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Dow Slumps; Finland's Election Results Might Have Repercussions in Portugal

Aired April 18, 2011 - 14:00:00   ET


MAX FOSTER, CNN ANCHOR, QUEST MEANS BUSINESS: In the red. The Dow slumps as S&P cuts its outlook on U.S. debt to negative.

Beware the euro skeptics. Why Finland's election results could hamper Portugal's bailout talks.

And a BRIC too far, the man who coined the term tells us that why he disapproves of the newest member.

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

Hello to you.

The ratings agency Standard & Poor's is loosing confidence in the U.S. economy. It has cut its long-term debt outlook from stable to negative. Standard & Poor's says there are two reasons for the dramatic move. One, America's large budget deficit compared to its AAA-rated peers and the amount of time it could take to fix it because of standoffs between Democrats and Republicans in Congress.

These figures from the OECD show just how much the deficit, in a AAA- rated country can actually vary. In 2010, the United States was 10.5 percent. Germany's was less than a third of that. U.K.'s, 9.6 percent, that is large, but remember it doesn't have the same policymaking problems that the U.S. has. Yesterday's downgrade is for the outlook for the U.S. long-term debt, not for the actual debt itself. Standard & Poor's held that at maximum AAA rating.

Nonetheless, we are seeing a big reaction on Wall Street. Felicia Taylor joins us now from the New York Stock Exchange.

I guess, Felicia, everyone was just taken by surprise by it?

FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Yes, I mean, this isn't really something that traders hadn't been aware of; I mean, that there is obviously political wrangling going on in Washington. Yes, we knew that, certainly. And we knew that that there hasn't been a budget proposal that has actually been agreed upon yet. But nevertheless, for the S&P to say it out loud is what got people sort of a little off kilter. And frankly, we're off the lows of the day. We did sink about 242 points, now we're down about 185 on the Dow. So, we are off about 1.5 percent across the board. And some traders basically say that this is not going to be a prolonged sell off.

It certainly is a wake up call to Washington. There is no doubt about it. That ongoing debate over fiscal problems in the U.S. has got to come to an end. They need to figure out a clear path and agree on it, soon, on the rising debt problems, otherwise we will have a problem.

S&P is concerned that these long-term fiscal challenges will go beyond the elections in 2012. That is the problem. It is not today. It is down the road. That, of course, would make the country's fiscal profile even weaker than some of those other AAA rated nations that you just spoke about, in Germany, and for instance, the U.K.

But earlier I spoke with Ken Polcari at ICAP Securities for a little bit better perspective.


KENNETH POLCARI, MANAGING DIRECTOR, ICAP SECURITIES: It's a shot across the bow. Saying, listen, guys, stand up and pay attention. I don't necessarily-somebody asked me today, you know, is this as bad as Europe? No. I don't-not clearly as bad as Europe. No, absolutely not. So let's not send that message. But the fact is the agency are concerned that we are just off the charts in terms of our fiscal irresponsibility. And so I think it just puts everyone on notice. Do I think we're really in line for a real ratings downgrade? I would be very, very surprised if we were- unless they don't get it together. If they don't get it together, I guess, anything is on the table.


TAYLOR: So the other voice out there trying to tamper a little bit of reason in the marketplace comes from the Treasury Department. They are pushing back, saying, look, the negative outlook under estimates the ability of America's leaders to come to an agreement. We can't discount the fact that Washington understands how serious this is. But the department is also stressing that the U.S.'s AAA credit rating is still in place. It hasn't changed. It is just this longer term outlook that is unnerving to the market right now. It is a reality check for the U.S. debt situation. If the country's rating were cut-and I'm not saying that it is likely to happen, it is very unlikely, you just heard Ken say-that would spike rates, it could derail the economic recovery. Stock and bond markets would be affected. So, clearly the pressure is on the Obama administration and the Congress to get to an agreement. And start cutting, you know, the nation's near $1.5-trillion deficit.

FOSTER: It's a reminder, I guess, Felicia, that the markets are driven by greed or fear. That is the saying, right? How much fear would you say there is in the markets? Do you fear, fear?


TAYLOR: Well, you know, I laugh a little bit, because the markets certainly are directed somewhat by the ability to make profits. And today, you know, the fear index went up. It is called the VIX Index. And it is the gauge of uncertainly in the marketplace. It went up about 20 percent. But let's keep it in line, because it certainly isn't anywhere near where what we saw when the Japanese crisis hit back in March. It does underscore how much there is unsettlement in this market right now. But traders are saying it will be a temporary dip in the marketplace. It is not something they are going to trade on, you know, days on end this week.

Because let's not forget we've got earnings coming in from a number of different companies. Mainly one of the banks; and you know Citigroup came in a little better than expected. It is the one bank that is actually trading higher in the entire grouping. JP Morgan Chase, Goldman Sachs, Morgan Stanley, all trading to the downside, anywhere between 1 and 3 percent. But Citigroup is up more than 1 percent. So it is today that we are concerned about this. But hopefully those fears will subside in the coming days, throughout the rest of the week, Max.

