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Crisis in Greece; Russia Opens Doors to International Investors

Aired June 16, 2011 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: The Greek prime minister is clinging on to power as the markets are loosening their grip.

And tonight we hear from IMF candidate Agustin Carstens and the former head of the World Bank James Wolfensohn, on the mounting crisis.

We're live tonight, also, in Russia with John Defterios.

JOHN DEFTERIOS, CNN FINANCIAL CORRESPONDENT: Concerns here, Richard, about the Greek contagion as well. And Russia and China cozy up. Giant pipelines and giant investment funds, we'll have the details.

QUEST: John Defterios is in Russia.

I'm Richard Quest in London. And together, we mean business.

Good evening.

Tonight there are the three faces of a country in turmoil. The Greek Prime Minister George Papandreou remains in charge of the country and a party in revolt. Meanwhile its finance minister George Papaconstantinou is facing a cabinet reshuffle. It is by no means certain he'll keep his job. The EU's economics man, Ollie Rehn is offering reassurance and stock markets are in reverse.

The banner are still in place outside Parliament in Athens, although the crowds have gone home and so have the members of the government. The prime minister is carrying on with a razor thin majority. George Papandreou is in the midst of choosing his new cabinet. He is trying to force new austerity measures into law. Without the cuts, the bailout money, it is feared, will simply dry up.

However, Ollie Rehn who is EU's commissioner for economic affairs says he is confident that between the IMF and the EU, and everyone else, Greece will get the cash. The IMF also says it is ready to continue its support. And it says it anticipates positive outcome when European finance ministers meet on Sunday.

Our correspondent is Diana Magnay, who is in Athens tonight. She joins me on the line.

The protestors have gone home, Di, but the crisis is sort of moving into the next sphere.

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: The crisis is very real. And it is playing out in the parliament right now, where there is an emergency session going on, Richard. We have heard the Greek Prime Minister George Papandreou say at the beginning of that meeting-too, a standing ovation from his deputies-we must not flee the battle however difficult and you can rely on me and I will rely on you.

But more recently the conservative head of the opposition has called for early elections-or elections as soon as possible. Those two tried to form a government of national unity yesterday, but those talks evidently collapsed, which is why George Papandreou came out and said look I'm going to try for a cabinet reshuffle. And once I've reshuffled I will put through a vote of confidence and see what happens. And of course, if he looses that vote of confidence then parliament will, essentially, be dissolved. So, a real political crisis going on right now in the parliament building.

QUEST: Di, is there a-what-if we look at Athens, and you talk to the people and the mood there, is it somewhat surreal that all this is going on, but there is an element of normality of everyday life?

MAGNAY: Well, people have to get on with their everyday life don't they? But what they are saying is that our everyday life has been severely compromised for the last year because of these austerity measures, that we have already had to suffer. And bear in mind that they were pretty severe. We can't cope with another round. And, of course, this other round has to be put through to get-if the Eurozone and the IMF are going to give Greece any more money, to prevent it from defaulting. So it is this vicious circle. I mean, life goes on, but life for many people for the last year has been extremely uncomfortable, Richard.

QUEST: Diana Magnay is in Athens tonight and watching events there. And we'll keep reporting in the days ahead.

The euro is-excuse me-the euro is down tonight. Earlier it was at a lifetime low against the Swiss franc, against the dollar. The euro is looking a lot healthier than it was perhaps a few hours ago. It is concerns about the next choke of the Greek bailout cash to ease somewhat. When the IMF and the EU says that the money will be forthcoming it really is just a question of the modalities of it, from Ollie Rehn and the fund.

Stocks, ragged. Minings were down in London. Which tracked the overall price of the metal. Retailers, Metro AG (ph) lost nearly 3 percent in Frankfurt. And the banks took a hit in Paris.

If traders now accept that Greece could go in some shape or form they believe that is already priced into the market. The problem is those like Jean-Claude Trichet, at the ECB, are still warning that the affects could be far widespread and a serious mistake.


JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: It would be extremely bad to create a default in the advanced economy constituency. Again, what we have to cope with is something which is bigger, much bigger than Greece. Much bigger than what we are observing in the euro area.


QUEST: Let's talk about what that means, over at the super screen. This is it. Now, "contagion" is the word of the day. And what this basically suggests is what happens in Greece will have those ramifications around the rest of the world. There will be the ripple effects that will go out from other parts of the European Union, right across the world to the United States, and of course, into Asia.

But these are exactly-this is Greece. Now, we know Greece has the lowest rated sovereign debt in the world. S&P puts it at CCC, basically it is one stage from default. However, those very bonds that are now graded as triple C and below, they are all shoved into German banks, $34 billion worth; French banks have $53 billion or so. ECB has billions of dollars of exposure. Not only direct exposure, they have bought the bonds, they have got the debt.

