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Default Denial?; Global Demand for Oil Dries Up

Aired May 12, 2011 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: D is for default, and default denial. Greece and the Eurozone: Now IMF says Athens will not restructure.

Not so thirsty, global demand for oil is drying up says the International Energy Agency. The director is on this program tonight.

And regulators, one, insider trading, nil. "Q&A": Did the Galleon trial prove the authorities are a match for the fraudsters.

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

Good evening.

It is a word that no one in Europe wants to breath. The word that dare not speak its name, "default". In fact, the IMF has become the latest default denier. The IMF's European director said today he saw no need for any type of restructuring of Greek debt. But he said the IMF is ready to jump in with extra cash if necessary. The markets seem assured.

The five-year CDS (ph) is the cost of ensuring Greek debt against default fell by almost 1.5 percent today. The IMF and European inspectors are meeting ministers in Athens this week, where they will assess Greece's economic reforms. And Reuters believes-quotes anonymous government officials saying investigators have found shortcomings in the government's cost cutting efforts.

Now Greece, itself, has repeatedly denied it will need to restructure its debt. Here is what the Greek Prime Minister George Papandreou told me at the beginning of the year in Davos.


GEORGE PAPANDREOU, PRIME MINISTER OF GREECE: The debt that we have accrued, or the loans we have gotten from the IMF and the European Union, they will be extended so that we can repay them on a longer term, and maybe even on better terms. This will be very important.

QUEST: But the existing debt that you came into the crisis with. You are not-you have no plans to restructure that debt?

PAPANDREOU: We are-no, this is not on the books. So this is something that is not on our plan. It is not on our road map. And this is why we are talking about these other measures, which we think are enough to be able to make things sustainable. Obviously difficult, but we have been doing our work and we will be successful.


QUEST: The prime minister there describing Greece as being at the crossroads. Well, Greece's runaway debt has dragged the country, kicking and screaming, to this crossroads. It can take two directions now. Ultimately perhaps do the unspeakable, in some shape or form. And remember default can often be more than just not paying the bill. Or it can live in the pockets of its richer neighbors for years to come.

John Defterios is here and looks at the possibilities.

JOHN DEFTERIOS, CNN FINANCIAL CORRESPONDENT: There is a new language emerging here, within the European Union, Richard. Voluntary default, or selective default, let's see if we can break it down tonight and if we can have a conversation afterwards. There is a near-term crisis which is forming for Greece right now. And that is there is a shortfall; 65 billion euros, or $92 billion due in 2012 and 2013. You may say that is sometime off. But the reality is that Greece borrowed in the markets a couple of years ago at 5 percent and there is a widely held view that it cannot access the market for more money. The current rate, of course, is above 15 percent on the 10-year bond.

And banks sources I spoke to tonight, who took legal advice today, said restructuring or stretching out those terms is a, quote/unquote, "re- profiling or a credit event for private banks." Private banks would be basically told to hold onto that debt at 5 percent for another two to three years, when the market is bearing at 15 percent. So in essence, they are loosing money

It is worth noting, also, that French and German banks are the biggest holders of the Greek debt, at some $100 billion. That is according the Bank of International Settlements. And that number is from September, so perhaps the number has risen. There is also some added pressures for Mr. Papandreou. You saw in that sound byte with Richard, from Davos. To get the next tranche of lending they need to cut another $10 billion. This is the second round of severe cuts for Greece right now. And to privatize some 50 billion euros, or $86 billion.

Of course, privatization or the sell off of state assets means more unemployment. Youth unemployment, already, 24 percent. You are seeing people take to the streets and it is 16 percent overall. Some would argue there is a lot more to be done on the reform front. I spoke to one official a month ago who basically said, workers in the public sector are still making three times more than their counterparts n the private sector. So a lot more reforms, particularly, in the pension front, needs to take place.

So the last screen, here, is talking about the EU strategy, Richard. Portugal, Ireland and Greece, this is an interesting number and it puts in perspective what has been underway. Total GDP of those three countries, $788 billion. The EU bailouts, in the last year, including Greece one year ago, $392 billion. So, in essence, the European Central Bank, and the IMF, have lent 50 percent of the total GDP of these countries. Now, the thing we need to watch out for is a containment strategy, right? Spain, the economy of $1.5 trillion.

QUEST: Right?

DEFTERIOS: The Chinese have offered to put some money on the table. Nobody is talking about the Spanish bailout right now. But it is double the size of Portugal, Ireland, and Greece combined.

QUEST: So when EU ministers get together, at Eco Finn.


QUEST: What are they going to do?

DEFTERIOS: I personally think there is a distinct strategy. And this is culling together a dozen conversations I had this week with government officials and private bankers. Portugal, they need to sign off on the package and hope that Finland doesn't come in and try to scupper that deal at the last minute. Ireland, the prime minister, Mr. Kenney even said on this program last week he wants a new and lower interest rate. So they would like to get that done.