FOSTER: Felicia, thank you very much. You'll be watching for us. Thank you.

David Beers is global head of sovereign ratings at Standard & Poor's. He is the man responsible for the outlook downgrade. Earlier he told me what it means and why it is happening.


DAVID BEERS, GLOBAL HEAD OF SOVEREIGN RATINGS, STANDARD & POOR'S: What a negative outlook means in S&P speak is that we think that there is at least a one in three chance that the rating could go lower over the next two years.

FOSTER: Which is a pretty dramatic statement, so what are you pointing to in terms of negative economic news out of the U.S. right now, when things started to look better?

BEERS: Well, there is-you know, of course, the focus that we've had for quite awhile is not the cyclical recovery of the U.S. economy, but the underlying state of U.S. government finances. Which, in our estimation, has gone on weakening on a cyclically adjusted basis, right through this year, notably after the tax cut compromise between the administration and the Congress late last year. And now we are looking at two proposals on the table. One from the administration, announced last week; the other from the House Republicans announced a few days before that. They agree on the rough size of a fiscal adjustment. They are saying about $4 trillion over the next decade. And that would begin to turn the tide of rising U.S. government debt burden in our estimation.

But given the political gulf between the parties, given where we are in the run up to the presidential and congressional elections in November of next year, we just have big questions as to whether a meaningful compromise can be reached between Congress and the administration, over the coming months. We think this process may extend into 2013. And remember too, that-


FOSTER: So, in laymen's terms, David, are you saying politicians aren't sorting out the massive debt problem in the U.S. And therefore the U.S. might struggle, to some extent, to deal with its debts?

BEERS: That's right.

FOSTER: That's a pretty dramatic thing to say, though, isn't it? As the markets, now looking at the markets, I think they are down more than 1 percent, so therefore, you are suggesting a very, very negative outlook for the U.S. economy, in terms of everyone else in the markets right now?

BEERS: Well, no, I think you are confusing the short-term economic outlook, or the outlook for the U.S. economy, with the underlying fiscal trends, which is what this rating this statement today is focusing on.

FOSTER: Just today I was speaking to Jim O'Neill, a very senior economist at Goldman Sachs. I'm sure you'll know him, very well regarded. He suggested that quantitative easing is no longer needed in the U.S., because actually the economy is improving relatively quickly. And he said that politicians are handling it pretty well. If you look at what they've achieved in terms of economic policy, it has gone quite well in the U.S. It is not actually as bad as everyone is saying.

BEERS: Well, I think we are confusing two things. And, of course, I respect Jim O'Neill, but he's not talking about the underlying fiscal stance of the U.S. government. He's talking about the monetary policy strategy of the Fed, right? These are two different things.

What we are talking about here is the underlying state of U.S. public finances, the rising debt trajectory of the U.S., and how that compares with some of its key peers, like U.S. (sic), Canada, France and Germany. We see the rising U.S. debt burden as a percentage of GDP increasingly diverging with some of the U.S.'s key rating peers. In part, because in those countries deficit fiscal consolidation is actually beginning to happen; it is still being talked about in this country.


FOSTER: As I mentioned there, to David Beers, Jim O'Neill from Goldman Sachs Asset Management, thinks the U.S. recovery isn't doing that badly at all. Earlier today he told me why.


JIM O'NEILL, GOLDMAN SACHS ASSET MANAGEMENT: What is particularly interesting in the past month is that-and I've just come back from another trip to the States-that there is a shift taking place in thinking about fiscal policy. With the rather odd sight of, albeit in terms of significance, major differences of both Congress now, and the White House pounding the table about deficit reduction; three months ago, you wouldn't have got that.

And again, you can link that indirectly, I think, to the recovery of economy and the fact that the Feds played such an important role. And so, amongst other things, the Fed will also be saying, as you said, OK, you guys we've done our bit, now it is time for you guys to bring the deficit down. And that will stop any inflationary pressures getting too big. And it is part of the long-term adjustment we need to get, I think.

FOSTER: Are you not concerned that politics is going to get away from those decisions?

O'NEILL: Well, you know, politics is politics. If you look at it from 40,000 feet, from where they both have come from, in November, you know where we are already is pretty astonishing. As I said earlier, the idea that President Obama, in particular, would be talking about significant deficit reduction, this soon, was not expected.

And then the other thing which is not getting enough attention either, is that in his proposals he is talking about some kind of deficit limits for years going forward, which to me is reminiscent of something that happened way back when with the so-called Gramm-Rudman-Hollings Bill. I think QE2 has worked. The U.S. economy is coming back pretty strongly. Unemployment is now falling notably. And so the Fed should be very happy and why would there be a need for QE3, if QE2 has worked, and the economy is on the mend?

FOSTER: Hasn't QE2, though, driven the value of the dollar down to an almost dangerous point?

O'NEILL: Let me say a couple things about that. The Fed's mandate is clear. The Fed's mandate is about maintaining low inflation and full employment. There is nothing in there at all about the dollar. You know, the Fed's job is to not worry about the dollar. And the second thing, more importantly, is the quicker the U.S. economy recovers and the Fed can start to think about more normal policies the more inevitably that the dollar will recover.