But other lendings to Greek banks, and to Greek companies, and to-so the whole network of it; Europe, if those bonds default, then these banks, ECB, French, German, and others, will be seriously affected. That is the contagion that they are talking about. But it gets worse. Even in the United States, for instance, you have a direct exposure of $41 billion, of about $7 to $9 direct, and then CDS on top of that with indirect exposure. But you also have money market funds, who have been big buyers of the banks and the debt. And then, those-just to pull it all together.

Remember these banks, the French and the German banks? Well those banks also sell their debt in to the U.S. market. You start to get an idea of how this thing goes round. It is not simply enough to say that Greece is on its own. The money circulates. The debts continue. And that is how you end up with the whole cycle moving around the world.

Keith Wade is the chief economist and strategist at Schroders. When he joined me on the line a short while ago, I needed to know what the players in the markets were thinking tonight.


KEITH WADE, CHIEF ECONOMIST, SCHRODERS: In the markets they are saying there has to be some sort of restructuring, because it is just arithmetic really. The level of debt in Greece is getting too high. And the amount of austerity and fiscal tightening that they have to do, the spending cuts and so on. It is just not really realistic. So they have to make some cuts in their interest payments. So the markets are actually accepting that. Which is why Greek bonds are trading at the level that they are, which is, you know, sort of 50 cents in the euro.

QUEST: Now, help me understand. Because Jean-Claude Trichet, on this program, said on Monday, that it was not in the interest of the advanced economies to have a non-voluntary restructuring. But what is the fear? What do you, Keith, fear would happen if there was default?

WADE: I guess the real fear is almost a fear of the unknown. And it is a bit like the situation we were in after Lehman went bust. And the concern is that if they default then all those bonds get written down. Because the thing-the banks can hold those bonds, but they don't have to write them down unless they actually default. So once they have defaulted the banks have to write down all the bonds. They have made massive losses and that could lead to a big scramble for liquidity, lots of assets being sold in order to raise capital. And a bit like what we saw after Lehman. You know, the markets going into a kind of free fall. And that is what he ECB have been warning about.

QUEST: Do you believe that would be the result, bearing in mind, we are so close to default now, it is already priced into the market, we are not a million miles from the theory to the practice. Or am I naive?

WADE: Well, no. I would tend to agree with you. I think people have seen this coming. Most investors have taken their money out of Greece. Most people have hedged themselves against this kind of event. So it shouldn't come as a big surprise. And I think the thing is that the Lehman Brothers experience has just created a whole new level of fear in the markets about the unknown.

And really, they told us that we didn't really understand this as well as we thought we did. So, now people are concerned, well, yes, the same thing could happen again. But in theory it should not. People should be ready for it.


QUEST: They should be, but we'll see if they are.

Traders in the U.S. are focusing on employment and housing numbers. The latest providing marginal relief.


Remember, we were down very sharply, 200 or so, 180. But today we are up 26. It is difficult to get excited about a gain of 26, except, when you put it into the context of what is out there and you start to realize that 26 to the good, compared to 180 to the short, is quite a sizable improvement.

Russia is trying to make itself more business friendly. It wants the whole world to know about it. Next, from the St. Petersburg International Economic Forum, Medvedev's chief economic advisor on privatization.


QUEST: Day one of the International Economic Forum in St. Petersburg, in Russia, with an open invitation to political and business leaders from around the world. Russia is hoping its guests bring their checkbook with them. Certainly the hope for doing business.

John Defterios is there and joins us on what looks to be a glorious spring-summer evening in St. Petersburg.

DEFTERIOS: Yes, Richard, in fact we are enjoying the long white nights, the fabled white nights of St. Petersburg right now. Quarter past 10 in the evening, here. But the only thing that is missing on the grounds are the bright neon lights that say, "Investors Welcome, Investors Welcome," from the Russian government, because they are rolling out the welcome mat to investors right now. And here is the plan. They do need to diversify to get back to their pre-crisis growth of 8.5 percent back in 2007.

So this is what they want to do: Raise $60 billion by privatizing between now and 2015; 900 state-owned companies going on the block. And some big names, there, as you can see, Rosneft, the oil and gas giant, the railways, and even the banks. Earlier I had a chance to speak to the chief economic advisor to President Medvedev, Arkady Dvorkovich. And I said, why all the urgency now, for Russia?


