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Europe's Worst-Hit Economies; Panel Investigating Cause of BP Oil Spill Releases Surprising Findings

Aired November 9, 2010 - 14:00:00   ET


MAX FOSTER, HOST, QUEST MEANS BUSINESS: On borrowed time, Europe's worst-hit economies and new fears through the markets.

Pointing the finger and not just at BP, the blame game for America's worst oil disaster takes a new turn.

And three continents, three CEOs, three success stories: It is time to introduce you to "The Boss".

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

Hello to you.

Europe's periphery is again front and center and the maths just don't add up it seems. Those countries owing the most are facing record bills for borrowing as investors freeze out Europe's most indebted countries and at the heart of the matter is a deficit of trust, a credibility crunch. The situation is volatile and the clock, it seems, is ticking.

Ireland, the EU commissioner Olli Rehn supports Irish plans to cut debt. And government plans are to save nearly $21 billion in four years. That includes an $8 billion budget cut in 2011. It depends on the passage through Ireland's parliament of all the legislation and it is not a done deal. Irish borrowing costs are now about 8 percent, by the way; 5 percentage points more than Germany pays. And it gets Ireland deeper into debt. And it is a sign of a fear of default as well.

It is about Portugal and banks protesting there over steep downgrades by the credit rating agency, Fitch. The Portuguese borrowing costs are also at a record. A debt auction is tomorrow. People watching that very closely to see how well it goes; it's a faith, to see how much faith there is in that country's economics.

Let's take a look at Greece. It was the poster child for the debt crisis. And it is doing a little better. Prime Minister Papandreou, first round victory in local elections. He had that and he held a successful auction of very short-term paper. A six-months bills a yield was up at 4.8 percent. That is up on the 4.5 percent of last month. This is all the background here, but overall, Greek borrowing costs remain much higher than either Ireland or in Portugal.

Now Philip Lane is the head of economics a, at Trinity College, Dublin. He met with the European Commissioner Olli Rehn, earlier. He is joining me now from Dublin.

Thank you so much for joining us. So what did the commissioner say to you? How did the meeting go? How positive was it?

PHILIP LANE, HEAD OF ECONOMICS DEPARTMENT, TRINITY COLLEGE, DUBLIN: I think the commissioner is well known for being fairly straightforward, not too emotional. And that probably contrasts with the mood in the markets, where there is a lot of, you know, nervousness around the Ireland situation. Whereas the commission, I suppose his role today was to state there is a plan, the Irish government has a plan.

And he was meeting with all sorts of groups from Ireland to say that the commission was there to support the Irish government, you know, in implementing this fiscal adjustment, and provide a, a sort of reassurance straight from the horse's mouth, that the European Commission indeed, thinks what the Irish government is doing is appropriate. The scale of the adjustment is at the right level.

FOSTER: How much of a role does the European Commission actually play here, because Ireland, effectively has to sort out its own problems, doesn't it?

LANE: Right, but under the new, you know, proposals, the European Commission philosophy now is, they need to be involved really on a continuous basis. Not making decisions, but they need to understand, you know, on a high frequency basis, not just you know a once-a-year meeting. They need to know before, as the budget is decided, that everything is on track. So it is really-it's really a communication issue. It is not that they are taking over the fiscal process here.

FOSTER: You will be aware of comments made by an esteemed colleague of yours, another professor of economics in Ireland, who suggested that the country is effectively insolvent, if you look at the numbers. Do you agree or disagree with him?

LANE: Well, I think these issues, there is more than one possible outcome. Morgan Kelly as a view where the economy is going to shrink and if the economy shrinks and the interest rate remains at the 8 percent, plus, well at those numbers nothing is going to work. But you know the basis for believing that, it can happen, in the sense of if there is a panic, and you have these (UNINTELLIGIBLE) crisis. We know that that kind of thing can happen.

But the more likely outcome is the economy, it still projects growth, even with the fiscal cutbacks. The export sector is growing quite well. There is a lot of consumption waiting on the sidelines for the fiscal situation to stabilize. So it is quite possible to build a much more positive case for the Irish economy. I mean, even with a good growth performance it is still going to be difficult. No one is saying that it is in an easy ride here. But, you know, more than one outcome is possible, and you know, I think the more likely outcome is, you know, that after a very narrow path of adjustment everything will turn out to be OK.

And even, you know, the next level down from that, is support from the European Union. It is not a kind of collapse situation where a default is invoked (ph) as a kind of a short term element, you know (UNINTELLIGIBLE).

FOSTER: OK, Professor Lane, in Dublin. Thank you very much indeed for joining us.

(UNINTELLIGIBLE) about European debt are helping to drive gold to a new record high. Earlier session, one ounce is changing hands for more than $1,424. Right now the metal is slightly lower though. Trading around $1400, around that mark, at least. And gold is seen as a safe haven, of course, from volatile currency markets and vulnerable equity markets. Well, commodities rallying again, then.