FOSTER: Well, we'll be hearing more from Jim O'Neill later in the show. Stick around for why he thinks South Africa is a BRIC too far; this coming from the man who actually coined the phrase BRIC economies.

Now, the fallout from that news on U.S. debt spread across the Atlantic in seconds. And Europe's trouble economies already had enough on their plates. So we'll ask if Finland's voters hold the key to the Continent's future, after the break.


FOSTER: Europe's latest bailout recipient is starting talks on its rescue package, but a stunning political sea change in one corner have gone to it, may mean the sands are shifting underneath Europe's most stricken economies. IMF delegates began talks in Lisbon about Portugal's bailout deal today. The package is expected to total around $116 billion. But the three European nations, given bailouts are facing fresh economic problems.

Start with Germany. German's finance minister recently suggested extra measures might be needed to Greece. But Greece insists it will not have to restructure its debts. Finance Minister George Papandreou- Papaconstantinou, ah, remains optimistic as he explained to CNN's John Defterios last month.


GEORGE PAPACONSTANTINOU, GREEK FINANCE MINISTER: We think that we have bottomed out in the recession. Actually, if you look at the data, it is getting shallower. We are not getting into improving territory, with a positive quarter, perhaps the third or the fourth of 2011.


PAPACONSTANTINOU: Perhaps. More likely the fourth. What is driving this, and this is the interesting part about where growth will be coming from. Is through (UNINTELLIGIBLE) and exports; our experts in the last four months have been booming, have been growing at the rates between 25 and 40 percent.


FOSTER: Well, in Ireland, Moody's has downgraded Ireland's banks to junk status after downgrading the country's credit rating on Friday. Five Irish lenders now have a deposit rating of Baa3.

And in Finland, a major political upset could complicate Portugal's bailout or any future bailouts that come, in fact, the anti-European True Finns Party made big gains in parliamentary elections over the weekend. They firmly opposed to giving bailouts to other nations and may try to derail the Portuguese process.

The rise of the True Finns could be the first indication of popular opinion to negate the rescuing of failing economies. It is not clear how easily the party could upset the Portuguese package, but their opposition to bailouts is undisputed.

Antti Kaikkonen is a member of the Finnish parliament, as part of the Centre Party. He joins us now from Finland.

Thank you so much for joining us. Where do you stand on the True Finns and their point of view?


Well, we are having very interesting times in Finland right now. The chairman of the biggest party, the conservatives, Minister Jyrki Katainen (ph), has very challenging weeks ahead. Probably the new government will be based on cooperation of the Conservatives, Social Democrats and the True Finns Party. And one of the biggest issue in forming the next government, certainly, is the financial support for trouble Euro Zone countries and Conservatives is the only party of these three major parties which is clearly supporting the Portuguese bailout and True Finns aren't.

FOSTER: So this is a wave of nationalism?

KAIKKONEN: Yes, I think, I think it is something like that. The True Finns won 34 new seats in the parliament and all the other parties lost in the election. And one of the main reasons is the European Union policies. I have to say that this is something very special and strange in the Finnish politics. Our political system and support of the parties has usually been very stable. But yes, the times, they are changing.

FOSTER: And it is interesting, isn't it? Because what is happening in Finland seems to be some representative of a sense of political change across Northern Europe. Am I exaggerating things there or do you feel that the countries around you are going this way as well?

KAIKKONEN: Well, it is possible there is some kind of growing Euro skepticism, indeed. And well, also we have seen something like this already in Sweden. But, well, we'll see.

FOSTER: OK. Antti Kaikkonen, thank you very much indeed for joining us from Finland.

Very interesting story developing there, could have wider repercussions and these worries combined with that negative U.S. debt outlook made for a double-whammy of bad news for European markets, which Jim has been looking through.

Bad, Jim?

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: Well, yes, a bad day. Because, I mean, it didn't seem to take much to spook the markets here. And we can look through some of the main European markets. They are all down. And they were down before we had this rating shock in the U.S. as well. But I think a lot of the afternoon had a lot to do with what happened in the U.S. A good sharp correction there, down more than 2 percent for all the main markets, in the peripheral markets as well, as we obviously focused in on Greece, we focused in on Portugal, focusing on Ireland again. We did see some pretty strong reaction there as well. You can see with the big markets, in those smaller-I'm sorry, the smaller markets around Europe, all down between 1 and-a little 2.5 percent. Greece down more than 2.5 percent as well.

I think what we are seeing is this huge debate about whether Greece will have to restructure. I mean, Finland plays a part in what might happen in Portugal, but that is all sort of down the road.

FOSTER: Not a big part, though?

BOULDEN: And I actually don't see why Finland would have a-they have made a decision already, all the European countries, to fund this fund. If they choose not to fund the fund, someone else will have to fund the fund.


BOULDEN: If you follow me. So I'm not sure why this is becoming such a focus on the markets. But we'll see, we'll see a couple of days from now we'll see. But if you look at the euro, I think we should look at that as well. Because until now, you know we would sit here, back last year and talk about the euro and it was really, really weak when we had this huge worry about Ireland. Then Ireland got the bailout and the market seemed to ignore everything that has happened, until this last week. And now, you know, at 1.42, we did see it all the way down to 1.18 last November; 1.42 is just a little bit off of where it has been, which really was a high that we have seen for a long time.

