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QUEST MEANS BUSINESS

European Credit Outlook and Italy's S&P Downgrade. Fed Reboots Operation Twist. Women Employment Statistics Worldwide from the World Bank. Lufthansa Researches New Biofuels; IMF Issues Dire Report On The State Of The Global Economy; Rep. Eliot Engel Discusses His Efforts To End Child Labor In The Chocolate Industry; What Is Being Done By Candy Companies?

Aired September 20, 2011 - 14:00:00   ET

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


MAX FOSTER, CNN ANCHOR: The IMF warns there is danger ahead. Europe and the U.S. could slip back into recession.

The president of the World Bank tells me gender equality is not just a moral issue, it is an economic one.

And in "The Boss", the chief executive of My-Wardrobe.com tells us of the difficulties of balancing work and motherhood.

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

A stark warning then, from the IMF, the global economy is in a dangerous new phase that could push Europe and the U.S. into recession. The fund says global activity has weakened, confidence has fallen sharply and downside risks are growing. It projects GDP growth in advanced economies will grow a pathetic 1.5 percent in 2011 and only 2 percent next year. However, these assume-these numbers assume three things. And that is European policymakers contain the crisis in the euro area periphery, U.S. policymakers strike a balance between stimulus and austerity, and volatility in global financial system doesn't escalate. And those are a lot of assumptions.

Jim joins me now.

Assumptions which don't necessary fall into play, as the years go by.

JIM BOULDEN, CNN BUSINESS CORRESPONDENT: I like how it put the word, "assumed" European policymakers will contain the crisis.

FOSTER: Very academic, isn't it?

BOULDEN: In the Euro area.

FOSTER: A lot of assumptions.

BOULDEN: So we are saying this will be slow growth, if everything is sorted and there is not guarantee everything will be sorted. But you know, Christine Lagarde, from the IMF, has been saying for the last couple of weeks that she has really been this call to arms to European governments and to the U.S. government, they have got to get their house in order. So, it is not surprise that we have this stark warning from the IMF.

I did think it was interesting, though, that Mr. Olivier Blanchard, the chief economist at the IMF, who held-who sort of held the press conference today. Really was very strong in his words towards the U.S. and Europe. Let's listen to some of that.

(BEGIN VIDEO CLIP)

OLIVIER BLANCHARD, CHIEF ECONOMIST, IMF: Worries have spread from countries that at the periphery of Europe, to countries in the core of Europe, and then to others, Japan, even the United States. Worries about sovereigns have translated into worries about the banks holding these sovereign bonds, mainly in Europe. And these worries have lead to a partial freeze of financial relations, with banks keeping high levels of liquidity and tightening lending. Fear of the unknown is very high. Stock prices have fallen, these will adversely affect spending and growth in the months to come.

(END VIDEO CLIP)

BOULDEN: So there are other reasons he lays out for why this gloomy scenario from the IMF.

FOSTER: We'll be speaking to him live at about half past the hour.

Interesting, when he talks about the U.S., saying that these budget cuts, if they are hasty they could further weaken growth. So, there is the IMF looking much more toward monetary policy than fiscal?

BOULDEN: No, that's the dilemma, every country has its dilemma. Greece, has and the rest of the European Union. The austerity package is wanted and needed because you look at the bond markets. And that is what the markets want.

FOSTER: But it kills growth?

BOULDEN: But it kills growth. And the fear, as the IMF says, we could go back into a recession. So they are looking for long-term structural reform, it is a great term, isn't it-structural reform, it means privatizations, or it means loosening the labor markets. It is different things in different countries. So that is medium to long-term, but what the IMF, and everyone is talking about right now is Europe having to sort out this mess with Greece. Either recapitalizing the banks, creating the Eurobond, all these different ideas are out there, But now it is just about getting, you know, in the next couple of weeks, getting Greece the money it needs if it can meet these targets that the IMF and others have set, just to pay their bills in October. That is the short term.

FOSTER: Meanwhile, investors hoping the emerging economies will hold up the world economy. But the IMF even gloomy on that, saying prospects for emerging market economies were growing more uncertain. There is no hope out there.

BOULDEN: The thing about emerging, these emerging markets, it could lower to 6 percent growth in 2012. Great number, but the world needs it to be growing even faster, without inflation, without overheating, in order to pick up the U.S., which is anemic, pick up Europe, which is basically in a recession now, anyway. It may not be by word-by definition. But emerging markets could really be hit hard if the Greece scenario goes really bad. And then, of course, you are talking about a whole different scenario.