Stocks not benefitting quite so much; Alison Kosik joins us from the New York Stock Exchange-Alison.


Yes, we do have the stronger dollar in play. But you know investors really aren't abandoning stocks all together. The Dow, right now, down only about 48 points. But as you said, commodities really are the star of the show, especially gold prices, as you said, closing at a record high. You know, prices for the precious metal, Goldman Sachs is saying, could reach somewhere around $1,650 by the end of the year.

Of course, the Fed's announcement last week that it would buy up $600 billion in Treasury bonds, has really pushed up commodity prices. But not just in gold, you know, we are talking about oil, crude prices have been soaring, too. Up six days in a row. Though, right now, oil prices have backed down a bit.

We are also seeing a rally in other commodities as well. Soybeans, cotton, you know, agricultural commodities are also rallying as well, Max.

FOSTER: Alison, a lot of talk in political circles about the G20 meeting coming up this week. Is that having any impact there?

KOSIK: You know what, not much. I mean, you talk to some investors, they are cautious ahead of the kickoff of the summit in South Korea, later this week. Of course, you are talking about when world leaders are expected to address the ongoing currency imbalances across the major economies.

But, you know, ultimately when I talk to traders today, they don't really expect much to come out of the meetings. In fact, you know, they give a yawn when I mention the G20 meetings. Because they say not much has come out of them in the past. So they say, all of the nations have their own domestic problems and will wind up looking out for themselves. And ultimately, Max, it really-to them, to these traders, it makes it hard to find any kind of consensus. At least that is how the traders see it. And they are thinking that is how the leaders of these nations will see it, as well, Max.

FOSTER: Alison, thank you so much for joining us from Wall Street.

Well, here in Europe stocks ended the day with modest gains. Both the DAX and the FTSE 100 are at levels last seen in June 2008. It is mainly due to solid corporate results.

Shares in Barclays gained 4 percent in London, providing a boost to the FTSE. The bank's profits are down, but so are bad loans. Barclays also says it is holding back plenty of capital for a rainy day.

Now the cost of complacency, the inquiry into who is to blame for America's worst-ever oil spill in just a moment.


FOSTER: A culture of complacency at three major companies led to America's worst-ever oil spill, so says the co-chairman, at least, of a presidential commission investigating the disaster in the Gulf of Mexico. Maggie Lake has been watching the inquiry unfold.

Complicated stuff, but we are getting a better picture of what went on, aren't we, Maggie?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, we certainly are, a full-blown presentation. And, Max, a culture of complacency-but the headline really coming out of this two-day hearing is no evidence of safety shortcuts, which is surprising a lot of people. That was the finding from the panel appointed by President Obama to get to the bottom and investigate the cause of the BP oil spill.

Fred Bartlett, who led the panel's inquiry, has been presenting a lot of the graphics that you are seeing up on the screen. And they had a lot of props of evidence, as you can see, really conducting it like the trial lawyer he is. He laid out his findings. And this is really something that jumped out at me, a quote where he said, "To date, we have not seen a single instance where a human being made a conscious decision to favor dollars over safety."

And he went on to say they want to be efficient, they don't want to waste money, but they also don't want to get their buddies killed. Now, as I said, this was over the course of a presentation of the findings that took two days. Having said that the panel was not without criticism; there were many issues that they drilled down on, forgive the awful pun, but he said that not only was there a culture of complacency at BP, Transocean, and Halliburton, that all of them need to be reformed.

But also many questions surrounding why the employees on that rig accepted a stress test that was done hours before the rig exploded. We have heard a lot about that. Clear alarm bells, red flags should have gone up. Why they accepted that as OK is really unclear to everyone.

He also making a pain to point out, as did others, that the panel was hampered by the fact that they didn't have subpoena power. Meaning they couldn't pull people into a legal situation where they were required to testify under oath. They talked to them, they answered the questions, but there wasn't that oath hanging over them, that subpoena hanging over them. They felt that limited their ability to get to the bottom of things. They didn't think anyone was lying but they would have liked to have had that. And in fact, they are going to try to get that.

As you can imagine, that headline about no safety shortcuts, not sitting well with a lot of people out there. One of them coming out, speaking out, Representative Ed Markey from Massachusetts, who has said that there is a consistent behavior that really calls into question how important safety is at BP and other companies. So this isn't going to be the end of the issue. The panel, itself, isn't going to conclude the investigation until there is a full report on the blow out preventer, that is sort of central to that. Once they get that, they will complete it, and present that in January.

And Markey and others on the panel are continuing to push for those subpoena powers. So not the end of this. But a very detailed presentation laid out with a rather surprising headline coming from it, Max.