FOSTER: Is that not weakness for the dollar as well, though? Or strength of the euro?

BOULDEN: Usually we say it is about the euro.


BOULDEN: Usually we it is about where the dollar is going. But, of course, we have interest rates rising here, so we have seen the euro about the last week or so the euro is coming off the boil a little bit. And certainly there is some uncertainty, because European banks are exposed to all these countries, Greece, Ireland, Portugal, and of course, the big worry about Spain. Though, I think that worry has dissipated very quickly.

But still, then we get back to this whole idea, is Europe still in this massive mess? Can they sort out their debt? If you look at the bond markets, the bond markets tell you know. There will have to be a restructuring. And we are seeing a little bit of that into the euro today.

FOSTER: Jim, thank you very much indeed.

Now, how do you come back from one of the worst tragedies in recent history? With dignity and determination, just look at Rwanda's capital, a clean and green Kigali, is tonight's "Future City".


FOSTER: Clean and green, Rwanda's capital is forging a new reputation after the genocide of the `90s, Kigali has remade itself into an award winning place to live. The capital's remarkable progress has also made it the face of the new Rwanda. And as Richard shows us, Kigali is one of our "Future Cities".


RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS (voice over): There is no denying it, these clean, calm and tidy streets of Rwanda's capital do not fit the stereotypical image of an African city. No sign of the polluted, chaotic streets associated with some of its urban neighbors. The key to cleaning up the city has been getting everyone to do their bit.

PAUL KAGAME, PRESIDENT OF RWANDA: Keeping our streets clean, our homesteads clean, ourselves clean, is not something we need to go out looking for resources (ph). It is something we have within ourselves, why not start from there? It becomes a culture, it becomes a way of life.

QUEST: Four years after the 1994 genocide laid waste to Kigali, the city began to restore its sense of order. In the years that followed they targeted garbage collection, beautified the streets, and banned the use of plastic bags. In private enterprise, men like Paulin Buregeya saw an opportunity in the city's needs.

PAULIN BUREGEYA, COPED WASTE COLLECTION & RECYCLING: I started a company in 1999. It was a challenge for every Rwandan to see what to do and to know what to do. So it was in that process of changing the country and trying also to recover what we lost during the genocide.

So there were so many problems, including waste management. So, I say why not start by waste?

QUEST: The doctrine was born. Being clean is crucial to progress.

ROSE MUKANKOMEJE, DIRECTOR, RWANDA ENVIRONMENTAL MANAGEMENT AGENCY: We cannot talk about development of this country when we don't take care of the cleaning. You see, some people they think when you are poor, maybe you don't have a right to own things. I think even if Rwanda is not a rich country, we have a vision. We want to be clean, we want to be rich, so one of those things is to start to manage the resources.

QUEST: The heart of the program is a citywide clean up day. It is compulsory. On the last Saturday of each month business stops and everyone, including the president, meets for umaganda (ph), a day of community work and discussion.

Today the new mayor of Kigali is working with local youth groups. This collective spirit of participation has its roots in the country's recovery from civil war. It may seem out of place to talk about cleaning streets, after a city has faced genocide, but that ignores the point. Keeping Kigali clean, means the population working together. That means building the community.

MUKANKOMEJE: After genocide, the fabric of the society was completely destroyed. You have somebody living here, he is a survivor, another one is maybe a killer, I don't know. Through this community work, you know who is your neighbor. And also, maybe you (UNINTELLIGIBLE) this ownership, this Rwanda is for us.


CROWD RESPONDS (onscreen translation): Work for the country, develop!


QUEST: When he speaks, the mayor keeps his message simple. Each one of us is responsible for building our city.

NDAYISABA (onscreen translation): You will build-

CROWD SINGING (onscreen translation): We will build, we the children will make Rwanda a paradise.

NDAYISABA: Rwandans have now chosen to put their efforts together because they realize that there is a no reason of divisions. We are all Rwandan. United we are achievers, and this umaganda (ph) is one of the testimonies of that.

UNIDENTIFIED MALE (onscreen translation): The past government used the youth to destroy the country. Today's government is encouraging us to do the right thing. So that is why we feel responsibility to help to see our Rwanda grow, and continue to be clean.

KAGAME: Anyone who have had to overcome many odds, many challenges, and we have been so lucky-I should say, you know, we are unlucky on one hand, because of the problems we have faced in the past, but on the other hand we are lucky in a sense that having survived this and gone over it, and it creates a new spirit.

QUEST: Here in Kigali, they have gone right back to basics. Cleanliness maybe next to godliness, but it is also a way to build a future city.


FOSTER: Well, it has been 150 years since the start of the U.S. Civil War, and a new film directed by Robert Redford focuses on what happened after the assassination of America's 16th president, Abraham Lincoln. He calls it a story no one knew about, tied to an event that everyone knows. Redford and the cast of "The Conspirator" talks to CNN Piers Morgan. That is 30 minutes from now, right after QUEST MEANS BUSINESS.