FOSTER: Jim, thank you very much indeed. We'll be speaking to the IMF, as I say, in about 25 minutes.

Now, Robert Zoellick says the time for muddling through the crisis is all but over. The World Bank president thinks everyone is watching and waiting for the Eurozone to sort itself out. Ask him if he agreed with the IMF, though the situation was getting more serious.

(BEGIN VIDEO CLIP)

ROBERT ZOELLICK, PRESIDENT, WORLD BANK: I think they are suggesting the odds are increased, and I frankly agree with that. But what we started to see in August was the contagion affects of the issues in Europe and the United States. And so emerging markets debt, for example, the bond yields in the spread increased some 70 basis points, about 0.75 of a percentage point. The equity markets, the stock markets, took hits as the developed countries did.

The developing countries have already been suffering through the slow exports to the developed world. And the issue that I suggested that we have to watch closely is the domestic demand in emerging markets. So their consumer confidence, the business investment, if that all starts to get influenced like developed countries do, then we'll loose what is really been the bright spot in the world economy, the merging markets which have represented about a half of global growth.

FOSTER: The IMF is actually interesting, because whilst it is talking about the West falling back, possibly going back into recession, if political indecision continues. Also talking about the emerging markets and then potentially overheating, going the opposite way. But that I as damaging isn't it, if it goes on?

ZOELLICK: Yes, that really was the issue that was in the forefront of people's concerns, through August, because the emerging markets have come back very well. They have been a good source of growth, but the risk was overheating. Now, the developing country policymakers have to walk a very fine line, because we still see, for example, high food prices. And that affects a lot of their inflation indices, because food is a more important, a larger component of the household purchasing. But at the same time they may be seeing the ripple affects, that I mentioned in terms of the fall off of demand.

(END VIDEOTAPE)

FOSTER: The head of the World Bank speaking to me earlier.

Well, up next, stopping forced child labor in Africa's cocoa farms. A 10-years on, a deal to do that still leaves a bitter after taste. We'll hear what the industry has to say after the break.

(COMMERCIAL BREAK)

FOSTER: We turn now to the "Freedom Project", CNN's effort to help rid the world of modern-day slavery. This week we are looking at the human cost of chocolate, while everyone around the world, especially our kids enjoy the taste of chocolate, some children din West Africa are still slaving over the beans that make it. We see this in the film, "The Dark Side of Chocolate", as we follow undercover researchers in several cocoa farms, in Ivory Coast. Through their cameras we see children with machetes. We are told some are held against their will, forced to work, and that many never even get paid. A shocking fact, since in 2001, the cocoa industry signed the Harkin-Engel Protocol, a commitment to work together to remove the worst forms of child labor from its products. Ten years on, child labor is still a scar on the chocolate industry.

Richard spoke to U.S. Congressman Eliot Engel, who together with Senator Tom Harkin, helped put this protocol together.

(BEGIN VIDEOTAPE)

RICHARD QUEST, CNN ANCHOR: The problem is, that in 2001 with the protocol, and you signed it, and everybody else signed it, and even presidents of companies signed it; if you can't get progress after that tremendous initiative, 10 years on, I wonder why you believe, Congressman, respectfully, that the next 10 get any better?

REP. ELIOT ENGEL, (D-NY) : Well, I think, whether I believe it or not, is not important. What's important is that we identify the problem, which we have, we try to concentrate and push it for change as hard as we can. And we keep going at it.

Now, I would like the companies to do more. I would like the governments to do more. But I think we have identified the problem and we are moving in the right direction. You know, when I first identified this problem, based on reports that I had read, and I called Senator Harkin and asked him to join me, we had the industry denying it. The industry said that we didn't know what we were talking about. That these are just children helping out in family farms, and that by pushing this issue we were going to do immeasurable harm to these farms and the ability of people to have their livelihood.

And we got no cooperation, whatsoever. We were very angry, Senator Harkin and I, and we started to float the possibility of either a boycott or of having chocolate bars stamped with some kind of language, saying this bar was made free of child slave labor, similar to what you have on tuna fish being dolphin free. And that sort of jarred the industry into action. And we have been meeting with them straight on.

Last year, we signed another agreement with the secretary of Labor Hilda Solis. And we are hoping that the new agreement which we hope will change or improve by 70 percent, by 2020, we'll move forward. Now do I have guarantees that that will happen, no. But I will tell you one guarantee we have that I'm going to be right there pushing for positive change, and focusing attention on this industry.