FOSTER: There are all sorts of lawsuits pending, aren't there? Separately to this? So do you think anything turned up today which will play into those?

LAKE: Oh, that is the big question, is interestingly the panel went on to say that is was not their purpose, that the reason they did this isn't to sort of to determine liability. They were really clear about that, saying, we are not assigning blame, we are not making a legal judgments on liability, negligence, gross negligence. However, you have got to think that if you are defense lawyer out there, BP's army, Transocean, Halliburton's army of lawyers, they have to be pleased with what they are hearing over the past few days. And they are certainly going to try to draw that into their cases, whether or not it will have an impact, remains to be seen. Certainly, going to be an issue, one would think, as we hear these many cases proceed. And again, it is not the end of the story. There is more information to come, but it is going to complicate matters, nonetheless, Max.

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

Now, they make the tough calls, they are the face for their brands, but what is life really like for the men and women at the very top. We are going behind the scenes in the boardroom. It is a new feature on QUEST MEANS BUSINESS, and it is called, "The Boss".


FOSTER: Well, here on QUEST MEANS BUSINESS you are used to seeing top CEOs discussing the issues that matter, of course. But behind closed doors, how do they handle the challenges that they face, everyday. Well, starting tonight, we are following three CEOs, in three cities, for a year. We will show you all the highs, and all the lows, to find out what it is really like to sit in the hot seat. It is time to meet, "The Boss."


SARAH CURRAN, CEO, FOUNDER, MY-WARDROBE.COM: Kind of like it, I'm not sure about the boots. Yes, we have given these a lot of airtime, but they don't really need an extra push.

UNIDENTIFIED MALE: Sarah Curran, founder and CEO of online retailer

Good morning. How are you all? Look forward to the day together.

UNIDENTIFIED MALE: Meet Richard Braddock, the CEO and chairman of online grocer, Fresh Direct.

It is important to have the big picture. It is important to have a vision and to communicate that vision.

UNIDENTIFIED MALE: Michael Wu, chairman and managing director of catering company, Hong Kong Maxim's Group.

UNIDENTIFIED FEMALE: Is this your first time here?




UNIDENTIFIED MALE: It is early afternoon, in London, and Sarah is at the company's creative headquarters in Camden. She is adding her voice and expertise to the products which will make it to her website.

CURRAN: Maybe just keep a boot, but choose another one.


CURRAN: Maybe it is just not the right one.

UNIDENTIFIED MALE: Sarah Curran has been in the fashion business since 2002, when she owned a small boutique in North London. Today, as the boss of My-Wardrobe, Sarah's goals are to attract the biggest and most prominent brands, and take the best designs from warehouse to Web.

CURRAN: Kathryn (ph) is currently pinning this jacket, and this will go onto the product page and be the product shot for the iPhone (ph).

UNIDENTIFIED MALE: launched in 2006, selling high-end affordable fashion wear for men and women.

CURRAN: Gemma, Jackie, should we start?

I think at the time there was this assumption that-or this belief that, women wanted to buy either the premium luxury brands, such as the Lanval (ph), Stella McCartney, etc cetera, all the fast-moving fashion wear, such as Asalt (ph). And no one had really positioned themselves in the middle, at that market. And that is really where we went.

UNIDENTIFIED MALE: In only six months My-Wardrobe was out performing her boutique in monthly sales.

Today the online retailer attracts over 1 million visitors every month. And it is one of the U.K.'s leading online retailers.

CURRAN: More than anyone, I am probably the most critical person about the brand and the site and the product and the way we style. And that-only because I want My-Wardrobe to be-just amazing.

UNIDENTIFIED MALE: For Sarah now is the time to regroup, relaunch, and reposition the brand. I don't want the whole-that's all right. That's quite nice. You know, I want every piece that we buy into to actually add value to a women's wardrobe, and not just be filler.

UNIDENTIFIED MALE: In New York, Richard Braddock is making his way to the company's headquarters.

BRADDOCK: It is right across 85th and 1st. So, we shouldn't be too late.

UNIDENTIFIED MALE: But before that, this is his usual stop for coffee.

BRADDOCK: All right. Be right out.

Thank you. How are you today?

UNIDENTIFIED MALE: Richard has been running businesses for decades. He began is career at General Foods, in 1965.

BRADDOCK: I think my idea works, we're in.

UNIDENTIFIED MALE: Recently he was chairman and CEO of

BRADDOCK: This is always a fun place to visit.

Well, this is a very hard business to run. It is the hardest business I've ever run, in my career.

UNIDENTIFIED MALE: Fresh Direct opened for business in 2002, delivering fresh and locally produced food to urbanites in New York. It is a simple idea, but it hasn't always been easy.

