING: I think that we should have more prudence over the course of the next couple of years. The main problem is that debt levels are far too high, in the Western world. We've been living beyond our means for a number of years. The good news about the stimulus over the last couple of years is it avoided the worst possible outcome, which was a Great Depression Mach II. You shouldn't jump from that to just so you can have a rebound to growth in the normal way over the course of the years ahead.

QUEST: Your latest global forecast, global economic review.

KING: Yes.

QUEST: I mean, on the one sense, you don't see double dip?

KING: No, we see actually, a kind of-

QUEST: Strong growth, relatively global strong growth. But it is so desperate between emerging markets and advanced economies.

KING: Absolutely right. The imaginations have been pretty well. There are some worries about China slowing down, but the truth of the matter is emerging nations have not got the debt developed nations now have. In fact, they have almost had a role reversal over the course of the last years. In the old days we used to think of the emerging nations having all the debt and the developed nations not having so, going (ph) back (ph) to the reverse.

QUEST: Are we in danger though? If we just have two or three years of sub-par or just par growth, what is so wrong with that?

KING: Well, the answer in one sense is not too much, because if we had avoided the Great Depression Mach II, that is extremely good news. The big challenge of-

QUEST: You don't look very at the prospect.

KING: I don't look too cheerful, but the truth of the matter, if you borrow too much you have to go through a period of austerity. And in one sense, if you don't do this and continue to rely on continuous increases in budget deficits, you end up with a Japan type situation. But increasingly the economy becomes socialized without any kind of private (ph) risk-taking at all, and you end up with large budget deficits and continued stagnation.

QUEST: We constantly hear this reference to Japan and which, of course, the way they handled their debt crisis, and then ended up with a lost decade.

KING: Yes.

QUEST: How realistic is that?

KING: Well, in one sense we are worse off than Japan.


KING: Japan's economic losses in the first two or three years of its crisis were actually much more modest than what we have seen in the Western world.

QUEST: Right.

KING: And moreover, Japan didn't really stimulate its economy in the way had done in the West. So, actually we've done a huge amount of stimulus and not much in the way of a result.

QUEST: Of all the advanced economies, which is giving you most concern at the moment?

KING: Oddly enough, I would say it is probably the U.S. and the U.K., because at least in the Euro Zone there has been an attempt to try and deal with its excessive budget deficits. In one sense it is a dress rehearsal for a bigger global problem, which is that the U.S. has borrowed far too much and will have to grapple with its own austerity in the next two or three years, and hasn't even got that political debate at this stage.

QUEST: The MPC, the Monetary Policy Committee, which of course is in the U.K., and the ECB, they both say inflation is not a worry at the moment. And to a certain extent they are right, when you've got such low levels of growth. But do you fear that there will be a bubble of inflation that will roar forward once growth picks up? Or am I just being naive to the point of-

KING: Well, there are some concerns about inflation in certain parts of the world. The emerging nations have done pretty well, they rebounded, and possibly might get some more inflation there.


KING: But the truth of the matter is that in the Western world, low bond yields, and very, very weak money supply growth, a lot of deflation pressures currently, lots of austerity. Chance of inflation coming back anytime soon, I would say it is very, very low indeed.

QUEST: In other words, Quest, you're talking rubbish.


QUEST: But you are far too polite there to put, there, to put it in such blunt terms.

You know how this thing works? The traffic lights?

KING: Uh-huh.

QUEST: If we take-take your global-take your global review, your global economy.

KING: Yes.

QUEST: That you just published. And give it a red-I mean, not mark your own words, for the global economy, red, amber or green?

KING: Red, which means a very worrying kind of double dip kind of a scenario?

QUEST: Very worrying and let's all go ahead and-

KING: I would say it is amber at this stage, not completely disastrous.

QUEST: Oh, OK. We'll give you an amber. Stephen King-Stephen D. King, your latest book is "Losing Control: The Emerging Threats To Western Prosperity".

KING: That's right.

QUEST: Many thanks indeed.

KING: Thank you very much.

QUEST: Thank you for joining us.

Now, on Friday, on this program, we'll get the view of the Harvard Business School professor, and historian, Niall Ferguson. And we'll get his take on the question of whether to slash or to spend? That is right here, at this time tomorrow.