There should be no remnant of child slave labor, in the 21st century. It is a disgrace that it still is there. And I think the most positive aspect of it is that we are pushing it, we've got the countries working with us. We have industry working with us, and we're going to move forward;

QUEST: If you do not see improvement, in short order, with the monitoring and the foundations, and all the other panoply of regulation that is with it, are you prepared to go to law?

ENGEL: Well, I think that is certainly an option and it is down the line and if we have to I would say, yes. I would hope that we wouldn't have to. I would hope that we could make tremendous progress the way we are, but the bottom line, for me, is to make the progress. And if we cannot do it in one way, we can then attempt to do it another way. But I hope that won't be necessary. I think we are getting cooperation from the industry, more than before, I think the governments are cooperating. And hopefully, it won't come to that. But yes, for me the bottom line is to end child slave labor. And anyway that I can do it, I'll be for it.

(END VIDEOTAPE)

FOSTER: Well, the Harkin-Engel Protocol was a noble endeavor, but many aid groups say not a successful one. Richard spoke to the director of Stop The Traffic, yesterday.

(BEGIN VIDEO CLIP)

QUEST: I spoke to Senator Harkin, who says, this if you do read what the industry, I could print out what they sent us. They say that five of the commitments have been lived up to and they are working on the sixth, under the protocol.

ANTOINE FOUNTAIN, DIRECTOR, STOP THE TRAFFIC: I was surprised they'd say that. Just for an example, of those-

QUEST: Are they lying?

FOUNTAIN: They're lying. It's not true. Of those six that are there, they haven't actually fulfilled any single one of them completely. The first one, for example, says, that what they are going to do is commitment sufficient resources. Now I think Mr. Harkin's first answer to what is the problem to this, was that the industry wasn't committing sufficient resources. So that is I think, problem number one. For example the second says that there are actually going to put forward remedies to solve this thing. Well, they haven't done that.

(END VIDEO CLIP)

FOSTER: Well, we reached out to the top five chocolate makers and the top five cocoa manufacturers inviting them on our air to talk about what they have done to implement the protocol. So far, six companies have not responded, at all. And they are Cargill, and Petra foods, there, we have Blommer, Hershey's; Ferrero, and Nestle. Four have responded, though, Mars says, we have always been and continue to be deeply concerned about child labor is in West Africa, reaching one of the millions of farmers in West Africa is a difficult task and we are committed to achieving a permanent solution.

Now, Kraft-Cadbury had told us it is working with others in the industry to support the Harkin-Engel protocol. Barry Callebaut told us that the protocol applies the industry as a whole and Barry Callebaut and other companies referred us to the International Cocoa Initiative, which was created under the protocol. ADM, they spoke to us and said the signatories of the protocol would be releasing a joint statement in the coming days. Those who have responded are directing us to a specific person, and here she is, Joanna Scott of the Global Issues Group, that is a coalition of chocolate and cocoa companies.

Appreciate you joining us. Thank you very much.

JOANNA SCOTT, GLOBAL ISSUES GROUP: Thank you.

FOSTER: Six is quite a long time, why hasn't more been done to reach al the targets that are part of this protocol?

SCOTT: Well, the chocolate industry came together because we believe that no child should be harmed in the growing and harvesting of cocoa. We have-the protocol has been an important catalyst for change, industry programs, we are working in a very challenging environment; 2 million small farms in West Africa, Cote d'Ivoire and Ghana alone.

FOSTER: And child labor is still rife there. Only the big manufacturers have the most responsibility.

SCOTT: In recent years, our industry programs have actually reached over 1 million children, but you are absolutely right-

FOSTER: Not enough, is it?

SCOTT: No, you are right. The progress isn't enough. And that is why we have joined force with other partners to this new framework of action. And we have-we really believe we have to accelerate action, we have to do more and we have a very challenging goal that we are all supporting, which is the 70 percent reduction by 2020.

FOSTER: It just feels as if the companies aren't doing. They seem to be well intentioned. But at Nestle and Cadbury, for example, they source a lot of product under fair trade status, but actually it is a very small percentage of their entire product line. So, it is not enough. They need to commit the whole product line, don't they? To completely clear, clean product?

SCOTT: Well, you are right. What we are doing is not enough and we do need to do more. And that is why we are working together under this framework of action. And what we need to do is find African solutions to these problems. We are working with partners-

FOSTER: But you've been doing this for six years, there's no progress.

SCOTT: We have been working very hard. And we have made progress, 1 million children have been reached, 1 million vulnerable children who-

FOSTER: But a million for a huge multi-trillion dollar industry?