BRADDOCK: See, I don't want to come off as presenting myself as a miracle worker, but we were pretty close to being out of business. We had made a lot of mistakes; we didn't have a lot of cash around in those days. We churned a lot of customers and our service was, I can say now, atrocious. There is no point in bringing in customers and then kicking them in the teeth.

Joey, you are supposed to be working on that digital stuff.

UNIDENTIFIED MALE: During the boom several online grocery companies burst on the scene. They expanded aggressively into various cities, but when the bubble burst, capital dried up and companies went bankrupt. Fresh Direct struggled to make it work.

BRADDOCK: Hello, everyone.

UNIDENTIFIED MALE: For a period of two years Richard took a risk and put a hold on all new customer activity, focusing instead on honing its existing operations and improving the company's service.

BRADDOCK: It took a lot of energy, not just by me, but once people saw that actually, things could improve and they could influence that, then it became a little bit infectious.

This is where all the numbers get created and recreated, and manipulated.

UNIDENTIFIED MALE: The online grocer says since 2009 it has grown some 25 percent. They have 600,000 regular customers.

BRADDOCK: You know, I think that this was a good day.

UNIDENTIFIED MALE: For Richard, now is a pivotal time, to push the boundaries of the business beyond New York.

Across the Pacific, Michael Wu, also has his eye set on expansion.

MICHAEL WU, CHAIRMAN, MANAGING DIRECTOR, MAXIM'S GROUP: This year is a big focus to enter China. We see huge potential for our brands, all over China. But of course it is not as easy as that. People in China have different tastes. Our price point is a factor, because our brands are relatively premium brands. And although I see in 10, 20 years' time, they could be widely accepted all throughout China. It will take time.

UNIDENTIFIED MALE: Michael Wu is one of Hong Kong's most respected businessmen. His family's business can be traced back to his grandfather, who founded Maxim's in 1956. Michael joined the family operation in 1992, as a trainee. He says leadership wasn't handed to him on a silver platter.

WU: One of the first jobs I did, was I was a delivery boy, delivering chicken drumsticks to Maxim's Restaurants. And I learned a lot from that experience. It was hard.

UNIDENTIFIED MALE: Today the company has become one Hong Kong's largest caterers. It operates over 70 brands and 600 outlets, from Simply Life Cafe to bakery chain, Maxim's cakes, and Genki Sushi, to name just a few.

Hong Kong Maxim's Group is going from strength to strength. Today the company serves more than 540,000 people everyday. Behind the growth is a leadership philosophy, investing in people.

WU: We believe that if we treat our staff well, they are going to treat our customers well.


UNIDENTIFIED MALE: Michael Wu joins the head chef and the rest of the team for a morning meeting on how Maxim's Palace restaurant has been performing.

For Michael, the aim now is to focus on their next big challenge and that is no mean feat.

WU: China is such a big market in of itself that probably for the next 20 or 30 years that would be our only focus.

UNIDENTIFIED MALE: Next week, on "The Boss":

With so many brands under one roof, we find out what it takes to stay on top in Hong Kong. Richard, meets with his team to revamp one of the companies flagship products, the four-minute meal. And Sarah chooses her key pieces at London Fashion Week.


FOSTER: Well, do you want to ask one of the CEOs a question about their rise to success. We are using the hash tag, hash tag theboss on Twitter. So log on to Join me in a conversation over "The Boss". And don't forget to tune in for episode two, next week.

Well, next on this program, a business trip with big ambitions. U.K. Prime Minister David Cameron meeting Chinese leaders in Beijing and trying to get a slice of the lucrative Chinese market, but what about human rights?


FOSTER: Welcome back. I'm Max Foster. You are watching QUEST MEANS BUSINESS. This is CNN. And we are going to check on the news headlines next.


British Prime Minister David Cameron has an ambitious goal for his business trip to Beijing; to double the U.K.'s trade with China by 2015. And entourage of British business leaders, Mr. Cameron is not mentioning human rights in public, at the U.K. China summit in Beijing today. He and Chinese Premier Wen Jiabao witnessed the signing of the $1.2 billion engine deal between Rolls Royce and China and China Eastern Airlines.

And I asked CNN's Stan Grant in Beijing more about Mr. Cameron's business tactics.


STAN GRANT, CNN CORRESPONDENT: Well, the strategy of the U.K. to the Chinese, Max, is a place where China can do business, that, basically, what you're looking at there is the most open economy in Europe, he says, an economy that already has 400 mainland Chinese businesses working in it. And there seem to be some -- some areas that they could work together. He's met with Premier Wen Jiabao. Premier Wen says he particularly wants to look at areas of information and technology, especially low carbon industries. He says what he'd like to see is a -- a freeing up or relaxing of the -- of the business procedures and the visa processes for Chinese companies going into the U.K., as well.

