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QUEST MEANS BUSINESS

Interview with Jean-Claude Trichet; Interview With President of Toyota

Aired April 7, 2011 - 14:00:00   ET

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


MAX FOSTER, GUEST HOST, QUEST MEANS BUSINESS: Trichet fires the starting gun on rate rises. Tonight, the head of the ECB tells us why the time is right.

Bracing for impact: After Portugal's bailout, can Europe handle the rising cost of borrowing.

And a global exclusive for you. Toyota's president gives his first TV interview since the 2009 recalls.

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

Hello to you.

It is a milestone in the global economic recovery. Today the European Central Bank raised its benchmark lending rate from 1 to 1.25 percent. As Portugal's bailout request shows, Europe's economic troubles are far from over.

So why a rate hike now? Well, ECB President Jean-Claude Trichet says it is more about reining in price rises than stimulating growth. This is the moment he broke the news.

(BEGIN VIDEO CLIP)

JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: All the economies benefit from interest rates that are solidly anchoring inflation expectations. Of the confidence effect of this medium-term stability, it is good for the medium- and long-term market interest rates. It is good for the country (ph) in general. And it is good for confidence.

(END VIDEO CLIP)

FOSTER: Well, the ECB had held rates at a record low of 1 percent since May 2009. Its last rate rise was in July 2008, weeks before the collapse of Lehman Brothers. This is the first interest rate hike by a major developed central bank since the economic crisis began. It is also the first time in 40 years that Europe has raised rates before the Fed.

Well, in his only international interview, Jean-Claude Trichet spoke with us, in the ECB Council boardroom. John Defterios asked why the bank is acting now to secure price stability?

(BEGIN VIDEOTAPE)

TRICHET: What is very important for us is to be sure that we solidly anchor inflation expectations in line with our definition, which is less than 2, as you said, less than 2, close to 2.

Again, the message is we are there to deliver in the medium- and long- term, stability in line with this definition. Less than 2, close to 2. And in a period where you had, because of the price of oil, the price of commodities, a hump in the CPI, at the moment you are looking at it, it is very important to avoid the second round affects. That price setters, or social partners, would think that they have to align on the present inflation, and not on the future inflation, in line with price stability. That is the message.

JOHN DEFTERIOS, CNN FINANCIAL CORRESPONDENT: Some would say that you are actually almost obsessed with price stability, versus the debt burden on countries like Portugal, Greece, and Ireland. That is a fair comment?

TRICHET: Well, first of all, we look at the euro area as a whole; 331 million people, the size of the United States of America. And you would not say, you would not ask them whether it is designing its monetary policy for California, or for Oklahoma. So it is the euro area as a whole, first. Second, by delivering price stability, and by being credible in the delivery of price stability. We permit confidence to be there because it is very, very important for our fellow citizens. They are calling on us to deliver price stability for their own confidence. It is very important for the businesses that could rely upon stability. And of course for the (inaudible) long term, market interest rates are depending on inflation expectations. They incorporate inflation expectations. So we trust that what we do is, of course, fully in line with our mandate, which the primary mandate is price stability. But also perfectly good for growth and job creation in the medium and long-run.

DEFTERIOS: So, in terms of the EU activities, and funding, this is not going to be Portugal, Ireland and Greece, but PIG, and adding Spain in a year from now? Or is it ahead of the curve in terms of the activities?

TRICHET: I would say that during the last month a number of decisions, which were taken by Spain, and were in line with this general message, if I may, for all countries, where going in the right direction and progressively convincing investors and savers that they were right to have confidence. So, I think, it is-this is no time for complacency, for any country. But this is clearly a change in the overall attitude of the Spanish government and in the overall attitude of those who are observing and judging in terms of confidence of investors and savers.

Now, again, as I said, this is no time for complacency. Decisions are in the pipe, particularly as regards structural reforms. And, of course, we are encouraging Spain, as all countries to go as far as possible in the structural reform power (ph).

DEFTERIOS: Would you say the same about Portugal? It had this target of 7.3 percent in 2010. Actually came in at 8.6 percent. We're looking to cut that nearly in half this year. Is that realistic?

TRICHET: The target of Portugal for 2011 is 4.6 percent, 4.6. It is 2011 that has been different from what was foreseen. And we are encouraging Portugal, of course, and it would be part of the program, which would be negotiated to be fully in line with its present targets, which are 4.6 for this year, 3 percent for next year, and 2 percent for the year after.

DEFTERIOS: Is that.

TRICHET: For `11, `12 and '13.

DEFTERIOS: Is that reasonable at this stage?

TRICHET: Again, that is the plan that they had accepted, and it has been accepted, also, by the opposition. By the present position, I mean, the major sensitivities, as I said. Now, a program will be discussed with the international community, and with the Europeans, we will follow very, very carefully what is being done.

(END VIDEOTAPE)

FOSTER: Jean-Claude Trichet, there. When asked about Portugal's looming $5 billion debt obligation, Mr. Trichet said he had no particular comment.

Well, let's hear more now on just what is being done in Portugal. And set in Portugal is CNN's Diana Magnay, joins us live, from Lisbon-Diana.

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: I'm not hearing programming.