When I come back in just a moment, Spain versus the Netherlands. Now it is not the confrontation on the football pitch. It is the one happening 10,000 meters above it. Who will win, KLM or Iberia? In a moment.


QUEST: The World Cup will be in Europe. We know that much. And on Sunday it will be either Spain or the Netherlands that will lift the cup for the first time. You don't have to be Dutch or Spanish to appreciate a huge occasion and a momentous moment, if there was any other type.

Spain are through after beating Germany on Wednesday. With its scoring chances throughout the match. The only here was at the 73rd minute. The hero was the veteran defender Carlos Puyol scored the winner with his head. The day before the Dutch beat Uruguay, 3-2, and secured their spot in Jo'burg on Sunday.

If I say AMS, MAD, JNB, well, I'm talking, of course, about the various airports that you might be flying through to get to the World Cup. Iberia of Spain, and KLM of the Netherlands are limbering up on these routes, because they are in high demand from where they fly. If you can see, Amsterdam down to Jo'burg, Madrid similarly. Both airlines fly their respective national teams. And this week the onus is on getting as many supporters to South Africa as possible. They want to cheer their boys on. It could also mean a windfall for the airlines.

Iberia says its passenger numbers to South Africa have tripled, tripled. They usually have five flights a week. They now have 10 and they're using larger aircraft. KLM has four new flights that it has put on for the final. It would like to add even more but of course, it is the summer season and it can't get the planes. Earlier I spoke to Silvia Cairo, the senior vice president for international sales at Iberia. And asked her how the airline has been coping?


SILVIA CAIRO, INT'L. SALES, IBERIA: We've been supporting out team. Not only in the final, but even before. In July, June-July, we have multiplied by three our offer. And now, after they won yesterday, we plan several additional flights. At least four of them, and we are prepared. And we are looking at the demand, if it is growing then we would be able, even to increase the four special flights we have already in place for tomorrow.

QUEST: Silvia, I've looked on line, I cannot get a flight, if I wanted one, a non-stop flight from Madrid to Johannesburg. So you may need even more planes.

CAIRO: Yes, more planes. And it is quite easy. I mean, if you are willing to go even from London to Johannesburg, and to see the match, the final. Just entering out Web site, but do it quickly, because for sure there is a lot-a big demand, and everybody wants to go to Johannesburg. Have you raised the prices, because of the extra demand?

CAIRO: Well, there are a large opportunity and short of prices. So, you can get, and depending on the conditions, those that are a little bit lower and those that are higher. But even we have proposed 100 reduction, 100 euros reduction, for those passengers who are traveling either tomorrow, or the day after tomorrow to see the final.

QUEST: So you are helping people a bit. Now, if Spain wins the World Cup will Iberia, will you be flying the cup home?

CAIRO: Well, we are actually the official carrier, transporting our national team. And actually we are-they will find a big surprise when they will entering the flying and we hope, with the cup, and a lot of cover waiting for them, also. But some other surprises that they could not expect until now.

QUEST: OK, finally, Silvia. How many people do you think extra, or have you got any idea how many people extra you will have to fly from Madrid, or from any of the Spanish airports to-to South Africa?

CAIRO: Well, let me tell you something. Not only from Spain. Actually, Iberia is the leader in the Latin American traffic from Europe to Latin America. And since the Monday (ph) it started, we have transported not only Spaniards, but also a lot of supporters of the Spanish teams that they are around Latin America. Especially, Mexicans, but also-and even some Argentineans, that they flew with us, and they will fly also this weekend, because they want to see the match, Spain against Holland.


QUEST: Now we wouldn't be fair and even if we didn't speak to the other side. Well, Bram Graber is the SVP at KLM in the Netherlands. And I asked him if they realized when they were doing their capacity planning for summer 2010 they would need more 747s for Jo'burg.


BRAM GRABER, SR. V.P., KLM BENELUX: Great that we are in the finals, here in Netherlands.

QUEST: And there is simply still not enough seats to go around, are there?

GRABER: No, but coincidentally also the day that most people go on holiday, but flights from the Netherlands, so a lot going on has ripped current schedule and the current commitments. But they have been able with the flexibility of our staff to speak up for extra flights. And that means, 1,000 people, additional to Johannesburg.

QUEST: Did anybody ever suggest in meetings to start canceling a few other flights to try and get as many seats as you can down there?