Chancellor Merkel said, very clearly, this week, there is an audit taking place in Athens, right as we speak. You talked about it at the top of the show. The idea is wait for a month and not deal with Greece right now.

QUEST: Put it down the road.

DEFTERIOS: Yes, of course. Portugal, Ireland, now; Greece hopefully in a month.

QUEST: Hope the pressure cooker doesn't explode.

DEFTERIOS: Yes, that is the trick. And also, a final point here; $20 billion is due in the month of June. So they need to do something for Greece by the month of June.

QUEST: John, many thanks, indeed.

Standard & Poor's, which is the rating agency, cut Greece's credit rating this week into the realms of junk. Says restructuring of Greek debt at the sovereign level would amount-at the private level-would amount to a selective default. John Chambers is the chairman of S&P's sovereign ratings committee. He joins me now from the company's headquarters.

John, if they merely reschedule the existing loans to the EU and the IMF is that a credit event?

JOHN CHAMBERS, STANDARD & POOR'S, SOVEREIGN RATINGS CMTE.: Under our criteria, Richard, that wouldn't be a selective default, if they left the commercial debt intact. But often what happens in these circumstances is that the official creditors invoke what they call comparability of treatment. And what that means is if they extend the maturities of their loans, so they change their interest rate, or they change the principle amount, they demand that commercial creditors, bond holders, lenders, do the same thing.

QUEST: Right.

CHAMBERS: And that, for us, would be a selective default.

QUEST: So, it is fair to say, isn't it, John, that the noose is getting tighter around Greece's neck on this?

CHAMBERS: Well, we express that with our ratings. And our ratings, we started lowering Greece's ratings in 2004. They have been speculative grade for well over a year. And now we have them at five notches into speculative grade, at single B. And that is on credit watch, negative.

QUEST: And if we then-I mean, when we-whichever way we talk about it, selective default, credited end-excuse me-portfolio, credit portfolio, they are all heading towards the same idea, though, aren't they? That if Greece fundamentally at some point cannot pay as promised, the house come down around their ears?

CHAMBERS: Well, it means that they have to change the terms of their debt. It is not necessarily equivalent to mass economic confusion. You have had plenty of sovereigns that have defaulted on their debt in the last 15 years and life goes on for them. You have Russia, you have Argentina.

QUEST: That is fascinating.

CHAMBERS: You have most recently Jamaica.

QUEST: That is fascinating, because that is the bit-that is just where I wanted to take you. Finally, here in Europe it is being portrayed that if Greece defaults it is financial Armageddon, it is Layman Mach II, we'll never know anything like it. But as you have just pointed out, it has happened before and those countries have come back into the market.

CHAMBERS: Yes, and they have come back fairly quickly. And also, we have had plenty of defaults in other monetary unions and it hasn't undermined the integrity of those monetary unions. I'm thinking of the CFA franc zone, the Eastern Caribbean Zone. It is not synonymous with, you know, monetary collapse.

QUEST: John, many thanks indeed. Much appreciate your analysis on that for us tonight.

John Chambers joining me there from New York.

Like most of Europe Greece's main stock index closed in the red on Thursday. Banking shares were the biggest losers in Athens. The National Bank of Greece was down 4.6 percent. Oil companies were hit as crude prices fell in afternoon trading. Dutch Shell down 1.5 percent. Total down 1.4. The mines were also lower and silver producers, Fresneo (ph), down 7.5 percent in London.

The euro gaining just against the dollar, up 0.6 against the cent. It is at a six-week low earlier today.

The next financial crisis could be around the corner and this is what could be responsible, the head of the IEA, on why oil could be the next destructive force, in just a moment.



QUEST: A warning from the International Energy Agency, oil prices are high enough to torpedo the entire global economic recovery. Supply concerns push prices up earlier this year. And the IEA now believes demand is due to ease a little. But it says persistently high oil prices at this stage of the recovery in their words, could sew the seeds of destruction. Brent crude prices are back on the rise after shedding $5 on Wednesday. That is we are up at $1.32, of a dollar. That is around $113 a barrel. Brent crude is getting close to $20 since New Year's Day.

Earlier I spoke to the executive director of the IEA, Nobuo Tanaka, and I asked the director of we were already seeing high oil prices that would wreak a level, at the moment, of destruction.


NOBUO TANAKA, EXECUTIVE DIRECTOR, IEA: Our concern has been told for months already, since January. And if this level of the price, like $100 continue all through the year, this is as bad as 2008. So we are really seriously concerned about the health of the recovery and probably market (UNINTELLIGIBLE). Part of our message as well as U.S. economic data, etc cetera, and making some kind of correction.

QUEST: And yet, at the same time, you do have emerging markets that continue to demand huge amounts of energy.