FOSTER: OK. We will try to get back to Diana when she is hearing programming.

But let's look at the bailout in a bit more detail before we try her again. Portugal's bailout seems to be getting a warm welcome in Europe, even if Jean-Claude Trichet isn't talking about it. The German Finance Minister Wolfgang Schaeuble said the decision to seek international aid was reasonable and it was necessary. The major European markets were down but Portugal is up for a second straight session. Banks were the top gainers in Lisbon. Now the Portuguese bond yields remain steady, albeit at unsustainable levels, really. Spanish bond sales also show a little sign of contagion. Because that is the concern about Spain, that Spain actually sold $5.8 million of debt at a bond auction, and the cost of borrowing is falling slightly, although people are still talking about the possibility of contagion involving Spain.

After Portugal there has been a lot of talk of a domino effect. And the Spanish Economy Minister Elena Salgado said that she denies Spain will be next. She says the risk of contagion is absolutely ruled out. And the European Commission also said that we shouldn't assume that Spain is heading for bailout, too.

Focus is very much on Portugal today, though. Let's try again to speak to Diana. Who is over there in Lisbon.

Diana, what are they making of this, the day after the announcement?

MAGNAY: Well, I talked to a lot of people, analysts, and people on the street, about the bailout and about why they think they need it.

First of all, most people have said to me that it is coming far too late. That really it should have happened months ago, if not last year, rather than letting debt rise, yields on the Greek bonds rise to this- Portuguese bond, excuse me, rise to this unsustainable level. And secondly how they got there in the first place. A lot of people have been tracing it back, literally, to when Portugal joined the Euro Zone. Where they felt that all of a sudden they could spend in the same way as the European, their northern European neighbors.

(AUDIO GAP)

-buy new cars, interest rates were very low. The banks were lending to anyone who wanted it. At the same time wages were rising 20 percent compared to wages in Germany, for example. But there wasn't the growth to sustain any of it.

(BEGIN VIDEO CLIP)

JOSE MACHADO, DEAN, NOVA SCHOOL OF BUSINESS & ECONOMICS: I think that the major problem with Portugal is that it hasn't grown for the past 10 years. And well, there aren't that much prospects of growing in the coming 10 years. So that is about the last quarter of a century. So, this is the key question, how to make Portugal grow. And that I think that might come with some reforms of the labor market, the competition law which are-well, they should have been done a long time ago, to make the Portuguese market, the labor market more flexible. Portuguese firms more competitive.

(END VIDEO CLIP)

MAGNAY: You know, bringing the IMF in may mean that Portugal does get the kind of structural overhaul that it needs. But there is no doubt that the path ahead is going to be extremely tough for your average Portuguese person on the street.

(BEGIN VIDEO CLIP)

JOAO LEITE, BANCO CARREGOSA: Not only the public, the people that were work for the public companies, there have already been cut, like, two months ago, between 5 and 10 percent of the salaries, but now we are talking about, you know, 13th month of salary, they are talking about cutting increasing taxes. They are talking about maybe paying their Christmas bonus in Treasuries. And increasing the age for retirement to 67 years old. So, there is a hard road ahead. It is going to get worse and we're going to have to for the next two to three years a recession, for sure.

(END VIDEO CLIP)

MAGNAY: You know, Max, as Jean-Claude Trichet was saying, actually the fact that there is a political crisis in this country, that there is a caretaker government at the moment, may not be such a bad thing. Because you get cross-party institutional backing for this kind of reform, from the opposition to all underneath the president. So there is no one really, to blame come the next election. All the parties will agree that this is the right way forward, Max.

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

And from a country in trouble to company coming back from it, really. In a moment we'll talk to a man who knows what it is like to bring his company back from trail and tribulation, only to face disaster. An exclusive interview with Akio Toyoda, after the break.

(COMMERCIAL BREAK)

FOSTER: Workers at Japan's Fukushima nuclear plant are taking shelter tonight. They fled for cover just a few hours ago, when at 7.1 magnitude earthquake northeastern Japan. It was an aftershock of the massive quake which caused major damage to the plant in the first place. There are no reports of any fresh damage and a tsunami warning has now been lifted. CNN's Martin Savidge was in Tokyo when the latest tremor struck. Here is his report.

(BEGIN VIDEOTAPE)

MARTIN SAVIDGE, CNN INTERNATIONAL CORRESPONDENT (On camera): This was an aftershock you definitely felt here in the Tokyo bureau. It struck at around 11:32 p.m., local time. And began, as many of the aftershocks we felt here. It starts with a gentle motion, but this one clearly, quickly intensified. And you knew that it was stronger than most, in fact it turns out it is the strongest aftershock to be felt since the March 11 9.0 earthquake here.

Immediately warnings went out for the possibility of tsunami, up along the northern Pacific Coast of Japan. And as the anxious moments passed by, there were other alerts that went out as well. The tsunami warnings, though, were quickly then pulled down after it was apparent that there were no waves that came ashore, at least nothing that was potentially destructive. There have been reports, though, of minor injuries. There were also reports of power outages and there have been reports of some fires, most of which have been extinguished.