GRABER: Well, we're pretty much trained on running a schedule. That is kind of airline we are, and of course in terms of events like Olympic Games, we organize and plan for it. But I must say last week it was quite hectic here, in the high season to get these extra flights organized.

QUEST: And what about-

GRABER: Everybody moderated.

QUEST: And what about putting the prices up. Because any extra capacity now to Johannesburg, you can charge and arm and a leg.

GRABER: Yes, on the other hand, I forget everybody is watching so we have asked our regular fairs to Johannesburg, or even sort of a low season fair because we don't think this is the moment to squeeze the market. I mean, we run the airline for 365 days a year. We should do that properly and not just this one day, and ask double rates. That is not what we do.

QUEST: All right. So, a prediction on the score then; go on. I'll allow you a free shot. A prediction on the score.

GRABER: Oh, there will be a lot of goals I think, because both teams like to attack but in the end it must (UNINTELLIGIBLE), I would say.


QUEST: Well, I'm not getting involved in what the score is or is not likely to be. German fans who listened to Paul the Octopus, knew better than to book flights to South Africa for the World Cup final.



QUEST: Paul may be smart, he's slow. This is sped up footage of his Tuesday prediction. Given a choice between boxes containing food and a German or Spanish flag, he choose the Spanish, for Spain. Paul has correctly predicted the outcome of all six of Germany's World Cup matches. His last forecast didn't go over too well with German fans.

OLIVER WALENCIAK, OCTOPUS TRAINER: We take a little bit more care about our octopus than before because there are quite a lot of visitors who want to kill and to eat him. And yes, we have always some staff here on the-close to the octopus.


QUEST: Some people hate Paul. Others love him for selfish reason. They are using Paul's predictions to place bets on the World Cup. Now for odds makers this is a first.


GRAHAM SHARP, SPOKES FOR WILLIAM HILL: Still, people are believing what is going on and think they've at last come up with an infallible system to beat the bookmakers. And after the match when Spain beat Germany, as predicted by Paul the Octopus, we immediately put out the price of even money, that is one to one, that which ever selection he makes in the final will prove to be accurate. And we took so many bets for that being the case that we've already had to shorten those odds, from even money from 10 to 11. That means if you put $11 on or 11 euros, you'd make a profit of 10. So a shade on the one to one. And it is quite phenomenal.


QUEST: A few facts on octopus intelligence. The octopus and other cephalopods-I'm sure I'm pronouncing that wrong-have the most complex brains of any invertebrates. An octopus brain has 50 to 75 lobes and around 100 million neurons. Don't get excited. That is about the same as a mouse. But an octopus also has smaller brains in each of its eight arms. In captivity they've been known to navigate through mazes and seem to remember past events. And one species of octopus is known to use tools, that is, coconut shells as protection.

And the plural of octopus is? Well, you can look it up, as well.

It is Black Thursday in Greece as strikes begin, transportation, commerce and tourism to a grinding halt. Thousands marched on parliament. In just a moment we'll have the details.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN, where the news always comes first.

And our top story tonight, a cold war style spy swap that might be about to happen within hours. Ten suspected Russian spies are expected to appear in a New York court on Thursday afternoon and sources are telling CNN they could be guilty -- so one charge against them and then be swiftly deported. In exchange, Moscow is reportedly considering releasing some Russians convicted of spying for the United States. Reports say one of them was released from a Moscow prison and has already been sent to Vienna.

New terror arrests in Europe. Three men with alleged links to al Qaeda have been picked up in Norway and in Germany. The Norwegian police say the arrests are in connection with an ongoing investigation into terror plots in New York and in Britain.

A former British officer in the army has been released from a prison in the Afghan capital. William Shaw was convicted of bribery in April and sentenced to two years behind bars. He was acquitted on Sunday. Shaw was working for a security company at the time of his arrest. He's forbidden from leaving Afghanistan until July the 24th, to give the prosecution time to appeal. Shaw says he misses his family, but he doesn't miss his life as a prisoner.


WILLIAM SHAW, FORMER BRITISH ARMY OFFICER: We're moving around, you know, without chains on and going more than 20 paces every time you want to do exercise. And -- and, obviously, I miss my family tremendously. I'm looking forward to seeing them the most.