TANAKA: Correct. Especially China, India, or the Middle East, also, expanding their consumption. Partly, thanks to the kind of subsidies, fossil fuel subsidies, recall, they are selling in the Middle Eastern countries, selling their oil products, very cheap domestically, why are you selling it very expensively outside. China is helping some parts, their consumers, by cheap electricity prices. So this, actually, sending the very wrong message of consuming wasteful consumption. So we are always asking to phase out these kinds of subsidy. But the good thing is, of course, we need good economic growth in these countries. Otherwise the global economy is in deep trouble.

QUEST: But ultimately, that demand destruction, what you say in your report, sewing the seeds of its own destruction will bring down prices. So, can we say that ultimately the market will work?

TANAKA: Correct. Well, that is an interesting question, Mr. Quest, because even with the market destruction, yes, the demand will go down so that production, producer price goes down, but what the consumer countries are trying to do is putting on so-called carbon prices, or carbon tax, or some kind of strict standard. Means this is very impressive prices. So consumer prices are not necessarily coming down. So maintaining certain messages to consumer by artificial prices is probably a very important strategic meaning of conservation for the future.


QUEST: Now there are plenty of theories as to why oil prices have been so volatile this year. First of all, of course, OPEC talks about the price drop, saying it was inevitable, in line with short-term market fundamentals. OPEC believes that actually demand forecast unchanged. It says its future is uncertain in 2011. Risks are largely balancing each other out. That is according to-I mean, OPEC of course, has a strong view on it. They say that China is in good health, but they question of course, what is happening with Japan.

If you look at Glencore, the commodities trader, 3 percent of the world's oil market goes through Glencore. And the chief exec there, Ivan Glasenberg, said, Commodity falls were just "froth". He does not expect falls to affect interest in Glencore's IPO. It is a relatively small part of Glencore. And frankly, the other parts are infinitely more important. In any even, ignoring the IPO in that sense, because it is well and truly covered by bank and investors.

Total, Europe's third largest energy company, the chief executive there, Christophe De Margerie, told CNN's "MARKETPLACE MIDDLE EAST", at least it was movement on the currency and the currency volatility that was causing such instability in the markets.


CHRISTOPHE DE MARGERIE, CEO, TOTAL: I see today what we have is volatility and you would be surprised, it is not with offer and demand, the volatility, it is probably linked with the markets tremendous move on the euro dollar. And that is what has been, in my opinion, having this impact on commodities and especially oil.


QUEST: Now the full interview can be seen with Total chief executive on "MARKETPLACE MIDDLE EAST" on Friday, at 10:45 London, that is 13:45 in Abu Dhabi.

Well, Wall Street has turned around losses from earlier in the session and now showing, as I look at the screen, Alison Kosik, quite a nice healthy little gain for the market today. But still those oil prices remain a concern.

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Yes, they are. But you know what is interesting about this market and we have seen it in just the past hour, Richard, you know the stock market is trading in lockstep with oil. You know, we had a lower open, and now we are higher because oil prices reversed course, as well. And you can, of course, credit the dollar which weakens against the euro.

And you know, we're seeing more impact of those higher oil prices. They showed up today in some economic news that we got. You know, despite what has happened to oil over the last two weeks, and in spite of today's turnaround, producer prices rose 0.8 percent in April. And that is more than expected. And you can clearly link that to a rise in food and energy prices.

And what that does, Richard, it validates those on Wall Street who are concerned about rising inflation, as well. We also saw it in retail sales in April. They were up just a half a percent, but you could also see where those higher gas prices are creeping into consumer spending because you saw spending drop lower for things like electronics, sporting goods, and department store purchases. So, you are seeing those higher gas prices. Of course, the trickle down effect from the higher oil prices, Richard.

QUEST: And the market is up 70 points, just about half a percent, just over 12,000 now, just bouncing around 12,700.

Alison is in New York.

When we come back together in just a moment, time for a spot of "Q&A". It was the case that rocked Wall Street. Tonight, though, we do question, does the guilty verdict against Galleon's former boss mean the financial crooks should be worried. Quest against Velshi, after the break.


ALI VELSHI, CNN CORRESPONDENT: QUEST MEANS BUSINESS and so do I. We are here together in the CNN NEWSROOM around the world.

Hello, Richard.

QUEST: Good day to you, sir. Each Thursday Ali and I coming to you around the world where we talked business, travel, and we talk innovation. And the important thing, Ali, is what?

VELSHI: Nothing is off limits. So today, Richard, we are talking about hedge fund boss, Raj Rajaratnam. He was found guilty of conspiracy and securities fraud, yesterday.

Richard, let me start. I have 60 seconds to make my case.


Richard, this proves that regulators actually do and can have teeth. From time to time they can actually use them. Raj Rajaratnam is the biggest financial crook most people have never heard of, but he is big. Our viewers constantly ask why no one has been arrested for their role in the financial collapse, and like Bernie Madoff, Raj Rajaratnam didn't cause the crisis, but he was a bad apple and a good old fashioned cheat. Bringing guys like this down does make the market safer and fairer for all of us.