But the other great area of concern, the Fukushima Daiichi Nuclear Plant, TEPCO said that it did in fact have its employees evacuate to an earthquake safe building. They were there for some time, but they now have gone back to their positions. They also say that the functions of keeping those reactors under control were continued throughout it all. Government officials say that they have seen no signs of an increase in radiation. They also say that the reactors remain in a stable condition, and they point out that there appears to be no leaks with their containment vessels out there, as well.

But for many it was an anxious night here, in Tokyo, and across all of northern Japan. In Tokyo, I'm Martin Savidge, back to you.

(END VIDEOTAPE)

FOSTER: Well, the Dow dropped sharply after hearing the news of the quake. Alison Kosik is at the New York Stock Exchange.

Alison, so what impact did it have there?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Yes, Max, you are right about that. We did see that knee-jerk reaction right after news hit about the earthquake in Japan. The Dow was down as many as 98 points. The VIX, that is the fear index, it jumped about 4 percent. But then the market started to come back after the tsunami warning was lifted. And no major damage or injuries were reported.

Still, though, we are seeing that the market continues to be skittish about Japan and worried about even the slightest possibility of further supply disruptions. Investors also remained worried about how long it will take for Japan to recover.

Also there is other news that investors are focusing on today, including the rate hike in Europe. We also got some good news on retail sales and jobs here in the U.S. We found out that new claims for unemployment benefits fell slightly to 385,000 continuing a trend of slow but steady improvement for the labor markets. So, some good, some bad; and pretty much a split decision so far with about two hours to go in the trading day, Max.

FOSTER: OK, Alison, thank you very much indeed for that. Well, the original 9.0 magnitude quake did major damage, of course, to Japan's biggest carmaker. The president of Toyota said it could take several months to get production levels back to normal. In a moment you can hear our exclusive interview with Akio Toyoda.

When the quake hit the company was just putting tough times behind it. In 2009 Toyota began a series of recalls of its vehicles. In all, 14 million cars and trucks were affected. In April 2010, U.S. authorities handed the company a $16 million fine to settle claims Toyota hit-claims that Toyota hit-hid, despire (sic)-hid defects and that was despite this tearful apology from Toyota's chairman in February.

(BEGIN VIDEO CLIP)

AKIO TOYODA, CHAIRMAN, CEO, TOYOTA MOTOR CO.: You and your colleagues, across America, around the world, were there with me.

(APPLAUSE)

(END VIDEO CLIP)

FOSTER: In February 2011, after a long study, U.S. regulators said faulty electronics were not to blame for reports of unexpected acceleration in 22 cars. Akio Toyoda gave this exclusive interview to CNNMoney.com's Poppy Harlow, just after Toyota announced a technology partnership with Microsoft.

(BEGIN VIDEOTAPE)

POPPY HARLOW, CNNMONEY.COM CORRESPONDENT (on camera): Was it a hard decision for you to come make this announcement with Microsoft, in the wake of what is happening in Japan?

TOYODA (through translator): Well, honestly speaking, I debated over whether it is appropriate for me to leave Japan at this time or not, because there have been so many victims of the earthquake and tsunami. And the company, itself, is in a very difficult situation. So, I wondered if it is really right for me to leave Japan.

But I personally felt that, of course, it is necessary for us to work very hard, realizing reconstruction of Japan, as quickly as possible. But at the same time what is needed most is to create some hopes and promises for the future. And when I considered what I, and also Toyota, can do to offer that hope for the future, I thought, talking about this integration of IT industry and the automotive industry, as the one, we have been announcing that Microsoft would be one very important thing. Because we will be able to talk about what sort of a great car that we can produce in the future and that is the thought that brought me here to Seattle.

HARLOW: After considering the human toll of the tsunami and the earthquake, what did you think it would mean for Toyota?

TOYODA (through translator): Toyota's employees were all safe, but unfortunately three of other people working at dealerships, lost their lives and if you include the families, over dozens of people lost their lives. And, of course, many lost their homes as well.

HARLOW: I'm so sorry.

When you look at the long term impact of the earthquake and tsunami, on Toyota, as a global company, what do you think the long-term impact is going to be to Toyota? We know, we just heard this week that you are not picking up production again, in Japan. So what is the impact going to be?

TOYODA (through translator): As you already know the car industry is an industry with a very broad and large supporting industry, leading into it. And in some of the companies constituting our supply lines were located in that affected area, had their operations disrupted, too. Counting the number of different part numbers it affected 500 of them.

And we are assessing each one of those 500 parts items, in terms of that status of stock and to bill at the resumption of supplies. And fortunately, as of today we have the prospect of being able to formulate the production plan, by the end of April. Not, probably, going back to 100 percent of the operations.

HARLOW: Do you envision having to shut down any production in Japan, permanently, moving production elsewhere. Is the situation that dire?

TOYODA (through translator): Although our plans in northeastern Japan have been affected by this disaster, but currently we all have the prospect of achieving recovery of those production operations in that part of Japan. And therefore, at the moment, we have no plan of relocating the production activities going on in Japan to other parts of the world.

In terms of overall capacity, already out of 7 million units we produce worldwide 4 million out of that 7 million are produced outside of Japan in overseas operations. And therefore we would like to maintain 3 million which is currently produced in Japan, to continue to be produced in Japan.