QUEST: You can hear more from Bill Shaw. "WORLD ONE" is with Fionnuala Sweeney. That's 8:00 p.m. London time. That's around 20 minutes from now.

Thousands of people in Greece have taken to the streets and they're protesting against proposals to reform pension rules. Thursday's strike shut down Athens International Airport and air traffic controllers joined the dispute. Whether it was ferries or public offices, all were shut. Workers in parliament were also striking, leaving a skeleton staff on hand for the controversial pensions debate over raising the retirement age to 65.

The sixth general strike since the government embarked on its austerity drive in February to rebalance the finances. The turnout for today's march was smaller than the 50,000 assembled in May, the biggest protest so far this year.

For more on the dispute now, on the line from Athens, Elinda Labrapolou.

Elinda, just give me a thumb net -- a thumb sketch, if you like, of how badly was -- was life in Athens and life in the cities affected today.

ELINDA LABRAPOLOU: Well, it was quite difficult to get around Athens, first of all, because there's no public transport of any kind. It's been difficult to do anything, simply because all the government offices are shut.

As you mentioned, the hospitals are all operating on skeleton staff. So basically it's just been one of those days. It's been very hard to get around or do anything in Athens, which has frustrated a lot of people, it being the sixth time that we get this this year.

QUEST: Now, the tourists that we've spoken to say that they didn't really notice much affect in the islands and in the resorts. So, to that extent, how successful is this -- is this industrial action being, do you think, in changing the government's mind?

LABRAPOLOU: Well, first of all, today's demonstration was a lot smaller than anything that we've seen until now. The official numbers have been put up to about 10,000 to 12,000. Some of people who were there said the numbers were considerably smaller. So there's certainly an impression that things -- that things are...


LABRAPOLOU: -- you know, that the measures are going to be voted in and there's not very much that people can do by now. So, in a way, they have given up in that sense. So they're not protesting as much.

In the islands, in the countryside, in the resorts, things are calmer. The -- the capsule has been mainly affected. What's been difficult is getting to and from the islands because the ferries have not been allowed to...

QUEST: So...

LABRAPOLOU: -- to leave port. And the same goes for many of -- of the planes.

QUEST: But let's just talk about this for one second. The -- the way in which this has been -- this dispute is taking place, at the same time the finance minister says that Greece is doing better than expected in terms of cutting its deficit, that the plan -- as you have seen the reports -- he says the plan is going accordingly and therefore will not be changed.

LABRAPOLOU: Well, the plan is to be voted in -- is being voted in tonight, the austerity measures. They are mainly about the pension reforms, which affect a lot of people. And there have been amendments along the way. The government seems to think that these measures are necessary to help the country get out of the crisis.

This obviously does not mean that improvements have not been made, in the meantime.

QUEST: Right.

LABRAPOLOU: The E.U. interim report has given very good results to Greece. But it is saying that Greece needs to do more and this is what the government is focusing on now.

QUEST: Finally, the ob -- the object of this whole recessionary exercise, if you like, is to make Greece more competitive. And that can only come about through lower wages and lower prices.

Elinda, as you go about your daily life in Athens, buying your coffee and your croissant or whatever, are you seeing lower prices yet?

LABRAPOLOU: Richard, this is something that everybody has been talking about in Greece. So far, no, we haven't seen very much of that. We expect that it's the next step, probably something that we are going to see after the summer -- lower rents, lower prices, you know, all kinds of reductions.

But, no, so far we haven't seen very much of that yet.

QUEST: And you and I will talk about that as we go through the rest of the year.

Elinda, many thanks for joining us from Athens.

Now, we've alluded there to the discussion about the tourists and although the real thing was out of bounds for many tourists who were hoping to head to Greece today, the Mediterranean atmosphere has been recreated in Central London. It's all part of a plan to try and encourage tourists to go to Greece.

Well, Ayesha Durgahee went to sample a Greek beach in London for herself.


AYESHA DURGAHEE, CNN INTERNATIONAL CORRESPONDENT (voice-over): With 400 tons of sand, the south bank by the River Thames was made to look like a Greek beach.

UNIDENTIFIED FEMALE: This is amazing. We are in the heart of London and we can take something of this.

UNIDENTIFIED MALE: I think it's enchanting. I'm -- I'm just -- I'm strolling down the river and all of a sudden there's a beach out of nowhere. It's interesting Greece. It's lovely.