This is a -- a huge undertaking for David Cameron. He's brought a massive entourage with him -- about 50 business leaders from some of the leading companies in the U.K. He's looking at adding billions of dollars in trade deals. At the moment, there's about $50 billion worth of trade between the U.K. and -- and China. What David Cameron wants to do is grow that by 2015 to $100 billion. And the important component being $30 billion a year of exports from the U.K. into China. That's what he's looking to iron out here at the moment, trying to -- to get some of these deals signed -- Max.

FOSTER: And some concern here in the U.K., Stan, that David Cameron is signing deals with the Chinese when the Chinese isn't seen as having a particularly good human rights record.

Has the prime minister suggested that he's going to bring that up into conversations?

It's a difficult subject for him, isn't it, when he's trying to do business?

GRANT: It's a very difficult subject. It's a difficult subject for all leaders when they come to China. Of course, China is very sensitive to issues of human rights. China says it doesn't like to meddle in other countries' domestic affairs, it doesn't like other leaders coming and meddling in its affairs.

It's very interesting timing for David Cameron. He is the first Western leader to visit China after the dissident, Liu Xiaobo, was awarded the Nobel Peace Prize. Now he, of course, is serving 14 years in jail at the moment. And interestingly, and embarrassingly, for David Cameron, as he touched down in Beijing, Liu's lawyer was being blocked from leaving China to fly to the U.K.

David Cameron says that he wants to raise the question of human rights, but he doesn't want to lecture China. What's going to be interesting here, Max, is not what he says privately to Wen Jiabao, but just how far he is prepared to go publicly.

This is a very fine line. He wants to make the point of human rights without putting at risk the point of the trip, and that is, ultimately, to make money -- Max.


FOSTER: Stan Grant there speaking to me.

Now, China is just one of the countries ramping up its criticism of the United States' monetary policy ahead of this week's G20 meeting. From quantitative easing to trade tariffs, right across the globe, the U.S. is being accused of not acting in the world's bitts.

In China, Ma Delun is the deputy governor of the People's Bank of China. He said this: "The U.S. spending spree may undermine efforts to balance out global growth." He added: "It could stir the formation of asset bubbles."

In Germany, the -- the German chancellor, Angela Merkel, said this to "The Financial Times": "The greatest danger facing the global economy is a return to trade protectionism." That was directed at the U.S. and China. And Merkel urged completion of the Doha free trade talks.

There's criticism at home in the U.S., as well. Sarah Palin said: "What's the end game here? All this pump priming will come at a serious price," she said.

And, also, James Bullard, the president of the Federal Reserve Bank in St. Louis, he said he disagreed with the phasing of the Fed's QE2 announcement. He's against bundling the whole $600 billion figure together rather than announcing a series of measures.


JAMES BULLARD, PRESIDENT, ST. LOUIS FEDERAL RESERVE: It's not really my preferred way, because I think the $600 billion kind of takes on a life of its own. But, you know, that's where the committee came out at the end of the day. I would prefer to buy at a certain pace and -- and give an indication that we continue -- we probably are going to continue to increase -- continue to buy at this pace for, you know, some period of time without actually naming a particular number or a particular date.


FOSTER: Well, quantitative easing by the United States will have an impact all around the world, of course.

I asked Jose Vinals, the director of the IMF's monetary and capital markets department what he makes of it.


JOSE VINALS, MONETARY & CAPITAL MARKETS, IMF: Well, I think that this shows a concern that the Federal Reserve has about the sustainability of the recovery, of the economic recovery, and also the need to put a floor on inflationary expectations, not to go into dangerous territory.

But, of course, it's important to note that easy money is not a substitute for other things and at the same time, one has to continue addressing the problems in the household's balance sheets and also continuing to strengthen the health of the U.S. financial system.

FOSTER: Do you think -- do you agree with the concern that adding all of this extra cash into the system is creating a bubble, not just affecting the United States?

VINALS: Well, I -- I don't know whether it's creating a bubble. I think that that would be going too far. What I think is happening is that this is having repercussions on other countries, which are receiving quite significant amounts of capital. And these capital inflows may create some macro financial or financial risks going forward in terms of excess credit growth and so on. And that may lead, over time, to bubbles.

So I think that is a genuine concern.

FOSTER: Because there's a lot of concern in China that America keeps pointing the finger of blame at China and its currency when, actually, the Chinese will point out, we have a very high savings rate. That might cause a bit of a problem. But the Americans are borrowing too much. So it's as much their problem.

What do you think?

VINALS: Well, I think that this is a global issue and there are two sides involved, those who have big surpluses, those who have big deficits. And what you need is a rebalancing of global demand so that surpluses can become smaller and deficits can become smaller, too.