(END VIDEOTAPE)

FOSTER: Well, you can hear the second part of our exclusive interview with Akio Toyoda tomorrow, here on QUEST MEANS BUSINESS.

Japan's central bank says it will offer cheap loans to banks affected by last month's earthquake and tsunami. The Bank of Japan says the program is worth $12 billion. It is aiming to help the banks cope if people start withdrawing large amounts of cash. And it is drawing up plans to relax rules over collateral for loans to make lending easier in disaster areas.

In Tokyo there were signs of a tentative confidence returning. The Nikkei edged higher on Thursday. Tokyo Electric Power, or TEPCO, which runs the nuclear plant in Fukushima, made gains. Trading ended long before the latest aftershock, which hit at 11:30 p.m., local time, in Japan.

Now, standing together against the sex trade, we'll speak to the Body Shop, on how it is fighting human trafficking. Our special week of coverage on the "Freedom Project", continues after the break.

(COMMERCIAL BREAK)

FOSTER: Well, all this week, on QUEST MEANS BUSINESS we are bringing you special reports on modern-day slavery. It is part of the CNN Freedom Project, and according to the United Nations, the trading of human beings is the fastest growing criminal industry in the world. More than 1.8 million of the people bought and sold in this way are young people, or children.

Their most likely destination will be the sex trade and The Body Shop has launched a global campaign to stop the trafficking of young people and children for sex. It aims to raise awareness and funds for victims and it has gained support in more than 40 countries now. The Body Shop has organized a petition calling for strict anti-trafficking laws and more help for victims.

The campaign was in Denmark to deliver the petitions, on their bikes, and in South Africa, marchers spread the message. The government there has committed to changing the law. Christopher Davis is the director of international campaigns, at The Body Shop. He joins me now.

Thank you so much for joining us. Let's talk about Denmark, because there was a specific story that came out about that-it wasn't a march was it? It was on bikes-but a bike/march?

CHRISTOPHER DAVIS, DIR., INTERNATIONAL CAMPAIGNS, BODY SHOP: Indeed, yes. When we were launching the campaign in Denmark we had over 1,000 of The Body Shop customers marching through the streets of Copenhagen, in solidarity with, as you say, the millions of children and young people who are trafficked every day.

After that march, our office was contacted by three girls who had been trafficked. And they said to us, it is great that somebody now is speaking out for us. And that The Body Shop and their customers are uniting in calling governments, in Denmark, and around the world, to make change, to create long-term change.

FOSTER: And let's just talk about, first of all, how you are doing it. These boxes, basically, in how many countries? 50?

DAVIS: In 50 countries.

FOSTER: In 50 countries. And people sign a form specific to that country?

DAVIS: Absolutely. So, with Eckpa (ph) International, The Body Shop has developed specific petitions in 50 countries. Back up by a lot of research. And the research has identified what national governments need to do in their specific country. So, whether you are in Spain, or Sweden or in South Africa, the change that our customers are calling for is specific to that country.

And we believe at The Body Shop, we believe in profit, you know, we are a business, but we also believe business can make a difference and inspire social change. And through these petitions, that is what we are focused on.

FOSTER: OK, let's look at two successful examples then, Malta? What happened there?

DAVIS: Malta? Our campaign petition was presented to the government. And the government responded by committing to signing an ratifying the Council of York Convention, to stop the sexual abuse of children. And that was such a monumental event for us, because these laws stay in place forever. You know, they stay in place and protect children forever and it is such a great achievement for The Body Shop.

FOSTER: And Malaysia, you were petitioning on a different subject. So tell us what happened there.

DAVIS: In Malaysia, our customers were calling for the government to ratify the United Nations optional protocol on trafficking. Which they hadn't done. In response to our petition, we met with the Malaysian government two weeks ago. They responded really positively. And now they have committed to ratifying that convention, which no company has ever achieved it. And with the help of our customers, you know, we are really making a difference.

FOSTER: OK, Christopher Davis, thank you very much for joining us.

DAVIS: Thank you.

FOSTER: You can find out more about CNN's "Freedom Project" and let us know what you think, as well. Just go to CNN.com/freedom, you will find more facts personal stories and information on how you can help. Many of you have been asking how you can get involved. So, just click how you can help, and you can find it all on that page, including a list of charities, by country, where you can find organizations close to your home.

Now time is running out on Capitol Hill. With less than 36 hours to go before a possible government shutdown, can party leaders work through their differences?

(COMMERCIAL BREAK)

FOSTER: Welcome back to QUEST MEANS BUSINESS.

I'm Max Foster and these are the headlines this hour.

Another powerful earthquake shakes Japan. The 7.1 magnitude quake was centered in the same region that was already devastated by an earthquake and tsunami last month. But it was closer to the coast. A tsunami alert was canceled shortly after it was issued.

Libyan rebels are retreating after they were hit by a deadly air strike near Ajdabiya. Witnesses say three people were killed. It's unclear whether Libyan aircraft conducted the attack or if a NATO plane hit them by mistake.

Meanwhile, a U.S. general tells a Senate committee that he doubts rebels can topple the Gadhafi regime even with NATO air cover.