SCOTT: And there is lots more to do. But we have a very challenging target for 70 percent reduction by 2020. And our goal is to work to reach that target.

FOSTER: And one solution is to bring in third parties to verify and stamp the product. Why aren't more companies accepting that that needs to be done?

SCOTT: Well, you are right. One of the important things is to bring in third parties, partner organizations, such as the International Cocoa Initiative, which you said. And those programs that are happening all over different communities.

FOSTER: But why aren't all the companies signed up for them? Why are just some of the companies signed up partially to them?

SCOTT: Now all the companies have signed up, absolutely. With a 100 percent commitment to finding a solution to problem.

FOSTER: Independent parties, bring them in? Get some faith in the product?

SCOTT: We are working with many parties, partners, in Africa. And together working with the African governments at the highest level, both the president of the Cote d'Ivoire, and the senior minister in Ghana, they are working with us as a part of this framework, as with many other partners. And we are all committed to achieving that solution by 2020.

FOSTER: The message from Mars was that reaching every one of the millions of cocoa farmers in West Africa is a difficult task. Sounds very negative to me. Why can't we hear a more positive message. That we are desperately trying to reach everyone of them, and we're doing a great job of that. Instead of writing off a proportion of those young people.

SCOTT: Oh, we are absolutely not. And in fact, let me just give you an example. The first project that the ICI conducted in Cote d'Ivoire, that was in a community. They worked with those farmers, with those families, and they identified what was at risk, why the children were at risk. And that was because they had not school. And that first project, in San Pedro, they trained teachers, they built a school. Those children are no longer at risk. And that is the sort of work that we are replicating and will be replicating over the coming years. And that is out goal. To achieve that kind of solution right across the country.

FOSTER: Have you yet reached the goal of a simple form of certification?

SCOTT: Certification across the whole cocoa farming sector in terms of ensuring that we are working to common standards, of understanding the nature of problem, and finding some solutions.

FOSTER: But certifying the product across the industry?

SCOTT: Individual companies are doing that, more and more of them.

FOSTER: That seems like such a basic thing to be able to achieve, certainly over six years. And aim, effectively?

SCOTT: That is down to individual companies and their own commercial-

FOSTER: You are speaking for the companies right now, they all referred us to you.

SCOTT: I'm speaking for the coalition of companies.

FOSTER: You are speaking for the companies-they wouldn't speak to us. They speak through you.

SCOTT: They are all 100 percent committed to this solution. And they have caught-

(CROSS TALK)

FOSTER: Committed is one thing, but six years later, we still haven't achieved it. That's the problem, you know?

SCOTT: That-

FOSTER: I understand there is a commitment, but there is not progress.

SCOTT: Yes, but the examples I've given you, a million children have been reached. OK, we have got to reach many more children. And get them out of being at risk. But we've already got hundreds of programs, which are making a difference and really long-term sustainable differences making a-making life better for the cocoa farmers and those children that we really care about.

FOSTER: Joanna Scott, thank you very much. Appreciate you coming in.

SCOTT: Thank you.

If you have your laptop open right now a new initiative recently was launched to end child labor in West Africa's cocoa sector. It is called the 10 Campaign. Stop the traffickers, one partner, on their Web site you can find out how to find traffic-free chocolate in your country. And to continue following our coverage of the human cost of chocolate go to CNN's Freedom Project Web page, that is CNN.com/Freedom.

Next those striking a balance, when you are at the top of your game. We'll catch up with My-Wardrobe.com CEO Sarah Curran and look at how some of the world's top bosses juggle their work and family lives.

(COMMERCIAL BREAK)

FOSTER: Being the boss can be the best, you can choose your own direction without anyone else telling you what to do. It does, however, bring its own challenges, especially when it comes to separating your home life from your work life. Adding children to the mix can add even more challenges. Here is what some of the world's top bosses, who are also mothers, had to say about that.

Andrea Jung is the chairman and CEO of Avon. She said that some days the company wins, some days the children win. Jung says you can't have it all, not in a single day. You have to make choices.

Jeanne Jackson is president of Nike's direct to consumer division. And she says it is OK to take a break.

And Indra Nooyi, chairman and CEO of PepsiCo says sometimes she has to call the family together and say, she is basically not going to be there for a while.

Well, that can go both ways, Sarah Curran, CEO of My-Wardrobe.com has been out of the office for a while on a summer break. She says it is difficult to make her company appreciates that she also has a son. Now that the school holidays are over, for Sarah, it's back to work.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Previously on "The Boss": Finding the perfect fit. Sarah Curran draws up fresh tactics to help grow her customer base.