So what this means is that you have to have things happening. And I think that the action is on both sides. And this is why the IMF has always been insisting that you need a collaborative process. You need policy coordination...

FOSTER: So what's the way forward...

VINALS: -- to solve these problems.

FOSTER: -- for the U.S. and China, for example, then?

VINALS: Well, I think that each have to contribute something. And I think that something that would be very important here is that external deficits and surpluses tend to be influenced by domestic demand policies and by exchange rates. So I think that from that viewpoint, letting the exchange rates play a role is important. So you would need to have some appreciation of the...

FOSTER: Of the yuan?

VINALS: -- of the yuan and other emerging markets. And also, the United States should take policy actions in order to reduce their external deficits. So that would be...

FOSTER: But the Chinese would say that's a bit -- is -- everything -- everyone is looking at this in too much -- too a simplistic way, because within China, prices have actually risen for a lot of products. So they would argue, prices have risen, that the -- the -- the currency has, domestically, at least, appreciated.

VINALS: Yes. I think that you have had prices are going up in -- in China. But I think that the exchange rate is just one of the things you have to do. You need to have an integrated policy approach, where in countries like China -- but not only China, in other surplus countries, you have higher consumption going forward. And that means in China, the people need to save less and that you have to put in place structural policies like the ones that are being implemented over time by the Chinese government so that people may have access to more public services, so that there is an extension of public pensions, so that people have a need to save less and, therefore, can consume more; others can consume less and reduce the current surplus.


FOSTER: Now, the list of culprits reads like a who's who of the aviation world. Now, 11 airlines have been caught price fixing and they face more than a billion dollars in fines.

But who was part of the cargo cartel?

We'll tell you, next.


FOSTER: Now some of the world's biggest airlines will have to cough up more than a -- well, a huge amount of money, millions and millions of dollars in total fines to the European Commission. That's because of price fixing for their cargo services.

Ayesha Durgahee tells us -- tells us some more about this, because it's been rumbling on for some time, but we've reached some sort of conclusion.

AYESHA DURGAHEE, CNN CORRESPONDENT: Yes. So Max, 11 air cargo carriers have been fined a total of $1.1 billion for coordinating their fuel and security surcharges over a period of six years, from December 1999 to February 2006. And the top three offenders are well known airlines with Air France being fined $254 million and KLM $176 million. And because these airlines merged only in 2004, it suggests why they are being fined separately. But Air France and KLM declined to comment or confirm that.

But the third largest fine is for British Airways, with $144 million. And in a statement tonight, British Airways has confirmed that amount of 104 million euros -- that's $144 million -- saying that it falls within the provision made by the company in its 2006 and 2007 report and accounts. And tonight, speaking to British Airways, they have confirmed to me that they did set aside $561 million.

So airlines were expecting this outcome.

But Air France-KLM have underestimated how much they were going to be fined and didn't set enough money aside. And they have said in a statement that the Air France-KLM Group considers that the level of these fines is disproportionate and it disregards the economic hardship that the air cargo industry has suffered and will have a distorted effect on the level playing field.

But the European Commission believes that it's being firm but fair. And in its statement tonight, has said that it is deplorable that so many major airlines coordinated their pricing, to the detriment of European businesses and European consumers, saying that with today's decision, the Commission is sending a clear message that it will not tolerate cartel behavior.

FOSTER: Cartels are secretive, so who blew the whistle?

DURGAHEE: Well, in its press release is a list from the European Commission of the offenders. And right at the bottom of the list you have Lufthansa and its airline -- the subsidiary airline that it bought, Swiss Airlines. And next to them they have a big fat zero because...

FOSTER: They did a deal.

DURGAHEE: Well, because they were the first ones to provide information about the price fixing, so they have received full immunity from the fines. So they are probably in better shape than the other nine.

FOSTER: They certainly are.

Asha, thank you very much, indeed, for that.

All right, let's check out the weather forecast for you now.

Guillermo Adruino is at the Weather Center -- hi, Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hey, how do you like the weather now?

FOSTER: It's too cold.

ARDUINO: I know. I know. I'm sorry. But, you know what we see here is a low that is descending into France now, so it's pulling air from the north. And naturally, the colder air is in the northern parts and so it is cooling down.

The winds are going to abate a little bit. Now, we'll look at on the other side of Europe and you'll see how the mess continues here, anywhere from the Carpathian Mountains all the way into Belarus, Russia and the Baltic Sea. That's where the bad weather is, but particularly focusing on Britain, you see the arrival of a new low here into Scotland. And that is going to bring up the speed of those winds. That will not affect, directly, the south. But it's all related. We will see, still, unstable weather, but better than what we saw before.

Dublin with winds, also the same low that's going to affect that. For Wednesday, Amsterdam with some rain showers. Munich with some mixed precipitation. So the cold there is getting down into southern Germany, as well.