In around 90 minutes, Ivory Coast's internationally-recognized president is slated to speak on state TV. Alassane Ouattara will reportedly address the nation. Also today, French forces in Ivory Coast rescued the Japanese ambassador from fighters loyal to the self-declared president, Laurent Gbagbo.

And the European Central Bank has raised its key lending rate by .25 of 1 percent. ECB president, Jean-Claude Trichet, says the move is designed to stabilize prices. It's the first rate hike since 2008.

Of course, the other big economic news in Europe is Portugal's bailout. It is the third Eurozone member to seek help since the European debt crisis erupted.

Astrid Schilo is European economist for HSBC.

And I asked her whether Portugal's bailout request will ramp up the pressure on neighboring Spain.

(BEGIN VIDEOTAPE)

ASTRID SCHILO, EUROPEAN ECONOMIST, HSBC: Well, today, actually, it's less the case because the markets have reacted quite positively in response to the Portuguese request for help. And we had an auction today, a Spanish auction, which actually went quite well, as well.

I think, though, that going forward, in the next month, there will be quite a lot of pressure on Spain to prove that it is different, it has recovered successfully from the beginning of the year and -- a lot of focus will be on the implementation of the program that has been announced, so the savings banks and -- but, also the labor market reforms and so on.

FOSTER: We've talked a lot about how there are strong economic links between Spain and Portugal. I guess you could look at this, then, as something that is positive for Spain, because if Portugal is being saved economically, as it were, then that's good news for Spain, as opposed to negative.

SCHILO: Well, it's a positive take on things. I think it's pretty clear that if Portugal now gets an aid package, it will be still quite hard for the economy. Remember, when the IMF comes into a country, it's very rare that you can have a nice time. So in the short run, that means in the year ensuing a program -- or maybe a bit longer -- it doesn't necessarily help economic growth. This is meant to help the economy in the medium to long-run.

So I think not only for Portugal and Spain, for the eurozone as a whole, actually reforming these countries is good news. In the short run on growth, it will be tough, I think.

FOSTER: What about this ECB move to increase interest rates?

There will be those, of course, your colleagues in Portugal and Spain who are thinking, what on earth are they thinking?

This is the worst thing that could possibly happen for us.

What do you think about that?

SCHILO: Well, you know that they are more linked to the short end of the curve and they are more rate sensitive. It doesn't matter what their economic situation is. When interest rates are low, they benefit more. When rates go up, they will be hurt more than a country like Germany. To these are just the facts. We have them in the interest rate cycle that we have in the eurozone.

So I think you're probably right that from an emotional perspective, they could have thought of something nicer than having higher interest rates. But as you know, the ECB does not only focus on these countries. And remember, they do assist these banking systems still.

FOSTER: And there are those who benefit from interest rate increases, of course, savers around the world.

In Europe, is that going to have a big impact on savers?

I mean how are savers and debtors compared in this?

SCHILO: Well, I think that's a quite important point because the majority of the eurozone, especially if you look on -- on the household side, it is a savers' economy. You have a high savings rate in Germany, in France, in Italy and you already cover a huge amount of the eurozone.

So, in a way, I think monetary policy is less geared toward debtors -- and you just mentioned the periphery yourself, where we do have higher debt levels on the household side.

So I think it is important and can explain partly why the ECB diverges from the Fed and from the Bank of England.

(END VIDEO TAPE)

FOSTER: Well, that's the European story.

Now to the American story. And with just one day to go before a possible government shutdown in the United States, top Republicans and Democrats seem to be agreed on only one thing, and that's the prospect of a solution getting more and more remote.

Let's recap this story for you.

Congress needs to decide on the budget for the current financial year by midnight on Friday. If it doesn't, parts of the government will have to be shut down. Remember, President Obama has already agreed to put this deadline back twice.

The two main sticking points are these. It's the amount of cuts and the provisions within the budget plans. Thor, controlled by the Republicans and led by John Boehner, approved a budget involving $61 billion in cuts. But the Senate, controlled by the Democrats, said those cuts went too far and they rejected it. Senate Majority Leader Harry Reid says a shutdown now looks likely and Republicans have offered to extend the deadline by one week if the government agrees to a plan involving $12 billion in cuts.

But Mr. Obama says Republicans are using the plan to push through extra policies on abortion and health care and are holding back talks as a result.

Ed Henry has been following the day's negotiations on Capitol Hill -- Ed, you can explain to us, actually, what the politicians are talking about.

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: Yes, well, what's interesting is they're fighting over spending cuts and how much to cut. I'm speaking low because speaker of the House, John Boehner and Senate Majority Leader Harry Reid just came in behind me. Right now, they're about to address reporters. They've been meeting in the Oval Office with President Obama and Vice President Biden, trying to work out at least a short-term deal to keep the government open.

Take a listen to how Jay Carney, the White House spokesman, put it earlier. He was talking about one Republican plan on the table that would fund the government for another week and keep the Pentagon open until September 30.

He said the president would veto that.

Here's why.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: He does not believe that we should another short-term measure that carries within it a lot of policy implications in order to kick this can down the road and pay the toll booth in -- any longer. It is simply no way to do business.