FOSTER: Welcome back.

I'm Max Foster.

These are the headlines for you.

Any moment now, we're expecting to get official results from Nigeria's presidential elections.

I want to bring in Christian Purefoy now.

He's on the phone from Abuja -- Christian, there seem to be some reaction even before we've had the announcement. It looks as though it looks like it's going one way.

Just take us through that.


FOSTER: Hi, Christian.

Can you hear me?

It's Max Foster.


Hi, Christian, we're...

PUREFOY: Yes, hi.



FOSTER: Take us through it.


I was in the room while he was announcing the results. I just had to run out. It's an extremely tense atmosphere in that room, as the chairman of Nigeria's election commission announces the results of the winner. He's just doing it now.

It will be Goodluck Jonathan, the incumbent president, from the south of the country.

But this result is important for different reasons from what everyone hoped for it would be.

In the north of the country right now, as he's announcing the results, violence has spread across the north, as young men have taken to the streets protesting the election and the result -- Max.

FOSTER: Christian, just give us the background on how we got to this point in the election, what the election was about, the fact that Jonathan was an incumbent and what led up to the -- to the election.

PUREFOY: Yes, Max, I mean it -- it's complicated, but basically, incumbent president, Goodluck Jonathan, came to power last year when the previous president, a northerner, died, Yar'Adua.

Now, until that point, Nigeria had had a rotational system of the presidency where a northerner always rules -- someone from the southwest would rule for eight years, a northerner would rule for eight years and then someone from the southeast would rule for eight years.

Goodluck Jonathan's (INAUDIBLE) his previous President Yar'Adua's death and Goodluck passed Jonathan's rise to power altered that completely, that status quo. A lot of people in the north are not happy about that and they see it as a removal of the status quo of the north's power. And traditionally in Nigeria, for most -- most of its 50 year existence since independence, the northerners have put all the (INAUDIBLE) -- excuse me.

John -- Goodluck Jonathan's rise to power threatens a complete power shift away from the north to the south. And we're seeing that play out, Max, on the streets in Northern Nigeria right now.

FOSTER: Yes, just stay there, Christian.

I've just got to see if we can get some sound from this.

This is basically the announcement of the Nigerian election result.

Let's see -- let's see what we can get...

UNIDENTIFIED MALE: We find 12 million...


UNIDENTIFIED MALE: -- 414,853 scored 34,331 -- 34,331. HDP scored...

FOSTER: OK, just listening there as the Nigerian election results are coming through. It's going to be quite an announcement, I think, Christian.

But as you were describing, it revealed some tensions this election, hasn't it?

Would you say it's revealed some religious tensions, which perhaps people weren't aware of before?

PUREFOY: Well, Max, as -- you know, I don't know if you're seeing the pictures right now of Jega announcing the results. The two parties to watch out for are the opposition party, the CPC, Congress for Progressive Change, and the PDP, the Peoples Democratic Party. The PDP is the ruling party, which Jonathan is now heading, and the CPC has said -- it's headed by son -- the northerner, Muhammadu Buhari.

So what has happened, yes, unfortunately, it has fallen along religious lines in Nigeria. Jonathan, from the Christian south, ruling the CDP Party, has the majority -- the majority of the south has voted for him. The CPC, headed by the Muslim northerner, Muhammadu Buhari, the majority of the north has voted for him.

And in the ineck (ph) office, Max, it's visually laid out. They've got a map of Nigeria and the majority votes in each state. And this cut right across the middle is the line.

In the -- in the top half of the country, you have the CPC, a huge swath of victory. And in the south, a huge swathe in the bottom.

So the announcement this man is making now is -- is momentous for Nigeria, because the big worry in Nigeria has always been that, you know, perhaps its -- its just too big, too many ethnic divisions and religious divisions.

It has -- for 50 years it has passed the buck. And the hope is that these elections, free and fair and credible, will allow people to -- to make their voice heard through the ballot box and not the street.

That's always been missing in Nigeria and why it's had a succession of military coups to try and keep the country together, so the military said.

We have new just had this election, that many foreign observers, Max, have said, yes, they are, you know, much more free, much more credible than the past elections we've had. And importantly, on election day, Max, they worked as a team with Goodluck Jonathan in presenting the Nigerian population with this election had managed to pull it off, if you like, had managed to unite the country, allowed them to make their voices heard at the ballot box.

But as we've seen in riots a few days, Max, you know, first yesterday in the northwest and now in the northeast and then today again the particular flashpoints in the cities of Kano and Kaduna, we've seen Muslims and Christians, where I've heard reports of mosques being burned, Christ -- churches being burned.

It has to be said, though, Max, that at the moment, this is not a religious problem. The -- the target -- the main targets right now in the north are party officials, the supporters of the CPC are going out onto the streets and attacking the ruling party officials, party agents' cars, buildings, belonging to them.