UNIDENTIFIED MALE: This is good. This is trying to present a -- a more favorable view.

DURGAHEE: And that's what Greece is banking on -- to drum up some desperately needed business. According to Orbitz Worldwide, after raising room rates by 30 percent, hotel bookings in Athens for this summer dropped 500 percent compared to last year. Pamplona in Spain, instead, lowered room rates by 30 percent and has seen a 100 percent increase in bookings. The same goes for Naples, with 81 percent more people booking into a hotel.

SIMON CALDER, TRAVEL EDITOR, "THE INDEPENDENT": I think a lot of people, particularly from the very important British, Irish, German, Dutch markets, are going to say well, you know, the scenery is much the same, the sunshine is much the same, so why would we go to Greece when other, cheaper places, maybe like Turkey or Croatia, are available?

DURGAHEE: Some travel professionals say that Greece has taken tourists for granted, relying on its high prices, riding on a strong euro.

NIKOLAS KANELLOPOULOS, PRESIDENT, GREEK NATIONAL TOURIST ORGANIZATION: It's not always a matter who are the cheapest, but who are the best. And we -- we would have liked to invest in this and, yes, we're not the -- maybe the cheapest country in the world, but the people that -- and the tourists that we would like to get to Greece, they know that they can find everything in Greece -- a great experience. And for that experience, maybe it costs a little bit more but they deserve it.

DURGAHEE: For Greece, this is not a time for complacency, to bask in the past of being a top holiday destination. Instead, say financial experts, it needs to reshape its economy and resell the country properly to do all it can not to let their tourists go and slide to rival destinations.

Ayesha Durgahee, CNN, London.


QUEST: In a moment, basketball superstar, LeBron James, has a big announcement just a few hours away. Where he's going, no one knows. One thing is certain -- a slam dunk, that is certain, that King LeBron's stature as a sports legend is sealed.


QUEST: Now, you can call it what you like, the intersection of sports and the stock market -- shares of Madison Square Garden, the owners of the New York Knicks basketball team, rallied 6 percent on Wednesday. It was all because of the speculation that LeBron James would choose the Garden as his next and new professional home. MSG's shares are down this session on fears that New York is out of the running.

The latest buzz says James, the most valuable player in the NBA, will choose Miami when he makes his big announcement on Thursday night during a live prime time extravaganza.

One thing is certain, LeBron James's profile is on the rise thanks to a string of savvy marketing moves.

Maggie Lake is in New York.

Good evening to you.

I suppose for those of us that might not be as au current with Mr. James, you're going to tell me why we need to know about this.

MAGGIE LAKE, CNN CORRESPONDENT: Richard, first of all, we love the way that rolls off your tongue. And, clearly, you and I are in the wrong profession, but we already knew that, right?

Look at the list of cities lining up to stuff LeBron James with millions of dollars.

Why are they doing that?

Because they think he has the ability to bring in even more revenue.

The frontrunner, as you mentioned, right now, Miami -- $270 million is the estimate of what he could bring into the city; Chicago and New York could stand to gain even more.

But they're not the only ones, these cities, that have a stake in it. Let's talk about what's in it for LeBron himself. No wonder he has a big smile on his face. He is -- this deal potentially could really secure him up in the top global earners -- sports earners. Let's take a look at some of the company he stands to share with.

Tiger Woods, of course, top of the list, $105 million; Floyd Mayweather, a boxer; Kobe Bryant, his colleague, although who's in the news; Federer. I mean these -- these people are raking in millions and millions as you can see.

Interesting with LeBron, if you take someone like Mayweather, this $65 million he makes, that's pretty much just his earnings. It's from his matches. When you talk about everyone else, though, it's not just what they're going to get in that contract or their salary, it's the endorsements. And this is where tonight becomes very important.

Right now, LeBron stands somewhere in between Federer at $43 million and his rival here, Kobe Bryant, at $48 million. He's right up there. But the way he handles tonight's event -- the media attention, the media frenzy around it, could really put him in a different league.

Have a listen.


JENNIFER KARPF, NATIONAL SPORTS MARKETING NETWORK: How he talks about Nike, what he's wearing, what he's drinking, you know, the -- the brand of water at the table, I think the whole setup will really, you know, lay the path for future sponsorship and future thinking about him, about his brand. You know, he's a very, very savvy marketing person. He's got very smart people around him. And he's building a tremendous brand.