We are at a point now, as you know, where the president and Democrats have demonstrated their willingness to come more than half way, if you -- toward the Republicans.

(END VIDEO CLIP)

HENRY: so you can hear, they still don't have a deal. The leaders are behind me talking and we're trying to get a readout of exactly what happened in the Oval Office.

But the bottom line is if they don't come to a deal, the government will shut down at midnight Friday -- Max.

FOSTER: And what sort of economic impact will that have?

Obviously, the public sector is big.

But the economy needs leadership right now, right?

HENRY: Well, absolutely. It would shut down all kinds of government services. It will shut down the national parks in the United States, shut down agencies that deal with processing new mortgages on homes. So this would have a huge, huge impact. Also, people who file their tax returns by April 15th by paper, they would not get refunds.

FOSTER: (INAUDIBLE).

HENRY: So the are people who are waiting for that money -- Max.

FOSTER: OK. We're seeing live pictures of John Boehner speaking.

What do you think, at this point, in the -- sorry, it's Harry Reid. Let -- actually, let's try and listen in to that, Ed.

If you could stand by for us.

SEN. HARRY REID (D-NV), MAJORITY LEADER: -- today to see if they can work through the issues. We had a frank discussion. We had the necessary parties there to move toward the finish line.

I'm disappointed we haven't been able to get something done to this point. But I am pleased that we're still working on getting there. In a matter of a little more than 24 hours, unless we work something out, the government will shut down. The essential services of the government will shut down. The security operations of this country and on and on with the things that will really be detrimental, including, as we've learned from an economic report this morning, just a shutdown, of no matter how long it is, will be a .02 percent drop in our domestic product.

So we're going to continue to work to get this done. It's not easy to do, but it's doable. And as I said, we don't have a lot of time to do that when we get back here at 7:00. And we hope that that time when we come out, we'll have something done.

If not, we'll, of course, have to look forward to a bad day tomorrow, which is a government shutdown.

UNIDENTIFIED MALE: So you're coming back at 7:00...

UNIDENTIFIED FEMALE: Is (INAUDIBLE)...

UNIDENTIFIED MALE: -- tonight for a meeting, is that right?

FOSTER: Harry Reid then speaking to very near where Ed Henry is standing right now -- Ed, we didn't hear anything particularly newsworthy, I guess.

But what did you make of the tone of that?

HENRY: Well, I make the tone is relatively positive. I mean when you have the Senate majority leader saying we haven't quite gotten it done, but this is doable, we can get it done, they're still being optimistic, number one. And number two, they also, very importantly, I think, the only bit of news out of it, frankly, is that leaders on both sides -- Senate leader Harry Reid, the Democrat, and Speaker Boehner, the Republican, were saying that they believe they're coming back, apparently, here to the White House, about 7:00 p.m. Eastern time -- you know, that's just less than five hours -- to meet with the president and maybe Vice President Biden again.

So as long as they keep talking, that's relative positive. But the fact of the matter is they still do not have a deal. That is the bottom line -- Max.

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

It's going to be an interesting 24 hours over there in Washington.

Now, building a business from the ground up -- India's sparkling new office buildings may look good, the question is, can it help the companies to fill them?

(COMMERCIAL BREAK)

FOSTER: All this week, we have our eye on India. If you want to see with your own eyes how much the country has changed over the generations, you only have to look at its skyline. There's the iconic India of the Taj Mahal. Of course, we all recognize that. The modernizing India, like the hotel of the same name in Mumbai. And then there's India today. This is the Antia Building (ph), the newest edition to the city's skyline. It plays home to India's richest man, Mukesh Ambani.

It's not just homes and hotels that are transforming India, though. If it's going to compete on the world stage, it needs state-of-the-art office buildings, too.

As Mallika Kapur reports, the work is already well underway there.

(BEGIN VIDEOTAPE)

MALLIKA KAPUR, CNN CORRESPONDENT (voice-over): It looks like a giant butterfly rising from the ground, its wings interconnected with a central spine. There's a lot of glass and a lot of steel.

N. CHANDRASEKARAN, CEO, TCS: I think it has more steel than the Eiffel Tower.

KAPUR: N. Chandrasekaran is the CEO of Tata Consultancy Services, India's largest technology firm. He says this futuristic office complex reflects the company on many levels.

CHANDRASEKARAN: It represents our skill. It represents the aspiration of the people. It represents the best of the Indian IT industry. it represents the future.

KAPUR: In the near future, these buildings will house 24,000 employees, called associates.

(on camera): Most of our employees are under the age of 25.

How does this building, then, cater to their aspirations?

CHANDRASEKARAN: You see, the IT industry is young. Our average age of employees is about 28. And they all have huge aspirations. They want to build great careers. So it becomes very important as an employer. We offer our associates a holistic life. It's about giving them a great environment. It's about an environment that they can ideas, collaborate. It will help us to attract the right talent, but more importantly, regenerate us.

KAPUR (voice-over): The campus has water bodies, landscaped gardens, 146 kinds of trees and uses solar panels to generate electricity. Beautiful surroundings, but at the end of the day, it's about branding and winning business.

(on camera): Having a building like this, do you think it will help you improve your stature, your image with clients around the world?