Now, Richard, I didn't just fall of the turnip lorry, as you would say. I'm not so naive to think that financial cheats will disappear. But this conviction puts the fat cats on notice, or they'll get more careful. The interesting thing about this case is that Rajaratnam was hung by his own words. They wiretapped him and his co-conspirators, and played the recordings for the jury. Now that should send a shudder through Wall Street. If you are up to know good, someone may be listening, or watching your e-mails. And sometimes even your deep pockets and a blue ribbon defense team won't save you, Richard.


QUEST: Ah, I so wish that Ali was right. But once again he has shown his naivete, his ingenue acceptance of an environment where greed is good, money speaks, and where the rich don't mind what risks they take to get even richer.

Has Ali Velshi forgotten Michael Milken, Ivan Boesky, Jeffery Skilling? Has he completely deluded himself about Enron, WorldCom, Madoff and all the other crooks that came along, took advantage of the market, and it they were the tip of the iceberg, what rested underneath?

The amount of resources it took to get this Rajaratnam conviction, the wiretaps, even the question over what insider trading. It doesn't give much hope that this case will be much more than one on its own. To be sure, there will be a deterrent effect, if Rajaratnam gets a heavy sentence. But I have no doubt, it won't be long before the men of money are back to business as usual. Don't be naive.


VELSHI: Well, I'm with you. There is probably more where Raj Rajaratnam and all those who you named have been hanging out, but hopefully it is getting a little safer out there.

Hey, time for the quiz, Richard. Let's bring The Voice in.

Good afternoon, Voice.

UNIDENTIFIED MALE: Good day, gentlemen.

QUEST: Good afternoon, Voice.

UNIDENTIFIED MALE: Let's hop right into it.

The Dow Jones industrial average is an average of 30 stocks. When it started there were only 12. There is only one company of the original 12 still in the index. Name that company.

Is it A., Dupont; B., Proctor & Gamble; C., ExxonMobil/Standard Oil; D., General Electric.



QUEST: I'm going to go with ExxonMobil/Standard Oil.



VELSHI: General Electric.


UNIDENTIFIED MALE: That is right. General Electric is the only company of the original 12 still in the index.

QUEST: Good one, there.


QUEST: Good one there, Ali. Good one.

UNIDENTIFIED MALE: The global financial centers index is a ranking of the competitiveness of financial centers. The top three cities are London, New York, and Hong Kong. What city is currently fourth in the rankings?

A., Shanghai; B., Tokyo; C., Zurich; D., Singapore




VELSHI: Tokyo.


UNIDENTIFIED MALE: Incorrect. Richard?

QUEST: I would say, Shanghai.


UNIDENTIFIED MALE: Incorrect, again.



VELSHI: Zurich.



UNIDENTIFIED MALE: Still wrong. Good grief.

QUEST: Singapore!


VELSHI: Wait, does he get a point for that? He can't get a point after we have eliminated three of the four.



UNIDENTIFIED MALE: All right. Let's continue on here.

Using the dollar as the standard, China by far, holds the largest amount of foreign exchange reserves. Who is second on the list?

A., Brazil; B., The Eurosystem; C., Japan, or D; Russia.



QUEST: I'm going to go with Japan.


UNIDENTIFIED MALE: That is correct. Good job, Richard. Japan has the second largest amount of foreign exchange reserves.

VELSHI: You were thinking Eurosystem was the other option, though, right? I was going between Japan and Eurosystem.

QUEST: No, I was going to go for Russia as the other one, because of its oil wells. But the one I'm kicking myself-I'm kicking myself, kicking myself, not for-I thought it was General Electric, but I thought The Voice was being clever, because of the Exxon/Standard Oil.

UNIDENTIFIED MALE: There is no clever in my voice. You guys can discuss this later.


UNIDENTIFIED MALE: You end this round tied, have a good day.

VELSHI: Thank you very much, Voice. And thank you, Richard. This will do it for us, this week. But remember we are here each week Thursdays on QUEST MEANS BUSINESS, 19:00 GMT.

QUEST: And in the CNN NEWSROOM it is at 2:00 p.m. Eastern. Keep the topics coming on our blogs. M B. And What do you want him, and me, to do battle with?

See you next week, Ali.

VELSHI: See you, Richard.

QUEST: Well, we won that one. After the break, the Japanese carmaker that is skirting disaster; we hear from Nissan's chief exec, on the company's recovery plans.

And coming up on "PIERS MORGAN TONIGHT"


Their four-year old daughter, Madeleine, disappears from their holiday home in Portugal in 2007, and she hasn't been seen since. Now, Kate and Gerry McCann tell their story, in an exclusive. It is about 30 minutes from now, after QUEST MEANS BUSINESS.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN and on this network the news always comes first.

Anti-government protesters are planning another round of rallies in Syria on Friday after Muslim prayers. There was a large demonstration today in a university in Aleppo, Syria's second largest city. A top human rights activist is being detained (inaudible).

Britain's prime minister has invited the Libyan opposition to establish a formal office in London. David Cameron met with the head of Libya's transitional national council on Thursday. He says the council represents the future of Libya as much as Moammar Gadhafi represents its past.