ARKADY DVORKOVICH, CHIEF ECONOMIC ADVISOR: Two specific goals that we pursue. One is exactly the signal that we want foreign investors here in Russia. That we are open to foreign direct investments. The second is gauging specific instruments for them to be comfortable working in Russia. Russian government is ready to give some comfort by matching foreign investments with government funds, managed by a professional team, not by the government itself. So, (UNINTELLIGIBLE).

DEFTERIOS: What I find fascinating here is that Chinese Investment Corp has already decided to come in. We just don't know the scale just yet. But that is positive in terms of Russia-China relations.

DVORKOVICH: Yes, it is a good signal that they have real partnership relationships here. But also strategic (UNINTELLIGIBLE) funds from the West are coming to join us. And sovereign wealth funds from a number of countries also thinking about that. And we are quite optimistic about them coming here.

DEFTERIOS: Is it realistic to get a gas deal? We are talking about a landmark gas deal, that is going to be worked out by Mr. Medvedev and Hu Jintao but we'll have it before the forum is over do you think?

DVORKOVICH: We already have an agreement on oil, on gas we are still in the process of negotiations and consultations. Today President Medvedev meets Chairman Hu Jintao in Moscow so we hope that we will have progress on that.

DEFTERIOS: You have a huge challenge right now because of the elections in 2012. Capital flight of some $25 billion, people are talking about, because they don't know who is going to be president after March of 2012. How do you address that to keep investors patience?

DVORKOVICH: I would say there are two reasons. One is uncertainty. Second one is the global crisis that we are just coming from this year. And also, it is a matter of fact that big companies are not getting money back from Russia. It is about 1 million small business (ph), small investors that are trying to save their money.

DEFTERIOS: Yes, but that is dangerous. Because they are the job creators.

DVORKOVICH: It is dangerous. Our signal is that we are committed to improvements in investment climate, at present (UNINTELLIGIBLE) imply that we will have to make serious steps this year, even before elections. So we are committed to continue after elections, independent of the results of the elections.

DEFTERIOS: When will we have clarity about who is running and who is not running?

DVORKOVICH: I think in the fall this year.


DEFTERIOS: Arkady Dvorkovich, once again, the chief economic advisor to President Medvedev. Let's give you the details of what he was talking about during the interview here. A potential gas pipeline to be announced tomorrow, if they can agree on pricing. We also have a $50 billion private equity fund being set up by the Russians themselves, but the China Investment Corp is going to come in on that. Russia is going to put up the first $10 billion of matching funds. And finally, Novartis announced a $500 million plant to be set up in St. Petersburg. So, the first day of the St. Petersburg forum and not a bad pipeline if they can deliver right across what they were talking about over the last 24 hours, in Moscow, between Wu Jintao and Dmitri Medvedev, Richard.

QUEST: And later in the program, you and I will be back, obviously putting perspective into this. And we do need tomorrow, John, to talk about how much of all of this-how much foreign investors are still concerned about what might be a Wild West capitalist environment. Khodorkovsky is still not gone away yet, in foreign investors' minds. We'll talk about that, or at least we'll cover that tomorrow.

Now, we'll be hearing more from John later in the program and what the forum attendees in St. Petersburg have to say about Greece's money problems.

But when we come back after the break, you've packed your suit case. You've got your passport. And you've even managed to get to the airport on time. There is always that last-minute hurdle. Those fees that you are going to get hit with. "Q&A" after the break.


ALI VELSHI, CNN ANCHOR, CNN NEWSROOM: 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, Mr. Velshi. Each Thursday Ali and I come to you around the world. And our issues that we discuss are business, innovation, and today, travel. Nothing is off limits. So we are talking about airlines and the huge amount of money they are taking and making and taking from you and me, on fees.

VELSHI: Here in the U.S. we have just heard, $5.7 billion last year. Some of it coming from extra bag fees, food, charging for pets, almost anything that they could think of to make some money off of that; more than $2 billion just from change and cancellation fees.

So the question, Richard, for our viewers, is flying a good deal? Or are we being taken for a ride?

Richard, you have more frequent flyer miles than I do, so please, go first. You've got 60 seconds.


QUEST: It sounds like such a good idea. Pay for what you use, and leave the rest behind. And indeed, when it started, the idea of paying for baggage or for speedy boarding, or for those little extra perks, like entertainment and food onboard, did actually work. But it wasn't long before the fees went up, and so did the fares.

The latest report from American Express shows year-on-year fares are up by 10 percent. And now back to pre-recession levels. The fares go up, the fees go up, and some airlines here in Europe come up with imaginative ways. Things like booking confirmation fee, legal protection fee, or credit card and debit card fees.

My rule is simple. If it is something that can be avoided, like baggage, meals or entertainment, all fair and good. But if it is anything else it should be included in price.