CHANDRASEKARAN: Definitely. This campus establishes our brand strongly. Many of our customers who visit here for the first time, they're absolutely awed and interested by what we have been able to achieve. And they also appreciate the kind of work environment we give our associates, because in the -- in the early days, it's often thought that the work environment in India will not match the work environment in the West.

KAPUR: That was the case for many years, wasn't it?

CHANDRASEKARAN: Yes. Yes. But if you really look at it today, I think it will rank among the best (INAUDIBLE) anywhere in the world. In fact, in most cases, it will surpass anything else you have.

KAPUR (voice-over): TCS spent $500 million on this building and has earmarked another billion dollars to fund state-of-the-art offices over the next five years, each one in a different architectural style.

(on camera): Why has design been so important to TCS?

CHANDRASEKARAN: I think it's very important because of what we expect from our people, also. So our associates also have to deliver the kind of solutions that are special, that are compelling and that are satisfying the needs of the customers. So you've got to promote quality everywhere.

(END VIDEO TAPE)

FOSTER: Well, Eye On India continues all this week on QUEST MEANS BUSINESS, as we give you an in-depth look at out of the world's fastest growing economies.

Right now, we're going to get the weather for you, though.

Guillermo is at the Weather Center for us -- hi, Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hi, hey, Max.

And I wonder if you're pleased with the weather you have in London.

FOSTER: It's amazing, isn't it?

ARDUINO: It is.

FOSTER: It's unrecognizable from a week ago.

ARDUINO: Unrecognizable. That's a perfect adjective.

Yes, it's going to continue, we think that for some days now. And we have nice conditions. It's warming up. It's -- it's all the western parts of Europe. While it's taking time for Scandinavia and for the east to get better conditions, still some snow likely there. Winter hangs on. Here we say, until Saturday, at least.

But it feels like summer, very warm in some parts, like in France, the French Riviera a little breezy in the Mediterranean Sea. But then in -- in England, in the Midlands, including at Scotland, where we saw some bad and we still see some clouds. But we saw some bad weather before. Now it's improve. That jet is moving northward and it's allowing the nice conditions to prevail.

So this is what we're seeing -- nothing.

Hello?

You see, some in Germany. And, actually, it's fizzling out. When you see the radar, how the -- the storms are moving south or clouds, mostly, and some rain showers, but it's improving quickly, very fast.

That means that we're not going to see problems at airports. I'm happy to report that. Remember, this is the time when we start to see some rough weather, especially in the United States. But some winds still, Copenhagen and Vienna. But I must say that we don't usually see these green boxes that say that things are going to be fine. You know, we're not going to see significant problems, weather-induced problems, at airports.

Now, the east, still some snow here in parts of Belarus and Russia and also storms going through the Black Sea. Some storms in coastal parts of Turkey, in the north.

Greece getting much better.

Look at temps. These are happening right now. It's 8:47 p.m.. If you're watching from Stockholm, it's 10 degrees outside; Oslo, 8 degrees, too; 20 in London. It's 7:47 p.m.. So it's a little bit early. Sixteen in Birmingham. The Midlands, you know, with nice conditions. Leon in Southern France, 23. And Lisbon, 27.

What's going to happen later on?

We'll see the forecast here -- 18 in Paris; much warmer in Madrid at 27. If you're watching from there, you're enjoying it, I know. And 19 degrees in London.

So in the States, we want to go, lastly, to say that we have the Masters going on, the golf Masters, in Augusta. The weather can't be better. We're seeing OK conditions and sunny for Thursday. Winds light from the south. This is perfect. Usually, it's much warmer, Max, than this. But we're seeing very, very nice conditions in Augusta, as well.

FOSTER: Good news.

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

ARDUINO: Thank you.

FOSTER: Now, the warning e-mails keep coming and even hitting the unsubscribe button might not help you. We'll take a look -- a closer look at the Epsilon data hack and what it means for your security, after the break.

(COMMERCIAL BREAK)

FOSTER: Now Republicans can't find a solution. Democrats can't find a solution. If nobody inside Congress can solve the U.S. budget problem, only one group is left to save the day.

Maggie Lake has been finding some good old-fashioned popular politics on the streets of New York -- Maggie.

MAGGIE LAKE, CNN CORRESPONDENT: And, Max, you know there is no shortage of opinion on the streets out here. And -- and this is a serious issue. A recent poll says over 70 percent of Americans believe the deficit is a really big problem.

Now, they're watching the politicians squabble about what to do in Washington.

So we went out and asked, what would you cut?

Now, we all know there's easy waste that can be cut in Washington, that can go immediately. We did great with that.

But what -- if you're really going to get serious about the deficit, you need to cut those big ticket items -- Social Security, the pensions, Medicare, defense spending.

Now, when we asked people, what about those areas, what would they be willing to cut, this is what they had to say.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: I'm a few years away -- not many years away -- from Social Security. I want my Social Security protected, obviously.

LAKE: That's a no -- that's a no-go.

UNIDENTIFIED MALE: That's a no-go.

LAKE: The other two choices?

UNIDENTIFIED FEMALE: That's tricky, because...

UNIDENTIFIED MALE: It is.

UNIDENTIFIED FEMALE: -- we need defense, I mean especially now, what's going on in the Middle East...