SARAH CURRAN, CEO, MY-WARDROBE.COM: We are using existing team members to really help create a visual identity and a real person.

Hey, Sophie, it's Sarah.

UNIDENTIFIED MALE: Sarah Curran is back at work. Feeling refreshed and refocused after a six week break, already she is throwing herself into her hectic schedule.

CURRAN: All right. I'm actually I'm a (UNINTELLIGIBLE), but let me know anyway.

UNIDENTIFIED MALE: The summer break has been Sarah's first opportunity to completely shut off from her business. Something she has been unable to do since she launched My-Wardrobe.com in 2006.

CURRAN: It was a really hard decision to take time out from the business. And it was always something that I thought I'd never be able to do. And the idea of it, you know, going on holiday, I couldn't even sort of put my BlackBerry down to go on holiday. I'd get this feeling of nausea.

UNIDENTIFIED MALE: This last year has been a busy one for this boss. Sarah has rebranded and re-launched My-Wardrobe.

CURRAN: It has been a truly incredible journey.

UNIDENTIFIED MALE: We've seen her expand her senior management team with three new additions.

UNIDENTIFIED FEMALE: Welcome.

UNIDENTIFIED MALE: Thanks very much.

UNIDENTIFIED MALE: And only recently we've seen her take on men's wear.

CURRAN: I think with men's the photography has got to be even more detailed.

UNIDENTIFIED MALE: Today she sees her role with fresh eyes. Acknowledging the difficulties of being a mother and a female CEO. The sacrifices she has had to make to get here.

CURRAN: So, talk me through how many people are going to be there.

UNIDENTIFIED MALE: We've got 50 so far.

CURRAN: My-Wardrobe is part of me. And you kind of loose your own identity in a strange way. Because I'm so-you know, if I'm not at work, I'm with my son, or it is the weekend, and I'm doing a bit of socializing with friends. But work is all consuming for me. So actually to have that time away to not be Sarah from My-Wardrobe, to just be Sarah and to be a mom, for me personally was what the time I needed.

Is it one or two in September?

UNIDENTIFIED FEMALE: You've just got the one in October.

UNIDENTIFIED MALE: Dividing her time between both these roles has been a real challenge for Sarah, a frustration of sorts.

CURRAN: I think over the last six years it's been a managing of guilt. One way or another, I either feel guilty that I'm not spending enough time with Jake, or I feel guilty that I'm not you know, spending-or I'm not doing enough for work, or you know, it is just managing the guilt. And the frustration is still there. But actually, I'm a little bit more relaxed about it.

I would change it to U.K.'s most stylish.

UNIDENTIFIED MALE: The break has made her aware of the issues that come with being a CEO, more importantly, she's learned she can't deal with them all at once.

CURRAN: You want to give it a more global spin. That's perfect. No, no, let's fit to go. Yes, yes.

The hardest thing is learning to say no, actually. Learning to say no. No, actually, no I can't do that. No. Because-because, I've got to get back to Jake. Because I'm actually too busy. Because no, has been really hard. But I've come back you know, I'm much more-I'm not as, grrr! Stressed as I was, always. There is always something to do.

All right. Lovely, so when will I see the mock up?

UNIDENTIFIED MALE: So after years of struggle and sacrifice, Sarah has learnt that something has to give. She can't have it all.

CURRAN: I love the business. I love everyone in it, but I'm also, I know, when I close the door now, at night. I haven't forgotten it. Or if it is the weekend, that actually I also need to focus on Jake. On being a mom and that personal part of my life.

UNIDENTIFIED MALE: Next week on "The Boss":

SEAN CORNWALL, INTERNATIONAL VICE PRESIDENT, E-HARMONY: I am a very big and strong believer in love.

UNIDENTIFIED MALE: Selling love to the world. Sean Cornwall is the international vice president of eHarmony and our new boss.

(END VIDEOTAPE)

FOSTER: Still to come, dealing with danger. I speak to the IMF's chief economist about the risk of new recession.

(COMMERCIAL BREAK)

FOSTER: Welcome back. I'm Max Foster. You're watching "Quest Means Business". Let's check the latest headlines for you.

A suicide bomber has killed former Afghan President, Burhanuddin Rabbani. Kabul police say the attacker arrived at Rabbani's home for peace talks with a bomb hidden in his turban. Afghan President Hamid Karzai is cutting short his visit to the United States for the U.N. General Assembly.