QUEST: I'm not being taken for a ride by anyone.

VELSHI: Richard, let me take a go at this, all right?


It is easy to rip on the airlines. The delays, the cancellations, and all those annoying fees you just listed. It seems like any day now, in Europe, you could be paying to use the loo. But here is where it gets drowned out by all of our complaining. Flying is a remarkably good deal. You compared it to precession levels, 15 years ago, here in the U.S. the average domestic air fare was $288, 15 years ago. Last year, even adjusting for inflation, it was $236 dollars; $50 cheaper than it was 15 years ago, Richard.

Now, in exchange for those low fees we have had to suffer some other things. The truth about airlines-Richard, you know this-they need the money. In the last decade, in the U.S., the industry had only three profitable years, count them.

QUEST: Oooh!

VELSHI: Three, it slashed 160,000 jobs and look at this fuel price. One cent in a gallon of jet fuel cost them $175 million a year. So, while paying for something that used to be free, like checking a bag, is painful. Let's face it Richard, without all that nickel and diming, they would have to raise their-


VELSHI: fares. Ala carte pricing is fairer. I'm all for it.

QUEST: Right. I'm all for it, but since when did you become an apologist for the industry?

VELSHI: I just want the planes to keep flying.

QUEST: The Voice.

UNIDENTIFIED MALE: Hello, gentlemen. Time for take off. Let's jump right into question No. 1 You are both frequent flyers so this one should be fairly easy. According to luggage source, what is the usual maximum weight allowed for a carry on bag?

Is it A., 20 pounds; B., 30 pounds; C., 40 pounds; or D., 50 pounds?



VELSHI: Richard wouldn't know the answer to this because he all fancy, he doesn't have to pay for luggage. It is 50 pounds, D.


UNIDENTIFIED MALE: Incorrect. Mr. Quest?

QUEST: The maximum weight allowed for carry on is 20 pounds.


UNIDENTIFIED MALE: No, sir. Mr. Velshi?


VELSHI: 30 pounds.


UNIDENTIFIED MALE: Incorrect again, Richard.

QUEST: 40?


UNIDENTIFIED MALE: Took you long enough. The answer is usually 40 pounds, but some airlines cap it as low as 26 pounds.

On to the next one: Now we're on the plane. According to, which country has the highest paid airline pilots? Is it A., Germany, B., Taiwan; C., Kuwait; D., United States.

VELSHI: Trick question, Richard.



QUEST: It is a trick question. And I'm going for Germany.


UNIDENTIFIED MALE: That is correct. Germany is tops, followed by Taiwan. Russian pilots, by the way, rank near the bottom, making 10 times less than their German counterparts.

Question No. 3, let's pick up the pace, Ali.

We are in our first class seats, waiting on the foie gras. Bank in coach they are praying for peanuts. So what country produces the most peanuts? Is it A., China, B., India; C., the United States; or D., Nigeria.



VELSHI: Peanuts are a hot climate thing. I'd say India.


UNIDENTIFIED MALE: Incorrect. Richard?


QUEST: I would say, Nigeria.


UNIDENTIFIED MALE: Incorrect again. Redeem yourself, Ali.


VELSHI: Uh, the United States.


UNIDENTIFIED MALE: Wrong again. Richard?

VELSHI: This thing is rigged.

QUEST: China.



UNIDENTIFIED MALE: That is correct. China produces the most, but the majority of their peanuts aren't eaten, they are made into oils or other things. The U.S. produces the most peanuts for actual consumption.

So, Richard, you win, three to nothing.

Ali, I expect better out of you next week.

QUEST: Hey, Ali,

VELSHI: I'll be ready.

QUEST: The point about that is I'm going to make a hostage to fortune here. I want to know the other things that peanuts are made into?

That will do it for this week.

VELSHI: That's right, edible peanuts versus what?

QUEST: Remember we are here each week, Thursdays, on QUEST MEANS BUSINESS, 1900 in the London Time Zone.

VELSHI: And in the CNN NEWSROOM, 2:00 p.m. Eastern. Keep the topics coming on our blogs at and Tell us each week what you want to see us talk about.

Richard, have a good week.

QUEST: Have a good week.

And astute viewers would have noticed, of course, that was recorded just a few hours ago, yesterday in fact. Different suite and I think the hair might even been just a tad longer.

Doesn't matter. It makes the victory three-nil.


Just as sweet.

After the break we are back with Johnny D, in St. Petersburg.

DEFTERIOS: We were speaking to the former head of the World Bank, James Wolfensohn, on the great divide, Richard, now taking place, on the ground in Greece.


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

This is CNN. And here, whatever the day, we always have the news first.