And Rome with winds; Barcelona with winds; Madrid with winds. Berlin with a chance of snow, as well.

So we have it, also, very chilly in Moscow and in the northern sections of Russia. Belarus and the Ukraine are under a -- an arm of this system that is bringing unstable weather, though I must emphasize that into tomorrow morning, the rougher conditions are going to be observed in the south, anywhere from the Adriatic Sea, Italy, Croatia, the Aegean Sea. Shipping operations here are going to be affected, so a little bit choppy. And in the Bay of Biscay here, too. So we will see some rough conditions over there.

Temperature-wise, these are the real temps that we expect for Wednesday. But remember, when you add the wind factor, it's going to feel much colder. And also, as a contrast, look at Bucharest, 22 degrees; Istanbul, 22; Athens, 22. Despite the rough weather here, temps continue to be above the norm that what we see in Europe.

Improving, also, in the New England states. If you're coming to Boston, New York, Philadelphia, even farther south into Washington, DC, the low now is offshore so things are much better. High pressure all over into big airports -- charlotte, North Carolina; Atlanta; Memphis, Tennessee; Chicago, wonderful weather, 19 degrees; 23 in Atlanta -- Max.

FOSTER: Guillermo, thank you very much, indeed, for that.

ARDUINO: Thank you.

FOSTER: Now, it is hotter than Hollywood and more lucrative than music, so how did a video game become the biggest entertainment launch of the year?

Well, next, we'll find out why there's some serious booty in Call of Duty.


FOSTER: Well, it was a cold, wet winter night in London on Monday, but that didn't stop dozens of video game fans from camping out on the streets to buy the latest Call of Duty game, Black Ops. It was at midnight. This is no game as soldiers -- toy soldiers, though. It's a multi-billion dollar franchise that could become the biggest selling video game of all time. That's what the experts are saying.

Jim Boulden is here reporting for duty to tell us all about it.

JIM BOULDEN, CNN CORRESPONDENT: I'm not sure it will be number one in the world, because it's such an amazing franchise. But this one could become very close to the top selling game of all time. If you don't know what Call of Duty is, then you don't get it, because these videogames, these multi-player videogames are so incredible, that people line up around the world to get their hands on one.



BOULDEN (voice-over): Midnight on London's oxford Street and fans of one of the world's most valuable entertainment franchises are rushing to buy a copy of Call of Duty: Black Ops.


BOULDEN: The seventh installment in the Call of Duty franchise, released by L.A.-based Activision Publishing, may be the most anticipated bit of entertainment released this year.

UNIDENTIFIED MALE: For me, it will be the most important thing ever. For one year I've been wanting to get the new Call of Duty. So to be first, to plan the whole thing a month ahead, I'm pretty happy.

UNIDENTIFIED MALE: And it's an amazing thing happening. I've been waiting a long time for it and I'm finally getting my hands on it.

UNIDENTIFIED MALE: I think that every year a Call of Duty comes out, it's probably the biggest game of the year (UNINTELLIGIBLE).

BOULDEN: It's estimated the Call of Duty franchise has taken in more than $3 billion to date, raking in more money than any single blockbuster film. By June of this year, the previous Call of Duty, "Modern Warfare 2," had become the biggest selling game in the U.K. and the second biggest in the U.S. More than 20 million copies have been sold worldwide according to the Activision. Black Ops continues the Call of Duty story line and it continues a record setting sales.

IAN LIVINGSTONE, GAMES INDUSTRY EXPERT: I think it will sell almost as well as "Modern Warfare 2." It might even get up there. But you have to remember that "Modern Warfare 2" was an extraordinary phenomenon -- 20 million units, $50 a hit. That's a billion dollar franchise. That's a tough act to follow.

I think the most important thing about games like Call of Duty is that it's multi-player and your online. So you're playing connected experience with friends. You're not playing against artificial intelligence, you're playing against real people. And that makes that sort of win also more enjoyable.

BOULDEN: Black Ops hits the video screens a month after rival EA Games released the latest in the shoot 'em up series, Medal of Honor. It remains one of the hottest selling games in the U.K. These gamers got a sneak preview of the 3-D version. Maybe that wave will help Black Ops regain the lead.

Activision let a group of American soldiers play the game before its launch, as well, and donated a million dollars to a charity it created to help soldiers transition to civilian life.

These shoot 'em up games certainly have their critics and, of course the games aren't cheap. But here in the U.K., stores are slashing the price of Black Ops if you trade in some of the older titles of Call of Duty or Medal of Honor. The battle over Black Ops isn't just on the screen.


BOULDEN: So if you know somebody who should have been at work today who likes video games and wasn't you may now know why they didn't show up.