The former death camp guard John Demjanjuk is free, pending an appeal of his war crimes conviction in Germany. Authorities there released the 91-year-old man after he was sentenced to five years. The former Nazi was convicted of helping to kill more than 28 thousand Jews during the Holocaust.

Investigators say they'll know by Monday if the flight recorders from Air France flight 447 can shed any light on why the plane crashed. The voice and data recorders were found in the Atlantic Ocean earlier this month. The plane crashed two years ago, after leaving Brazil en route for Paris.

Nissan, it turns out, skirted disaster in the aftermath of the Japanese earthquake and tsunami. Numbers just out for January to March quarter show that the carmaker turned in a stronger performance than its competitors.

If you join me over here, you will see what I mean. Now Nissan was only one of Japan's three big carmakers to improve its net income, posting quarterly profits of $380 million. The company is confident it'll be making cars at full capacity by October. Nissan relies a lot less on local production than rival Toyota, which reported a 77 percent decline in net income.

Kyung Lah spoke to Nissan's president and chief executive, Carlos Ghosn.


KYUNG LAH, CNN TOKYO CORRESPONDENT: In announcing your annual earnings today, you said that 2011 - that you were very confident that 2011 was going to be a good sales year. Why are you so confident that 2011 is going to be so - such a good year, but yet, you didn't release the forecast?

CARLOS GHOSN, PRESIDENT AND CHIEF EXECUTIVE, NISSAN: We think that, unfortunately, the natural catastrophe that struck Japan is going to eat out part of this progression, but not all of it. That's what makes me confident in telling you, the year will end up with a higher level of sales, higher level of production, even though it's not the additional production and sales that we were planning for and hoping for because of the consequences of the tsunami and earthquake.

LAH: Don't you feel that a lot of this is out of control? Because we're talking about a natural disaster.

GHOSN: It is. It was. I would say when, you know, when March 11 hit, you know, we had no clue about where we were going. Now, we are in May. So, two months have passed and we worked a lot not only on our own plants, I would say today practically all our plants are back to production.

Our main concern is about some very limited number of supplies, very limited number of parts, which, by the way, is not only a concern for Nissan, but a concern for all the Japanese industry. I would say even, in some cases, a concern for all the global automotive industry.

LAH: Have you changed the way that you look at the way parts and supplies are handled and that whole chain? Do you feel that you've learned anything through all of this?

GHOSN: That's what we are all learning here is making sure that you don't ever have a supplier, which is crucial for your production, which has only one site of production and doesn't have an alternate source.

LAH: Did you ever picture that, when you took this job, you would be going through all of these crises all at once?

GHOSN: No, I was picturing that it would be tough - that I'm going to have a lot of surprises and crises. I was not expecting the financial crisis, I was not expecting the natural disaster which struck us. But, you know, there's nothing you can do about them. The only thing you can is what do, we learn from it. (BEGIN VIDEO CLIP)

GHOSN: We are determined to fight. We are absolutely not saying, "OK, you know, this is beyond our control."


GHOSN: It's going to be tough. I said it. It's going to be tough. I'm saying, OK, I think I can say today that we're going to have more sales in 2011 than in 2010. I can say we're going to have more production in 2011 than in 2010. For profit, you're going to have to still bear with me one additional month before I can outline the forecast for you.

LAH: We'll come back and check on you.

GHOSN: Thank you.


QUEST: Kyung Lah talking to Carlos Ghosn of Nissan.

In a moment, the skies may be clearing for business travelers. British Airways and its main union end a long period of contention with an agreement.


QUEST: High oil prices have become such a big issue in the United States that executives from oil companies have been hauled in front of the U.S. Congress. Some Senators have been giving them a grilling on Capitol Hill. Questioning if oil giants deserve tax breaks at a time when prices at the pump are soaring.


SEN. CHARLES SCHUMER (D), NEW YORK: Do you think that your subsidy is more important than the financial aid we give to students to go to college? Could you answer that "yes" or "no"?

JAMES MULVA, CHAIRMAN AND CEO, CONOCO PHILLIPS: Well, that's a very difficult question for me. Two totally different questions.

SCHUMER: But we have to weigh those two things, Mr. Mulva. We have to weigh it because we have to get the deficit down to a certain level.

LAMAR MCKAY, CHAIRMAN AND PRESIDENT, BP AMERICA INC.: Raising taxes on one form of energy to encourage production of another will reduce industry's ability to keep up with growing U.S. energy demand. The result could be less investment, less production, tighter energy markets and, over time, potentially higher prices for consumers.


QUEST: Senator Ron Wyden was one of the lawmakers at the hearing who has been critical of big oil's practices. He showed a video going back some years, when he once again questioned their need, not only for subsidies, but the question of the oil price.