This is CNN. And on this network, the news always comes first.

The Al Qaeda terror network has a new leader and he's a familiar face, Ayman Al-Zawahiri. A U.S. expert says it's no surprise since Zawahiri was Osama bin Laden's second in command. Washington is offering a $250 million reward for information leading to Zawahiri's capture.

An ugly development from the battlefields of Libya. Rebels say there's new evidence rape is being used as a weapon. They say video showing numerous sexual assaults has been found on confiscated cell phones and that the phones belong to troops loyal to leader Moammar Gadhafi.

At least five people are dead following a powerful explosion in the Nigerian capital and authorities say a suicide bomber targeted police headquarters in Abuja. No one has claimed responsibility for the attack, but police suspect the militant Islamic fringe group, Boko Haram.

A sexting scandal has now brought down a U.S. congressman. Anthony Weiner has announced his resignation a short while ago at a news conference in New York. Weiner has admitted to having inappropriate relationships with women online after lewd pictures of him surfaced in May. He has apologized to his wife and his constituents for his behavior.


REP. ANTHONY WEINER (D), NEW YORK: I am here today to again apologize for the personal mistakes I have made and the embarrassment I have caused. I make this apology to my neighbors and my constituents, but I make it particularly to my wife, Huma.


QUEST: Anthony Weiner speaking in New York a short while ago.

Tonight, Greece's leadership and finances are on distinctly shaky ground. The prime minister, George Papandreou, is reshuffling his cabinet and hoping that a new lineup will help pass austerity measures that could be crucial to the release of bailout money from the EU, eurozone and the IMF. It's not just Europe that's paying attention to this. The world is watching.

In St. Petersburg tonight is our John Defterios -- and, John, we know, because we've talked earlier and you and I have talked about the ripple effects of this.


QUEST: So whilst Russia, geographically, may be a comfortable distance, otherwise, it's not.

DEFTERIOS: Well, in fact, Richard, it's quite surprising. Greece is, of course, one sixth the size of the Russian economy, at $1.7 trillion for Russia right now. Tomorrow, we're going to hear from Joe Ackermann of Deutsche Bank and Vikram Pandit of Citibank.

But today, I had a chance to sit down with James Wolfensohn, the former president of the World Bank and now in the private sector, so he can speak a bit more candidly.

And I asked him about this great divide we see today, what is happening in Brussels with the European Central Bank, the EU and the IMF, and what's happening on the ground in Athens, with the Greek people.

This is what he had to say.



For the first time, there is a confrontation between the desires of the Europeans to keep things calm and the desires of the people on the country to avoid sacrifices. And I think that what is interesting about that is that if it occurs in Greece, then you have the possibility that in the other weak countries, you will be unable to push this thing you need the carpet.

DEFTERIOS: It's interesting, Papandreou played a fairly heavy card onto the table, looking to get a unity government. He did not get that.

WOLFENSOHN: That's right.

DEFTERIOS: He's pushing for a cabinet reshuffle, which doesn't seem to be a bulletproof solution for anyone, if he gets rid of his finance minister, Papaconstantinou.

How do you see that?

WOLFENSOHN: Well, I think Papaconstantinou actually is very good. He is not an experienced minister, but he's a very, very good man. I think, again, the confrontation is between what the people want and what a -- an educated and informed government might want, if they were running a company. But it's not a company. It's a country.

DEFTERIOS: Are they going too far to protect the private creditors because of the -- the German bank exposure and the French bank exposure in Greece, it's about $100 billion. They seem to be holding off on that last step here.

WOLFENSOHN: Well, in my opinion, they are going too far. I think there is a situation here where there is real loss. Greece and country -- companies within Greece, as well as in the weaker countries and the four, really, that there are, have lost money. But that is going to cause the banking system to lose money.

And I think what they're trying to do is to put that off because they don't want to see weakness in the system.

And in my judgment, that's against -- that's against nature. You can't pretend that you have good debts when the countries or the companies that you're lending to are, in fact, bankrupt or near bankrupt.


QUEST: The former head of the World Bank, James Wolfensohn, there -- and, John, Europeans always say, when you push them on this, that the -- in fact, it always goes to the final moment and the -- right down to the wire. It's the European way. We get there in the end.

But from where you are tonight, is there frustration in what this seems to be, vacillation and procrastination?

DEFTERIOS: Well, they acknowledge it's difficult to pull together 17 countries of the eurozone, Richard. But incredible frustration why this is going down to the wire yet again.

And the original plan was to isolate Greece and they solved the problems in Ireland and Portugal, and the much larger economy of Spain. Now we're back to square one again, because the contagion discussion is back on the table, because they're waiting until the very last minute to guard the German and French banks, who have exposure to Greece of $100 billion.