Well, let's look at the list, actually, of all the games that have come out recently and are quite popular at the moment. Even though the shoot 'em up games, of course, are the best-selling, at the moment here in the U.K., according to "The Guardian," two football games are number one on the list. And the important thing about these lists is you see it's just like TV shows. It's just like films. It's very important for the industry of where these games ranked in these -- in these rankings. And so it's just as important.

And if it's a second rate game, it doesn't sell very well. And if a game doesn't sell really well in the first week and if it gets poor reviews, then it drops down the list. And that's just like a film. And the fact, of course, as we've said, many of these cost as much to make as a film and can bring in a heck of a lot more money.

Now, we all know about holiday releases for the film industry. Well, Call of Duty coming out, of course, in November. Medal of Honor coming out just before. And we also get another game from Ubi Soft in a few weeks. No doubt, of course, it's because of Christmas. Tonight, the Microsoft Cadet that acts -- that lets you be the controller also gets released here in Europe. Again, it's all in time for people to buy to put under the Christmas tree.

Now, what makes these games so special?

It's important to note that people can play their friends online. Multi-player enhancements is what's so important. So people are using wireless connections. They're playing their friends. They're beating their friends. And, Max, that's what's really so key about these games and why they're doing so phenomenally well, because you're not playing against a robot, you're not playing against a computer, you're trying to beat your friends at these games. Every single person in these multi-player games is a real person around the world.

Well, you're using the computer. You're playing friends. You're playing people you've only ever met playing these games.

FOSTER: Jim Boulden, fast becoming our gaming correspondent.

It's a big industry.

Thanks, Jim.

Now, if a computer game just won't cut it as a Christmas present this year, then maybe something more luxurious will do the job for you. The luxury sector looks like it's getting back on its feet. Hermes announced today it sales grew 31 percent in the third quarter.

As Felicia Taylor finds out, luxury is back, if it ever went away.


FELICIA TAYLOR, CNN CORRESPONDENT (voice-over): Gucci, Chanel, Hermes, Dior Vuitton or Dolce Gabbana -- you can almost pick a name. High end goods are coming back strong.

STEPHAN SADOVE, CEO, SAKS: We took a big punch to the stomach. And it was a big decline. So the -- the luxury sector took a bigger hit than the other sectors. So you're coming off of a lower base.

I think what's surprised me has been the rapidity at which the high end prices, the best price points have come back even stronger than I thought they would more quickly.

TAYLOR: And it's not just in the U.S. The Asian shopper is feeling a little less shy about showing off, too.

ERIKA SEROW, BAIN & COMPANY: The market is absolutely exploding. Part of what's happening is an expanding class of consumers in China who are able to just spend more money and to consume more goods. And, in fact, if you play China forward, over the next five years, we expect that China will be the third largest market in the world for luxury goods.

TAYLOR (on camera): Reports show that the rebound in luxury sales is really dictated by those stores that are owned and managed by the brands themselves, such as Hermes. In 2010 alone, sales were increased by about 23 percent. At Hermes, it was more like 23 percent. And it's all about the accessories -- whether handbags, scarves, wallets or even shoes. Those sales increased by about 16 percent. And, frankly, it's even beating out the leader of the luxury sector, which is, of course, apparel.

(voice-over): But it's not just women who are making cash registers ring.

ROBERT CHAVEZ, CEO, HERMES: Our men's business has increased significantly and, actually, in the last 12 months, has really outpaced the growth in the women's category.

TAYLOR: And when you browse through the top dollar shops, you may be hard-pressed to find a sale sign -- a sign of pricing tolerance.

SEROW: No question that you've seen less promotions. In the first half of the year, our gross margins improved 600 basis points. We reduced the amount of promotions by about 30 percent.

TAYLOR: Of course, this is a very small piece of the retail pie, as overall, consumer spending is expected to remain weak. Just 6 percent of consumers are driving more than 70 percent of the purchases in luxury goods. So the rebound comes from a very small portion of the population, indeed.

Felicia Taylor, CNN.


FOSTER: All right, will be back in just a moment with an update of the market news for you.


FOSTER: Let's have a look at the markets in the U.S. Most of the stocks are in the red. And the overall index, the Dow, at least, is down .3 of 1 percent. The Dow, the NASDAQ, the S&P 500 all down around a similar amount.

Chevron is amongst the worst performers, interestingly, because it's - - it's down more than 1 percent, I think, after agreeing to buy Atlas Energy. Chevron will assume more than a billion dollars in debt as part of that deal, which is worrying some investors.

Now, this Thursday, do tune into Q&A. It's the weekly segment where Richard and Ali Velshi go head-to-head with one another to answer your questions. Just go to Send us your suggested talking points and they will fight it out on the air for you.


I'm Max Foster in London.

"WORLD ONE" with Fionnuala starts right now.