SEN. RON WYDEN (D), OREGON: Gentlemen, the President says, and I quote, "With $55 oil, we don't need incentives to oil and gas companies to explore. There are plenty of incentives." Now, today, the price of oil is above $55 per barrel. Is the President wrong when he says we don't need incentives for oil and gas exploration?

If I could just have a "yes" or "no" answer and go right down the row, beginning with you, Mr. Raymond. Is the President wrong?

LEE RAYMOND, FORMER CEO AND CHAIRMAN, EXXONMOBIL: No, and I don't think our company has asked for any incentives for exploration.


QUEST: Senator Wyden, very good of you to join us this afternoon - this evening. And you're pretty much fighting at an open door, here, aren't you? The oil companies are so unpopular, but they do make a point, surely, that they are entitled to the same tax breaks as any other business would get.

WYDEN: Well, first of all, they get a number of tax breaks that other industries don't get. But the bottom line today is that the major oil companies did a dramatic about-face from their earlier position on this issue.

When George W. Bush said that you didn't need tax breaks when oil was over $55 a barrel, I wanted to get the companies' reaction on the record to then-President Bush's position. We got it. Today, they said even if you adjust for inflation - when they're making more profit and doing even better - now they need tax breaks when the price of oil hovers at $100. That position just defies common sense and, today, the major oil companies did a dramatic about-face with their earlier position.

QUEST: So, do you think that they are just greedy, or stupid, or they have just failed to judge the mood, not only of the American People - they're either idiots or crooks. There's not a lot of room in between.

WYDEN: I think they're extraordinarily powerful politically and, right now, the American People are going to start getting the real facts. That's why I think it was important to note for the record the difference between their position in 2005 and their position today.

Now, they were making arguments again today that don't stand up. For example, they talked about the fact that they're competing in global markets. Well, in 2005, they were competing in global markets as well.

QUEST: All right. You've also been very vocal in the last few days on this question of stopping the speculation in oil markets. Now, we cover this on this program every day of our lives. But, Senator, it's a fine line, isn't it, between stopping speculation and trying to interfere in the proper workings of the market?

WYDEN: It certainly does require a balance and that was the position that I, and 16 other senators, including republican senator, Susan Collins. I took what we said is we want the CFTC - the expert agency -- to step in here and ensure some sensible position limits.

If we have these traders essentially buying up so much oil, that means that, say, someone - a businessperson who needs oil for their trucking company - is going to end up paying a higher price. That's not right. So, you're absolutely correct, there needs to be a balance. That's why we've called on the expert agency, the CFTC, to get out of the regulatory swamp and take some steps to protect our businesses and our consumers.

QUEST: Finally, and briefly, Senator, the rest of the world pays much higher gasoline taxes. Isn't it time for the American People to accept the days of cheap gas have gone and that gasoline, on conservation grounds, should be taxed higher?

WYDEN: Conservation is an area that must be stepped up. It seems to me you ought to start where most of the oil goes, and that's the transportation sector. And that's why I have long favored steps as it relates to vehicles that ensure that we do better on the conservation side. That's where we ought to start.

QUEST: Senator, lovely to have you with us this evening, as always. Good to see you, Senator.

WYDEN: Thank you for having me.

QUEST: Many thanks, indeed. A lively discussion, I'm sure you've got views on that.

Now, historically warm and dry spell in parts of Europe recently and the concerns are growing now about drought. I almost hesitate to mention this, Pedram, because it always seems like we're such miserable Grinches (ph), doesn't it?


QUEST: You know, the first whiff - the first whiff of decent weather and we're talking about droughts and hosepipe bands and the like. I mean, let's just enjoy it.

JAVAHERI: I know. I wish we could just do that, Richard, but sometimes things don't work like that and, unfortunately, you know, we are paying a price for what was a gorgeous, gorgeous month of April and parts of May are turning out to be rather nice as well. The temperature is above average, yes, but, of course, the rainfall below average. And the concern right now is drought.

And really the core of it across central portions of Europe from areas of the Czech Republic out towards, say, Slovakia, getting very, very extreme drought over the next at least few months, here. But the weather pattern is going to change a little bit. Some more showers in the forecast. We are still going through a warm wave as we speak, but a few showers around portions of, say, Southern France into Northern Spain, getting some rain associated with a front and that front going to eventually spill some of that moisture a little to the east.

But this is a drought we're talking about and Richard said, you know, you don't want to bring it up because you want to enjoy the little sunshine you do get, but of course, sometimes, you get carried away. You get to 30, 40 days of above average, that's an example right there of London - having those temperatures above average for over a month. And then the drought concerns begin being brought into play there.

And you can see where we have extreme droughts, where we have severe drought, and really much of the central region of the continent, here, dealing with this as the storm track, or the upper level winds in the atmosphere have sent all the storms well to the north. So, weak droughts in areas well to the north, the severe drought worked its way a little farther to the south and, on top of this, warm temperatures.