A final point here very quickly. Some believe that Mr. Papandreou played his ace too early in this card game, calling for a unity government. It would have been a great idea. He didn't deliver. They don't think a cabinet reshuffle is going to be enough to rebuild confidence.

QUEST: John is in St. Petersburg.

And we'll be back with you tomorrow night.

John Defterios at the Forum in Russia.

Russia hasn't officially thrown its support behind either of the candidates for the IMF's top job, though last month, Prime Minister Putin did say Christine Lagarde was completely acceptable for the role. The Mexican Central Bank head, Agustin Carstens, is in Beijing today drumming up support for his candidacy.

And he told our Nina dos Santos how he would handle the Greek debt crisis if he's in charge.


AGUSTIN CARSTENS, GOVERNOR, BANK OF MEXICO: Basically to try to engineer the funding, the catalyzer of an agreement between the countries through strong policy measures and the external -- adjust external financial support, obviously, with resources from the Fund but also from the European Union and, as a very last resort, advocating for a restructuring of its debt.

I think at this stage, the restructuring should be a very last scenario.

What is important is that the Greece problem should be a conception like in the context of the European Union. And that's why I think that the European Union needs to do, together with the Fund, a very important effort to stabilize the situation as soon as possible.

NINA DOS SANTOS, CNN CORRESPONDENT: This must be of some concern to the people you've been speaking to in China. This is a global concern now, the Greek problem.

What are they saying to you?

Are they also giving you an indication of whether they support your candidacy?

CARSTENS: Well, I had very good conversations today with the governor of the Peoples Bank of China, the minister of finance. And we acknowledged the very difficult times in Europe with these costs. It is in the context of precisely my candidacy. And precisely should an European-led institution in these circumstances. And I made the point that it was not necessarily the case, that a fresh pair of eyes and somebody with experience in living with crisis, as -- as myself, would be a good choice.

So in general, we had a very good conversation. I think my views, in terms of what the Fund should do in the future, what the role of China should be in the future in the welfare national markets are -- are -- are shared with them. And there is a lot of coincidence. So I thought it was a very productive, very encouraging meeting.

DOS SANTOS: If the Greek crisis does get worse from here on, a lot of people have been saying that giving Greece extra money, Mr. Carstens, could push the problems under the carpet, to a certain extent, and undermine the stability of the euro as a common currency.

What would that mean for the future m.d. of the IMF going forward over the next five years?

CARSTENS: Well, I mean, obviously, the -- the managing director should safeguard Fund resources. And -- and in that case, basically what it needs is to balance three issues.

One is domestic adjustment by the Greeks. The other is a -- any assistance by third parties, namely the European Union, the European Central Bank and probably creditors and then Fund resources. An appropriate balance needs to be find there precisely because otherwise, also, the institution would be affected.

DOS SANTOS: So let me just ask you one final question, Mr. Carstens.

Would there be a limit to the amount of financial assistance you would give Greece if you were the head of the IMF in two or three week's time?

CARSTENS: You never try to cast this as a -- as a European program. Definitely, if -- if more resources are offered and we will reach the point of sustainability. Then it would be definitely not advisable to provide those resources.


QUEST: That's Agustin Carstens, running for the managing directorship of the IMF.

After the break, here's a thought -- if IBM were here in the U.K., it would now be exchange a telegram from the queen. It's a big birthday for Big Blue -- 100 years of doing business. And it's not even the oldest tech fund still going strong.


QUEST: One hundred years old and still going strong -- Big Blue is celebrating a full century of doing business. IBM -- it started with around 1,300 employees back in 1911. So IBM was always something of a sizeable business. It made everything from clocks to those famous punch card machines which became iconically related and linked to IBM's success.

It designed some of the most famous products in technology and it's gone on to create billions of dollars -- remember the Skelectric (ph) or Selectric, whatever it was called, typewriter; the golf ball typewriter. I remember starting learning to type (INAUDIBLE) on one of those things that whizzed around.

We often think of tech companies being these young upstarts.

Here's another one -- the first MS-DOS computer screen that came along. It gave us, IBM, the PC. And, of course, it's still around today. IBM now with Lenovo and others, but the core of it.

And here's a fact that you may not know.

Why was it called Big Blue?

It was called Big Blue because of the color of the boxes that it made -- Big Blue computers.

There are many other computer and technology firms that date back a long way. Nokia, for example, goes back to 1865. It started as a paper mill in Southern Finland. It also produced rubber boots and tires. It only went into electronics in 1960.