And it's hoped that before it gets out of hand -- the military has imposed curfews across the -- you know, some of the cities in the north. It's hoped that they can keep it under control before it spreads, because that split, Max, between the north and the south is one that (INAUDIBLE) one of the titles, that if they start, you know, religious tensions explode in the north or in the south, it might, in fact, happen in -- in -- in the other end of the country.

Now, if -- if, you know, it is hoped that this man announcing these results to -- to bring it to its most basics, he is a Muslim northerner. And that is extremely important, because people in the north, Max, they -- they trust him, they feel he's reliable.

They -- he was brought in to head the election commission, to make it better. And he has delivered on that promise, many Nigerians believe, with these last elections. And it's hoped that he will be a calming voice, Max, that will bring control and trust to the whole issue and that many people in the north will -- will accept the results he about to announce -- Max.

FOSTER: Yes, we're -- we're getting the impression that the results are about there.

I'm just going to sit with you for one moment longer, Christian, because you were talking about -- there about what the international observers have said about this election, this key election in Nigeria.

Would you say that gives this election legitimacy, whatever the result?

PUREFOY: It will do. International observers have been pushing -- all the embassies have been pushing very hard on Nigeria in recent -- in the last four years, to try and have some sort of accountability, transparency, particularly in their elections, because they feel that if Nigeria could get its elections right, you can bring democracy to people. As I said before, if you can let them feel that their voices are being heard at the ballot box, then that is important.

But this -- I mean they called the last elections in Nigeria -- the EU, Max, came here and said they were the worst elections it ever witnessed anywhere in the world. And that involved ballot box rigging, results being inflated, the voter registration had names like Nelson Mandela, Muhammad Ali. People's votes weren't counted. They didn't go out. They were terrified.

This time, it is very different, Max. I was here in 2007 and this time, people turned out and they hoped, you know, they went out in the streets and they hope that this time will be different.

We were actually up in the northern city of Kaduna, which is one of the major flashpoints right now, where gunfire is going on, young men are fighting, soldiers on the streets. And they -- they really believed that their candidate, Muhammadu Buhari, was going to win. And that -- that was, unfortunately, in some ways, it's opening the bottle. You know, these young men almost had this religious fervor and belief that this man was going to win.

Beating the incumbent in Nigeria is -- in any country, is -- is an extremely difficult task. And he hasn't succeeded. But there's a lot of resentment and because of the past elections and the rigging and the failures to deliver democracy, there's a massive distrust in the democratic system in Nigeria. They just don't believe it.

And saying that, they're -- you know, the -- as this violence was breaking out, Max, the main opposition party, the CPC, have rejected the presidential results. That has been extremely important because if they don't give their legitimacy to the -- the views and the -- the fact that there's people on the streets fighting it, they -- they're saying that the results are not valid and the opposition party that they support are agreeing with them.

It is hoped that many people, once these results are announced, Max, in the north, in the south, will say, yes, that is the -- you know, that is a credible election, we will stand by it. The concern, Max, is that people don't.

FOSTER: That's right.

Christian, we're just sticking with this, because the -- this is the announcement of the presidential election results, a very crucial election for Africa, for Nigeria.

Let's just listen in to see if we can get some more details. He seems to be taking some responses.

UNIDENTIFIED MALE: Is the representative AFPT here?

Next, APF.

Is the representative of APF here?

Next, ARP.

Is the representative of ARP here?

Next, BLPP.

Is the representative of BLPP here?

Next, CPC.

Is the representative of CPC here?


PUREFOY: CPC is the main opposition party.

FOSTER: Are they -- Christian, we're -- we're struggling to get the actual result, but we -- we're expecting it at any moment.

What do you work out from what's going on there?

PUREFOY: I mean the thing to really bear in mind, Max, with all of this, the man, Hajispo (ph), this man, the election commissioner, has just presided over an election of Nigeria 150 million people. It's Africa's most populous country. It is also Africa's largest oil producer. It is not just important for Africa, it is important to the world.

If Nigeria can get this election right, if these election results are accepted much better than the last -- of course, they will have their problems, but they will be credible and people on the street don't take to the streets, they accept the results -- it's hoped that Nigeria will take off as an economic powerhouse, a regional powerhouse in West Africa, in the whole of Africa.

It is regarded as the big man of Africa. If they can get it right here, get democracy right here, then it can help lead the way in the vanguard of an African renaissance.

There's concern, though, as -- that, you know, as we've just talked about, you know, it is a country split, with over 250 ethnic groups split almost in two between Christians and Muslims. And that if it goes wrong, if those divides turn violent and people take to the streets, you know, and, you know, it is important, not all these big figures, Max, but for the average person on the street, you know, the U.N. says figures of 80 percent of Nigerians live on less than $2 a day. And this is Africa's largest oil producer. It's always ranked near the bottom of Transparency International. It's always ranked at the bottom of corruption standards.

It's -- and yet, you know, so this -- you know, the people at the top, they make huge amounts of money. You have billions of dollars at stake in these results being announced.

And yet for the people on the streets now, fighting it out on the streets of Kaduna and Kano in the north, they're very poor, and -- and particularly in the north.