Sixteen, as we speak, in London - not too bad. Paris, we'll take 17. How about that? Warsaw sitting at 18 degrees right now. And the forecast for Friday still going to remain warm, even as far east as Kiev, temperatures there knocking there in the mid-20s. And parts of Moscow even warming up to the low-to-mid-20s there.

So, here are the average setup right now, say, for Brussels. Average 17. We're going to make it up to 21. Cools off a little bit on Saturday and Sunday, so I know what you're thinking, you get to the weekend and the temperatures go back to closer to average there. And, again, the clouds are going to work their way in. But, Berlin much the same - stays above average for a couple days and then cools off again towards the latter portion of the weekend and a few showers possible around Paris.

So, yes, we should get these conditions, say, in June and July - a little too soon this time around, Richard. So, at least Mother Nature trying to balance it out and bring it back to seasonal conditions for at least a few weeks out there.

QUEST: Pedram, we thank you for that, and I promise you, you're not going to get too many complaints, although I do understand if it is the drought conditions that can be rather unpleasant. OK, Pedram, many thanks.

Now, staying in the travel area, after 18 months, 22 days of strikes and thousands -- tens of thousands of travel disruption plans, British Airways seems to have reached an agreement with its union that represents cabin crew. The deal isn't done yet - 9,000 airline staff have to cast their vote first. It seems likely, though, they will agree to the deal as Ayesha Durgahee reports.


AYESHA DURGAHEE, CORRESPONDENT, CNN INTERNATIONAL (voice-over): The battle lines were drawn. BA on one side, and its cabin crew Unite union members on the other. Both refusing to budge. And now, it seems the fight may be over. A fight where passengers were caught in the middle.

The waves of strikes ruined travel plans for thousands and cost British Airways $244 million. That included leasing aircraft and crew, training other members of staff, to buffer the worst effects.

Len McCluskey, the new head of Unite union said that a great deal of credit needs to go to the new chief executive of BA.


LEN MCCLUSKEY, GENERAL SECRETARY, UNITE UNION: Keith Williams has indicated to me privately some weeks back that he was looking for an honorable settlement. He was looking for a lasting peace - a lasting peace that would embrace change, that would recognize the difficult commercial considerations within the aviation sector for British Airways, but, by the same token, he wanted to bring all his front line employees with him.

And that's what led to purposeful discussion. It's a victory for common sense. We've achieved a settlement that will enable British Airways now to move forward into the future with a committed cabin crew, which -


DURGAHEE (voice-over): Industrial action that was due to take place next week has been called off. The union says BA agreed to restore travel concessions to staff and award a two-year pay deal - issues that were at the center of this dispute.

For its part, BA, in a statement, said they are pleased to "have reached a point where we can put this dispute behind us. Our agreement with unite involves acknowledgement by the union that the cost saving structural changes we have made in cabin crew operations are permanent."

More than a thousand cabin crew came to hear details of the new deal in a marquis especially erected at the Bedfont Football Club near Heathrow and to see if their demands would be met.


MICHELLE, BA CABIN CREW: We're delighted (ph) to fight if there's people working against each other. A lot of mistrust and, I think, today has shown that - a trust system slowly return now.

JASON, BA CABIN CREW: People have been there over the two years and to actually come together again with good news is really elating.

DEBBIE, BA CABIN CREW: Nobody wants us to go on strike to start with, so, you know, it's only right that we should have been able to reach a negotiated stable (ph) and, hopefully, you know, the members will be able to do that. But it's not a done deal yet.


DURGAHEE (voice over): There was a show of hands to take the deal to the ballot and, if all goes well, the new agreement will be implemented on July 1.


DURGAHEE: There were (INAUDIBLE) cheers for Len McCluskey and the platform he (INAUDIBLE) - no longer the head of British Airways. The celebration may have started, but the changes the BA cabin crew want to see will only happen when the ballots can be counted. (INAUDIBLE) Finally ends, 18 months (INAUDIBLE).

Ayesha Durgahee, CNN, London.


QUEST: Now, you want a room with a view, there's a spectacular sight from the top of the Hong Kong Ritz-Carlton. Is it a high caliber investment or just pie-in-the-sky? And what does it say about Asia as the future engine of growth for hotels?


QUEST: Now, we've all experienced being in a hotel where the view outside the window overlooks the air conditioner and the garbage cans of the next-door building. The same cannot be said of this place. It is the view from the Ritz-Carlton in Hong Kong. It's being billed as the world's tallest hotel. If I manage to - well, I assume if I can - yes, there we go - if you get a chance to actually see, you can look and see the view all the way around in glorious pana-color-whatever you like (ph). Anyway, you get the idea.

The Ritz-Carlton chain has chosen Hong Kong to be the headquarters for what, essentially, is now the flagship hotel within the group. And for good reason. Ritz-Carlton is part of Marriott and Marriott are making a schtonking (ph) huge investment in Asia.

Asia-Pacific, along with this particular hotel, promises to be the true engine of growth, as I heard from the president of Marriott Asia- Pacific, Simon Cooper, at the top of the hotel.