UNIDENTIFIED MALE: Oh, yes.

UNIDENTIFIED FEMALE: -- and...

UNIDENTIFIED FEMALE: We need (INAUDIBLE).

UNIDENTIFIED FEMALE: We need health care, yes.

(CROSSTALK)

UNIDENTIFIED MALE: Yes, we do.

LAKE: What about grandma's pension?

UNIDENTIFIED FEMALE: Definitely. Definitely. I mean she's worked hard.

UNIDENTIFIED FEMALE: If I have to cut, I'd have to put it in defense.

(END VIDEO TAPE)

LAKE: We heard defense a little bit more than everything else. But as you can hear, Max, Americans are -- are very divided and they admit that it's really hard, which is why critics say the politicians in Washington should stop arguing about the 2011 budget and get to work on grappling with some of these long-term problems, because it's going to take a while to have a conversation about this with the American people.

FOSTER: Yes. And people must be very concerned that the economy is suffering a bit right now. And it's going to lose leadership.

What's -- what do you think the economic impact will be of this?

LAKE: Of -- of the shutdown, it's a little hard to say right now. It depends, really, on how long it lasts. If it -- if it's just a couple of days, over the weekend or a few days into next week, probably not going to be that great in terms of the overall economy. Clearly, those government workers are going to be hit, if they're not getting paid.

But President Obama is warning that if it is prolonged or if it continues, that it's going to create uncertainty, which would -- which could hurt the economy at a time when it's now just getting back on its feet.

So they're warning about consequences. There's a lot of political brinkmanship going on. But clearly, that kind of uncertainty is not what anyone wants to see, not investors and certainly not the people on the streets here -- Max.

FOSTER: OK, Maggie in New York.

Thank you very much, indeed.

And that looming shutdown has become a big talking point on Twitter today. This is the main hash tag for you if governments shut down.

Let's see what people are -- are saying on the hash tag. We'll bring up a few comments from around the world.

Here's one from Spain: "The country will just be fine. If you don't believe me, ask Belgium. They're running without a government."

A true enough point, but there is money in the public sector in Spain right now.

Let's have a look over here, in Chicago, in the US: "Bands of anarchists will roam the streets selling incandescent light bulbs and high capacity toilets."

A bit of everything going on.

Staying in the U.S., Washington, DC, where the heart of the story is, of course: "National parks will close across the country. Tell Congress to keep the parks open. It really will affect everything, of course, if government closes down."

And here's something from Arkansas: "we should not have to pay taxes because there's no government, so why should you pay taxes," I assume. Yesterday, we told you about some big companies that had their list of clients' e-mail addresses compromised.

Now, we're going to take you onto a different story. That list just keeps growing. Businesses like American Express and Ritz Carlton store their e-mail marketing lists with a company called Epsilon. And that company had the information breached.

This could be -- this could put your e-mail address in the hands of imposters. You won't know. They send you official looking e-mails linking you to official looking sites, where you enter your information and then make off with it.

And we're seeing all that coming down to the fact that your data actually never gets deleted.

(BEGIN VIDEOTAPE)

FOSTER: Well, as we've learned more about what went wrong at Epsilon, we've learned a lot more about what sort of data they were storing, data which is stored in server centers like this one.

One company, for example, Benefit Cosmetics, no longer had a deal with Epsilon. But all the customer information for Benefit was still held on Epsilon's servers. So those customers were still vulnerable to a phishing scam, even though there's no link between Benefit and Epsilon.

Another company, Walgreen's, the drugstore, still have a deal with Epsilon, but some Walgreen's customers have unsubscribed from the mailing lists. But they, too, still had their data on those servers.

So the lesson seems to be once you have signed up to an e-mail list, your data is on these servers forever.

So what advice is there for you?

Well, I guess you just have to assume that your e-mail information is held on a server somewhere. So never follow a link from an e-mail. Always go to the Web site you're interested in directly. Type the address in yourself. Don't follow that link on the e-mail.

(END VIDEO TAPE)

FOSTER: OK, there you are, a bit of advice for you. The story rumbles on, as we get more information.

We'll be right back, though, with some information from the markets for you.

Stay with us.

(COMMERCIAL BREAK)

(COMMERCIAL BREAK)

FOSTER: Let's check on how the Dow is doing at the moment.

There were losses -- there are losses around a third of 1 percent, as you can see down 37 points. There was a knee-jerk reaction to the aftershock in Japan. It helped pull shares down, as Alison mentioned earlier. It's recovering a bit now.

Oil prices also weighing on the market, as Brent continued to rise. NYMEX topped $110 a barrel.

It was mainly a negative session here in Europe. But most of the major indices ended in the red, dragged down by falling mining and energy shares. Lisbon's PSI-20 bucked the trend, as banking shares soared for a second straight day. The bailout obviously the main issue there.

The euro is largely unaffected by the ECB's rate decision and Portugal's bailout quest is currently down just a bit, a (INAUDIBLE) percent, against the U.S. dollar.

That is QUEST MEANS BUSINESS.

I'm Max Foster in London. : "PIERS MORGAN TONIGHT" is just ahead.

But first, a check of the headlines.

END