Go to Nintendo -- now, we think of Nintendo at the forefront of computer games. Wrong. Well, it may be right, but wrong. 1889 is when it started. It made Japanese card games and it was almost 100 years before the Nintendo entertainment system, the NET, was launched.

Good old Moto -- got Moto, go -- Motorola, 1928, car radios, those old radios that they used to create for them. Then, of course, it goes into big massive infrastructure type radio systems used by police and fire and the like.

Business has, arguably, never been better for IBM than it is at the moment. Last week, its stock hit an all time high. It's neck in neck with Microsoft, as the world's second most valuable tech company.

IBM's vice president of innovation, Bernie Meyerson, showed us how Big Blue has come a long way from those punch cards and screens like that.



What IBM innovations have been about, if you get down to it, are the recording, the tabulating of data and then doing something with that data. It can be computing. It can be deep analytics. It can be any of the above.

Even if you go all the way back to the very beginnings of the IBM company, we're talking 1911, we were about that. We did time clocks. Fast forward to the time that data really became a huge challenge. It was after the Great Depression. We developed the Hollerith machines that did all of the counting and all of the account for, for instance, the rollout of Social Security.

What would you do with 30 million people you had to keep track of?

It's physically impossible without these machines that could high speed sort the punch cards that had the data on every person in the US.

Now, if you move forward into the future, the amounts of data are tens of millions of times more complex. If you have more data, tens of millions of times, you need to be able to work with it tens of millions of times more quickly or it's useless. We came up with things such as this thing here, the disk drive. Now, of course, the joke is that monster there, a rather large platter, was part of the original disk drive. Back then, in the mid-1950s, when we invented it, the unit that held five megabits of data, roughly speaking, weighed 10 tons.

To give you some perspective, today's laptops, if we had done no further work, would weigh about 250,000 tons, give or take the weight of two big cruise ships.

Now that you've even stored five million bits of data, you have to compute more quickly. And you can't use a mechanical calculator.

So what happened?

We developed the first digital calculators and they were actually based on things called vacuum tubes. This actually is a switch. It turns things on and off. And it does computing for you in this kind of a machine. But it doesn't do a lot -- a couple of thousand operations a second.

OK, so now you move a little further forward and you say, well, we need, for instance, to be able to operate more quickly. But if you do, disks don't actually store data and release it very quickly.

So we started inventing what they call solid state memory. This is actually an example of it. This thing is about 100 bits of data, give or take. That's all, 100 bits. Look at the size of this.

If you fast forward to the needs of today, you actually wind up with things like this, which are billions of bits. And, in fact, the chip that has it on it is so tiny, that will have to put it in a big holder like this or your fingers couldn't handle it.

Along the way to building the massive computers of today, there was a remarkable breakthrough that wasn't just really about a chip or a thing, it was, rather, the integrator whole that mattered. And the thing that IBM did that changed history, frankly, and all of us are familiar with, is we invented the personal computer.

Now, there have been many breakthroughs like that the IBM company has created, not just the personal computer, but, for instance, the Selectric Typewriter was another breakthrough. The magnetic strip on the back of your credit card. The bar code. The excimer laser. This is simply a new type of laser that is capable of using tremendous electric fields that take things apart as opposed to heat.

So imagine you're reshaping somebody's cornea, which is how you do laser surgery on an eye, and yet you can do that without damaging the underlying tissue. That's a huge breakthrough.

And guess what?

That came from IBM.

IBM is here essentially because it has been able, for the last 100 years, to continuously reinvent itself. That's just incredibly rare, especially in a field that moves at the pace of the field we're in.



QUEST: Richard Branson has been celebrating in style, as his Virgin Atlantic Airline marked 25 years flying from the U.K. to Miami. Sir Richard posed on the wing of one of his 747s with the British pop star, Sarah Harding. The airline's first flight to Miami in Florida was in 1986.

Sir Richard joined me via satellite a short while ago.

And we reviewed the state of the airline industry as it comes out of the worst recession for decades.


RICHARD BRANSON, CEO, VIRGIN: It's been, yes, the last two or three years, some of the most challenging years we've known. You know, that is the airline business. I mean you go through these -- these cycles who can be very painful. And, obviously, in the last, you know, year, we've had volcanoes. We've had earthquakes in Japan, we've had horrendous weather in America. And now we've got the highest steel prices, really, we've ever had on a consistent basis.

But it's up -- it's just up to Virgin Atlantic to be better than their rivals, to fill our planes, to, you know, get the corporations to fly in our business class; to, you know, open new routes occasionally to keep -- keep the momentum going. And, you know, somehow we have managed to survive, you know, 27 years...

QUEST: Right.

BRANSON: -- as an airline, 25 years in Miami. So we have a lot to celebrate.