LAKE: Richard, this has been orchestrated to the T. It is unbelievable the frenzy leading up to this. Remember, this happens every year. Free agents come and go. We haven't seen anything like this before.

QUEST: Maggie, I'm not -- this is a business program, so you and I are well versed in the capitalist, free market economies and we're not going to have a discussion about is it right that a sports person gets paid hundreds of millions. But it is fascinating the way in which you can market the individual to maximize the revenue reward.

LAKE: That's absolutely right. And -- and the interesting thing about this, too, is how that marketing game is changing. One of the things that the experts and others are talking about is the plu -- the role that social media -- social networking is playing in this. And, you know, LeBron joined up on Twitter right at the peak of all of this controversy...

QUEST: Right.

LAKE: -- all this speculation about where he'd go, instantly had about a quarter of a million followers. And the fact that they have direct access to the audience now has allowed him to set up this deal where he gets an hour prime time special to make the announcement.


LAKE: And he said to ESPN, I'll give it to you, but you're going to give me all the money that you're going to get from that hour and I'm going to give it to my charity, a move that not only gains him respect with the endorsements, but gives him more control over his brand. So you are right, this is rewriting the rules of sports marketing.

QUEST: Which team does he go to, finally, briefly?

Which one?

LAKE: I think maybe Miami. I think -- I think the buzz might be right. But we're holding out for New York, Richard.

QUEST: Hey, listen, I'll ask -- I'll ask Paul the Octopus. Let's face it, we are -- talk about going to the...

LAKE: That's exactly who I meant.


LAKE: That's exactly what we're talking about before. He's -- he's probably the only one who really knows aside from LeBron himself.

QUEST: Oh, listen, who knows what's happened to this program tonight, between Maggie and their baseball or basketball, Paul the Octopus, I -- it's time to take a look at the weather forecast now.

And let's go to Pedram Javaheri for the weather at the weather -- at the meteorological office.

PEDRAM JAVAHERI, CNN METEOROLOGIST: Yes, Richard, of course we're talking about what's been happening in the tropics the last couple of days. And really a storm system that has been unorganized. We're attracting this because, of course, the areas within Monterrey in Mexico and, also, Tampico Mexico, in Northern Mexico, is seeing significant rainfall, all of that associated with Hurricane Alex last week. And now this storm system considerably weaker. It didn't even make it to a tropical storm. It made landfall just a couple of hours ago. And right now, producing significant rainfall right up and down the coast toward portions of, say, Corpus Cristi into Brownsville, Texas. And that's really the area of concern with this storm system, because they've picked up upwards of 600 millimeters as of last week in Monterrey. That's about an average of annual rainfall for them.

But take a look. The next 48 hours, I think about five centimeters in that area and also within about, say, Laredo boundaries, between Nuevo Laredo, a lot of concerns here with flooding and also, say, toward some of the reservoirs where they had the highest water levels since 1971 in some spots.

They're going to pick up about 3.5, 3.8 millimeters of -- centimeters of rainfall here over the next couple of days.

Tampico also picking up a little over 8 centimeters of rainfall.

So, again, nothing compared to what Alex brought, but, of course, any rainfall, when you have significant rain, as of the last week, is going to cause concern.

Now, take a look at this -- record heat across the Northeast fortunately going to come to an end here over the next couple of days. Temperatures in Philly making it up to 39 degrees. Ottawa, toward Canada, Montreal, Quebec, temperatures in the mid-'30s. And, again, some cooling in the forecast. New York had their first 39 degree temperature since 2003.

I liked it a little more. Twenty-nine degrees on Friday and it stays rather mild, a little warm here, but this time of year, average temperatures are 28 degrees for New York City, so that's the good news. And the setup, you know, generally speaking here, we had high pressure offshore. We got a southerly flow. Not only was it hot, but it's been muggy.

The good news -- a cool front begins to push in here. A northwesterly flow behind this and we get cooler temperatures. Those temps getting back down closer to seasonal values. But some of the coastal locations and farther south are going to stay rather hot here in the next couple of days.