If you took the north, Max, as its own country, it would probably have some of the worst statistics in the world -- the lowest life expectancy. Maternal health care is the worst. The literacy rates for women are some of the worst in the world.

So, you know, it's not (INAUDIBLE)...

FOSTER: OK, Christian, just to say that we've got confirmation that...


FOSTER: Just a second.


FOSTER: We've got confirmation that Jonathan has got 22-and-a-half million votes. So he's been declared the winner.

That will be, won't it, significantly more than his rival?

PUREFOY: Yes. Jonathan now has the majority votes. He is the winner. The incumbent president has won. And this is extremely important. That is an incredible victory for Jonathan. I mean whatever happens now, he is the first president of Nigeria to be elected from the oil producing Niger Delta region, one of the smallest ethnic groups in the region. He's the first (INAUDIBLE) to be voted there. It is where the majority of Nigeria's oil wealth comes from. They've never had a president there before.

They will certainly be celebrating this victory, Max.

It just depends on what the traditional power brokers of Nigeria, who have ruled Nigeria for most of this country, decide on this election, the northerners, the northern elite, the people on the street. They are worried that there is a power shift going on in Nigeria from the north to the south.

But and -- and, so, you know, this should be a good day for Goodluck Jonathan. He has achieved something never done before in the history of Nigeria.

But unfortunately for him, it has been soured by ethnic, religious and just political -- political problems that have cut across Nigeria for the last 50 years -- Max.

FOSTER: OK. We'll come back to you, of course, Christian, with that, as we get more reaction.

We're certainly watching the north and seeing if those -- those violent demonstrations are exacerbated by this. It has been a fascinating election, but a worrying one, in many ways, too.

Back to Christian Purefoy in the coming hours.

Returning, though, to our top story, Congress is in the firing line after Standard & Poor's partly blamed lawmakers for its negative outlook on the U.S. debt. The White House insists it is still on track to solving the country's budget problems, though.

President Obama's press secretary said he thought the ratings agency was underestimating Washington's abilities.


JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We think that the political process will outperform S&P expectations. The president is committed, as he made clear in his speech on Wednesday, to moving forward in a bipartisan way to reach common ground on this important issue of fiscal reform. And he believes that the fact that Republicans, that he and the Republicans agree on a target $4 trillion in deficit reduction over 10 to 12 years is an enormous -- an enormously positive development.


FOSTER: Well, Standard & Poor's' downgrade of the U.S. long-term debt outlook hasn't led to a spike in bond yields. U.S. 10- and 30- year debt is rising just slightly this Monday.

Mohamed El-Erian is CEO of PIMCO, which runs the world's biggest bond fund.

He joins us live from Newport Beach in California.

And the press secretary speaking to you, I suspect, more than most people. He wants to convince you that U.S. debt is safe.

Is it?

MOHAMED EL-ERIAN, CEO, PIMCO: It's safe in the sense of will you be repaid?

Yes, because the U.S. issues debt in its own currency, so that you could simply print money. But it is not safe in the sense that you're not getting paid enough to compensate for all the risks out there, including the inflation risk.

So I would say back to the press secretary, this is a warning shot that comes from S&P. Let's get moving on getting a unified vision on medium-term fiscal adjustment and let's get going with implementation, because otherwise, it's going to be very difficult to turn around these debt dynamics.

FOSTER: We're hearing from Jim O'Neill earlier, from Goldman Sachs. He was suggesting that, actually, the politicians have done a pretty good job of sorting out a few of the debt problems and it's been a bit exaggerated.

What do you think?

EL-ERIAN: I would take the other side of this. And I respect Jim tremendously.

If you look at what happened to the underlying dynamics, we are seeing a deterioration, day in and day out, of these debt dynamics, in the sense that the stock is going up, the deficit continues to be very high, around 10 percent of GDP. And the only reason why we haven't had more of an issue is because interest rates are unusually low.

Now, something is happening at the end of June, the biggest buyer of Treasuries, called the Federal Reserve, is stepping out of the market. And they've been buying up to 70 percent of what's been issued.

So we -- we will look at this, we say be careful, interest rates may go up and suddenly the debt dynamics would look worse.

And we've learned from Europe, Max, that with these dynamics, nothing happens for a while, nothing happens for a while, and then suddenly, things become non-linear. And that's why early action is so important.

FOSTER: And whilst you're on that point, a final question on Spain.

What are you saying about Spain right now?

EL-ERIAN: We're saying that Spain is inevitably impacted by growing talk in Europe about restructuring of Greek debt. However, Spain is not Greece in the sense that Spain doesn't have the high deficit and the high debt stock of Greece.

And Spain need not be Ireland. Ireland, if you remember, didn't have a debt issue, but then decided to take on the liabilities of someone else, the banking system.

So our view is that Spain is understandably being contaminated by this contagion. However, fundamentally, Spain is neither Greece nor does it need to be Ireland.

FOSTER: Mohamed El-Erian, thank you very much, indeed, for joining us, from PIMCO.

Thank you very much for joining us, as ever, on the program.

It's always great to have your point of view, a real player on the markets here affecting the features of many countries, in effect.