(BEGIN VIDEO CLIP) QUEST (voice-over): One hundred and eighteen floors high and towering nearly half a kilometer above Hong Kong. This hotel takes the high life to a new level. The man in charge of the 300-room Ritz-Carlton Hotel is Simon Cooper. He's head of Asia-Pacific for Marriott Hotels.


QUEST: The purpose of this hotel - you've spent an enormous amount of money on it. It's your flagship, now. Will it ever make money?

SIMON COOPER, PRESIDENT AND MANAGING DIRECTOR, ASIA-PACIFIC, MARRIOTT INTERNATIONAL INC.: Tough question. Obviously, it depends upon, you know, your definition of making money. It will be cash positive. I think it'll do extremely well. It positions this entire building. The ICC center, which we're in, as you know, is over 100 floors of offices, enormous shopping center, it's a transportation hub for Hong Kong. So, there are many parts to this building. And, of course, the Ritz-Carlton on the top really, in a way, positions the entire complex.


QUEST (voice-over): This also reflects the Marriott group's growing position in Asia. Right now 70 hotels under Marriott's various brands are under development in the region.


QUEST: We know Asia-Pacific is the fastest growing area, but how does that effect the way you are planning for the company?

COOPER: The key thing you try to do in a fast-growing market like this is figure out - and really have some discipline around which brands you're going to use. Because Marriott has 20 brands and it would be - they don't all fit, certainly not into the key markets of China and India, which are the two largest. So, we're working with about six brands in China and about five brands in India at the present time.

QUEST: But they're demanding a different type of rung structure.

COOPER: Certainly, they demand an adoption of our brands. So, for example, our Courtyard Hotels, which, typically in North America and Europe, are suburban clean hotels, often drive-up motel-type structures. Over here, our Courtyard is a full-service brand.

QUEST: So why bother with the so-called different brands? And why not start merging them? Because it seems to me that one brand in the U.S. or Europe is basically another brand here in Asia.

COOPER: The reality is that all brands, ours and our competitors, move up when you move to Asia. The bar is much higher in Asia.

QUEST: I mean, the money went where? Every bit costs everything, doesn't it?

COOPER: Well, when you were here for the construction, you know where the money went just to get supplies up.

QUEST: Right.

COOPER: Just to get bricks, cement, mortar, you know, this high up. You know, you're nearly half a kilometer high here. And just that is obviously expensive. But all the finishes here, all the designs you're going to see, all by world famous designers. It really has to be the quality of the finish and the quality of the design.

QUEST: How important - food and beverage, which we traditionally think of, you know, the balance between what the hotel makes in its restaurants and its bedrooms.

COOPER: Very important, especially in Asia. Your food and beverage positions the hotel to the community. So, we're walking here through the Italian restaurant. We have Italian and Chinese. Both designed by Spin out of Japan.

QUEST: I'm told it's quite difficult to get a table here.

COOPER: I'm delighted to say yes.

QUEST: Does it help if I know the president of the company?

COOPER: Helps a lot.


QUEST (voice-over): No expense was spared here. But in the current climate, cost is one thing you dare not ignore.


QUEST: Let's talk, though, about China and inflation. Inflation is rising, whether it's food or labor, it's rising and raising the cost everywhere, isn't it?

COOPER: One of the things we're trying to do as we design our hotels for the future is realize that labor costs, particularly -- which is about, typically, 50 percent of the cost in a hotel - that labor cost especially is going to be under pressure over time.

QUEST: What is your biggest challenge?

COOPER: Biggest long-term issue is going to be talent. We're all competing for that well-educated Chinese person who speaks, probably, pretty good English or some other language.


QUEST (voice-over): There may be glittering interiors, top-class restaurants, and that view. If vertigo doesn't put you off staying here. The price might - one night's stay starts at nearly $600 U.S.



QUEST: Simon Cooper in Hong Kong at the top of that hotel. You can't necessarily have to pay to go and see it. You can check out the 360- panorama view. We've put it on our Facebook page. Facebook /CNNQuest. That's where you can face it -

A profitable moment on oil after the break.


QUEST: Tonight's "Profitable Moment". There are two things on my mind this evening. The first is the ending, potentially, of the British Airways dispute. If there was ever an industrial action that should never have taken place, it was the BA action with Unite, its cabin crewmembers.

The fact is, no one won out on that. For unions, it cost, they say, the airline $150 million. And for what? For $50 million worth of savings on the wage bill. Time and again the two came together for talks only to fail. It was an element of stubbornness on both sides that failed to reach an agreement and, all the while, the traveling public suffered. Often at key travel moments.

Witness the way Unite planned a Christmas strike that had to be stopped by the union - by the courts themselves. As I say, whether it's the traveling public or, indeed, shareholders themselves, the cabin crew, or, indeed, the company, nobody won in that dispute.

And that's "Quest Means Business" for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I do hope it's profitable.

"Piers Morgan Tonight" is after the headlines.