And quickly, we want to talk about Europe, because they're dealing with some extreme temperatures across portions of, really, the heart of Europe getting high temperatures with the same reason here. High pressure developing and expanding over the next couple of days -- so, Richard, we're looking at temperatures about 10 degrees above the seasonal values. And Madrid, they're celebrating out there in Spain, but the average temperature, 32; shooting for 38 degrees to 39 degrees in the next couple of days -- Richard.

QUEST: All right. The Netherlands or -- Netherlands or Spain, are you prepared to come off the fence on that one yet?

JAVAHERI: I think so. Yes, I'm going to go with the Netherlands. Yes.



QUEST: All right.

JAVAHERI: I think the high pressure...

QUEST: All right...

JAVAHERI: -- is expanding a little farter toward the Netherlands. So we're going to give them the -- the match.

QUEST: Well, that's a...

JAVAHERI: Make it a weather correlation.


QUEST: We've got Maggie with the basketball; we've Paul the Octopus; we've now got you with the weather.

Who knows, by the end of the week?

All right, when we come back in just a moment, the human body becomes a human canvas -- amazing body art is ahead as a tattoo artist reveals her trade secrets as part of her own World At Work.


QUEST: There are hearts, those odd Chinese symbols that no one's ever quite sure what they mean, the names of lovers -- former, past, present and future, and even the occasional skull and crossbones. And then, of course, there is tattoo art, which is taken to the next level.

A London-based artist tells us how she does it in today's World At Work.


NIKOLE LOWE, TATTOO ARTIST: And when I first started, I remember those little Celtic bands and all, you know, then it moves to tribal and what have you. But now, Japanese is very popular. It's always been very popular because it really does make the body look nice and it's always worked to the contours and stuff like that.

I think a long, long time ago it wasn't really as artistic as it is now. But there's really some very clever people out there that can do some crazy things that you just wouldn't think were possible. They can make tattoos. Like when I started 20 years ago, you wouldn't believe that -- that they can do that, you know?

Well, here, we only do custom work, so it is all one art pieces, you know?

Everything that comes in is -- or everything that walks out is something that, you know, one of us has created from our heads, you know, or from some reference.

They don't always come in with a fixed idea, you know?

They're always quite lenient because they -- I think they trust you. They've done a lot of research and they've found someone that they like. And then they, you know, the best thing is, is to trust the artist and then let them have a little bit of freedom and then you're going to get a better piece of work, you know.

Sometimes their ideas might be good on paper, but to actually put it on your skin, it's not going to look good or it's not going to age very well. You know, it might just be more of a fad rather than something that's going to grow with you. Because you want something that can age well with you, as well, you know. You want to still really love what you've got when you're older.


LOWE: I'm good.

And you?


LOWE: Would you like something to drink, honey?


LOWE: Yes, you do, you get to know them and kind of become quite good friends with them. And he is really nice. I like that. That's -- that's what I like the most about the job, I think, is that you do get to talk to your clients and it's -- you know, you get to have a rapport with them and sometimes they do become really good friends.

The work we do is quite big so that you don't -- it's not finished all in one session, you know?

So they come in here once a month or something. So it can change. It does -- it does grow. It changes, you know. It can change. You can have this picture at first, but then sometimes you might get a better idea halfway through and then it just evolves into what it becomes. But they last forever, so anything you can buy these days, it can last forever.

So one half price. More like a (INAUDIBLE) shave.


QUEST: Absolutely fascinating.

And I'll have a Profitable Moment in a moment.


QUEST: Tonight's Profitable Moment.

There is something delicious about the story of Paul the Octopus and its so far infallible way of predicting winners in the World Cup games. We all desperately want to believe that an octopus has the superpowers to divine the results of 22 men running around a football bench for 90 minutes plus.

And why not?

Think about it -- if Paul is good at this predicting business, then there's a future in forecasting just about anything and anywhere where the outcome is unknown.

oh, yes, yes, yes, we could have Paul predicting the markets. We could end up with the PTO, the Paul Index, giving us a better direction than any mere economist, chartist or, indeed, any technical analyst. They could all hang up their charts and slide rulers. PTO -- Paul the Octopus Index will show us the way to riches beyond the dreams of avarice.

And it is wrong -- calamari for dinner tonight. Whatever happens, we'll win.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest.

Whatever you're up to in the hours ahead, I hope it's profitable.

"WORLD ONE" with Fionnuala Sweeney is now.