Now, it's that time of year again. Earnings season is in full swing. The Connect 4 is out. The Q-25 begins in just a moment.


FOSTER: As we've been reporting, Standard & Poor's' decision to lower its outlook on long-term U.S. debt is throwing new uncertainty into the U.S. investment outlook. It comes at a time when much of the markets' focus was on corporate earnings.

Over the next few weeks, hundreds of large firms will be releasing their results worldwide.

And to help us make sense of it all and to get some perspective on how earnings season is progressing, we once again bring you the Q-25. The Q-25 is our exclusive index of 25 companies reporting profits over the next week or so. We put companies through a rigorous test to get a thumbs up.

Now, companies must meet strict profit and sales targets.

Their earnings must handily beat Wall Street expectations and they must give assurances about future demand.

We've give an automatic green chip to companies that meet four out of five criteria. If a -- if a company, though, only meets three of our goals, we open things up to debate. And Maggie usually wins it, at least with me.

Anything less, we give it an auto -- automatic red chip.

And here are our props all ready to go.

Helping us hand out our first chips this the Q-25 season is, of course, Maggie Lake in New York -- Maggie, we went to Citigroup first, didn't we, because it's an interesting case study in these very large banks.

MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Yes, you're -- you're right, Max, it is. And -- and Citi often referred to as the sickest of all the U.S. banks during the financial crisis. So people are watching closely as they kind of claw their way back.

And this one we had to talk about a little bit, because it was only three out of five in terms of -- of the criteria. And one of the worrying things for people was really the fact that loan demand still remains strong. The balance sheet is looking better. They don't have as many bad loans, but they're not exactly off to the races with good loans, either. So -- so that's a concern.

So Citi is still healing, but it's not really there yet.

FOSTER: So in terms of the market average, it should be doing better, really, for the -- for the banks?

LAKE: That's right, especially when it comes to -- to the trading side. Investment banking, it's lagging its peers in some -- some pretty important areas, like underwriting and advisory.

There are some bright spots. Doing well in Latin America and Asia. But it's really not keeping up with peers. And people like to see it doing a little bit more in terms of the recovery.

So I'm afraid Citi still gets a red. Although it's getting better, still a red.

FOSTER: OK. There it goes.

Google is a different story, because Google has actually disappointed some of the analysts. But, actually, if you look at the figures, you can't really argue with them, can you?

LAKE: Yes, it's hard, I mean, also Google didn't get -- didn't get five out of five, which we're used to with Google. It was three out of five this time. The company sales are $6 billion. The problem here, it missed estimates. That was one of the -- people didn't anticipate they were going to spend as much as they did. They had a lot of expenses. And that's not sitting well with investors.

Now, what are they spending on?

Mostly staff, keeping talent, building out to new areas. Usually, that's a positive. But in this case, Max, I think it speaks to the fact that people are a little uncomfortable, investors, with Larry Page returning as the CEO. They just don't know if they have that much confidence in his vision. And he only got on the conference call for like 30 seconds to explain it.

So not great marks on that. But all in all, I don't think you could give them a red. They're still raking in a ton of cash. They're a green.

FOSTER: Yes, they are green. Google green.

But, also, Maggie, we're giving a green to Alcoa, a completely different company, but for a similar reason, right?

LAKE: Yes, that's right. Alcoa was -- I think we can agree, was the toughest one we talked about. You know, there was a lot of disappointment. You'll remember, they kicked off the earnings season. The shares really got beat up.

But when we looked at the numbers, things were actually OK. I mean they're expecting double digit demand, still; a couple of issues related to production, with some one-off events.

But they're still pretty positive about the outlook.

The problem is investors are worried that maybe commodities have had their run. I know you've been talking about it a lot on the show, is the big rally over and are we going to see lower prices?

So investors are worried about that backdrop and that's why the stock got beat up so much. But in terms of the actual earnings report, it was pretty good.

So even though they only got three out of five, I think we have to give it a green, although it's a bit of a grudging green, as we like to say.

FOSTER: Yes, and all the chief execs (INAUDIBLE) -- about whether they're talking about the good or the bad, they're always very positive, aren't they?

Let's speak about Philips right now. I spoke to him earlier, the head of that company. And we'll hear from that a little later on on CNN. We were hoping to just then, but, actually, it wasn't great, was it?

If you go through the figures, Philips should be doing a lot better. But they're -- they're up against it, a different market.

LAKE: Yes, and it's really tough. I mean custom electronics, everything we're talking about the age of austerity everywhere, consumers pinched by higher costs for food and energy, really tough to sort of be so exposed to consumers, especially in an area where prices are falling, right?

We pay less and less for things like TVs and other home electronics.

So it is a tough area. And I'm afraid on -- it was a -- it's a pretty dismal across the board for Philips.

So they are a red.


Maggie, thank you very much, indeed.

The final red goes down. It's pretty evenly balanced, though, so you can't make a conclusion from today's Q-25 installment, but you'll have one by the end of the series.

That is QUEST MEANS BUSINESS for today.

I'm Max Foster in London.

"PIERS MORGAN TONIGHT" is just ahead, after a check of the headlines.