QUEST: What will the future ownership of Virgin Atlantic look like, because Singapore says it's interested in disposing of its 49 percent stake?

You have said you're looking for alliances and you're not averse to selling some of our shares in that big.

So who's looking, who's selling and who's buying?


BRANSON: I -- I -- Virgin Atlantic is my baby. She's 27 years old this year. And you don't sell your child. So you're not -- you're not going to find, you know, me -- me selling -- selling Virgin Atlantic, I think, whilst I'm alive.

Having said that, you know, we -- we have said that we'd be interested in another alliance. We've been approached by a number of -- a number of alliances to talk to us. We -- we're conducting those talks. And if an alliance makes sense, we'll enter into it.

We do already have a pretty impressive alliance. We're -- we're the first), believe it or not, we're the -- although it's quite small -- we're the first global airline. We've got Virgin Australia, which is a -- a great airline down there. We've got Virgin America, which is a great airline here in the States. And we've just ordered 50 new planes. And, of course, we have Virgin Atlantic to connect...

QUEST: Right.

BRANSON: -- connect them all up. And so, you know, literally, you know, you can fly around the world on a Virgin plane now.

QUEST: So would you imagine -- and forgive me pushing you on this, but this is the topical moment, if you like.

What do you expect there to be movement?

What do you expect to -- to do a deal before the end of the year or by middle of next year or when?

BRANSON: Well, we'll do a deal if a deal is there to be done, you know, when -- when it when it's appropriate to do it. And, you know, look, if we -- if we get -- if we get a great offer, you know, and -- and we get a great alliance partner that we think will really strengthen Virgin Atlantic long-term, we'll do it.

What we don't want to do is do an alliance with, you know, airlines that are of a quality that are a lot, you know -- you know, a lot worse than Virgin Atlantic, so we're feeding passengers, you know, from a quality airline like Virgin Atlantic onto, you know, a less quality airline somewhere overseas.

So we're quite -- we're quite fussy partners. We -- we've done...

QUEST: Right.

BRANSON: -- OK for the last 27 years. I think we can do OK for the next 27 with -- without, you know, just by building our own airlines around the world. But if the right alliance comes along, we'll do it.


QUEST: Sir Richard Branson on the line from Miami earlier.

Relentless rainfall and the Yangtze River is a raging monster in China.

Pedram is at the World Weather Center.

PEDRAM JAVAHERI, CNN METEOROLOGIST: Yes, Richard. Conditions outside across portions of Central and Southern China have been really unbearable for millions of folks that are dealing with the heavy rainfall.

And take a look at the video here showing you the tremendous amount of moisture that's come down in a matter of a couple of days across portions of the Yangtze River and areas as -- in Yangtze Province, I should say, around the Yangtze River. Some 90,000 folks evacuated. We have over 170 lives already taken because of what's happening across portions of China. And the rainfall continues to come down in an area that just a few weeks ago, we were talking about devastating drought. And just like that, you can see what Mother Nature is doing when rainfall is coming down on parts of China right now.

But coming back to the graphics, I want to show you a photograph just coming in from Stockholm, Sweden, a late night eclipse photograph, one of the better ones you'll see, this one taken some two minutes before midnight last night across Stockholm. And you can see, of course, high latitude. The sun stays high in the sky there and gets enough light dimming there. The moon enters the Earth's shadow as a few folks stand by and take a look at the perspective.

Now, if that was tonight, there would have been a different Southern Germany, because take a look at this, Richard. A broad storm system beginning to pump in moisture across portions of Europe. And getting some severe weather reports across Southern Germany on into portions of, say, Austria and -- Austria and Switzerland over the next 24 hours. So we'll be watching this carefully. And, of course, air travel delay is going to be a concern with this very large storm that's beginning to move in -- Richard.

QUEST: Pedram, many thanks, indeed.


QUEST: A Profitable Moment is next.


QUEST: Tonight's Profitable Moment.

Forget the politicians, it's just about impossible to find anyone in the market who doesn't believe the Greek crisis will end with a default in one way or another. It's become the received wisdom. It's a question of how and when.

So why are the euro politicians sticking so firmly to their guns?

To be sure an or -- a disorderly default would create havoc. Surely, though, the longer it goes on, the more likely that it becomes disorderly.

Greece is undoubtedly going to get the extra money it needs from the IMF and the eurozone. The issue is the price to be paid. There is only so much pain that can be heaped on the Greek people before rioting becomes more widespread and there's a breakdown of civil society.

Mistake, misfortune and misery -- they're all involved here. It's time this one was solved once and for all.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

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

"PIERS MORGAN TONIGHT" is after the headlines.