On the day the new Libyan flag was presented at the United Nations, two key diplomatic gains for the interim government, South Africa and the African Union each formally recognized the national transitional council. The A.U. offered its support in helping Libya build an inclusive government.

A warning from the International Monetary Fund, the global economy is in a dangerous new phase. The IMF has lowered its global growth outlook and sharply reduced its growth forecast for the United States. It says there are a number of risks that could tip the U.S. and Europe back into recession.

The grim forecast from the IMF came as the Standard and Poor's rating agency downgraded Italy's debt rating. They cited the country's weakening economic growth and political uncertainty. Italy's Prime Minister said the downgrade was influenced by politics rather than economic reality.

(BEGIN VIDEO CLIP)

(END VIDEO CLIP)

FOSTER: Returning to our main story, warning from the IMF that the global economy is in a dangerous new phase. Olivier Blanchard is the Fund's chief economist. He joins me now live from Washington.

You would have had a chance, Mr. Blanchard, to have seen a lot of the coverage of your report that came out today. A lot of very scary headlines. Is the world getting the right impression about what you're warning of? Effectively, the West going potentially back into recession?

OLIVIER BLANCHARD, INTERNATIONAL MONETARY FUND CHIEF ECONOMIST: I think that we're trying to convey two messages. The first thing is, yes, things have gotten worse. No question. But the second, which is more positive is that there is a set of policies, which should basically help get out of it. I hope that the two messages play about equally. This is what I've tried to convey today.

FOSTER: In terms of the danger zones. Let's start, of course, with Europe, because that's what everyone is focused on right now. Is your biggest concern that things aren't getting better because of political paralysis?

BLANCHARD: I think that's part of it. I think there are two main factors behind what's happening in the world. The first one, which is not related to Europe, is a slowdown in growth. A weakness of private demand in many countries. And that's the major factor.

But, turning to the second, I think you're completely right. That the second factor is what we have called the crisis of confidence - crisis of confidence in policy makers. In the sense that they are just always one- step behind the events and that Europe really needs to get its act together.

FOSTER: And you've got the same concern, haven't you, about the U.S.? Because you were pretty negative about the U.S. economy. And that's, again, partly because of political decision-making or lack of it.

BLANCHARD: Yes, I think in terms of urgency, the European problem is more urgent to take care of than the U.S. one. But there's no question that, in the U.S., there is a major problem. Which is the lack of a credible medium term fiscal plan to stabilize debt. Now, we know the administration is working on it. We know it may come. But it's not here yet. I don't think that's the issue which is going to be determined for the next few weeks or few months in terms of real activity. I think the problem is more in Europe. But it's clearly something which has to be solved.

FOSTER: You've warned of the budget cuts in the U.S. being too fast, too quick. And that could choke off growth. But other, well, economists around the world are suggesting they have to address that long term. They have to address these fiscal problems both in the U.S. and in Europe in order to get though this long term.

BLANCHARD: No, there's no question that there has to be fiscal consolidation. But there are many ways to do it. One is to just cut right away, but we know that this will create an enormous recession. So that's not the way to do it.

The right way, if you can do it, is to put in place things which will improve the medium run. So, changes in the rules of entitlements and things like this, which basically make the future look better. And, if you do this, then you have some room of maneuver right now to sustain, to help, private demand. That's a hard act to get together. I think that what we have read - what I have seen of the Obama proposals, both the ones which he presented earlier, and the ones he presented this week - going that direction. Try to improve the future in a credible way, which is not easy. And, at the same time, have some fiscal space now, and use it to prop demand to the extent that you can. Nobody seems to do it.

FOSTER: I also want to talk about the emerging economies. Because companies are very much looking to the emerging economies for their future growth. Because, as you say, Europe and the U.S. are such a terrible situation. But you're also casting doubt on growth in the emerging economies. So, how bad is that going to be?

BLANCHARD: Bad, but not so bad. You know, we have revised our forecast for advanced economies substantially more than we have revised our forecast for emerging market economies. And they have shown, not all of them, but many of them, that they're incredibly resilient. Now, there's no question that, if things go badly here, they are going to see less export growth, they are going to see volatile capital flows, maybe even sudden stops. So they have to be ready for some trouble. But, I think, many of them are in a position in which they can use policy. Much more so than we can. They can use monetary policy, they can use fiscal policy, to respond to it. So, if their exports don't do as well, they can prop private domestic demand. And our forecast is that they'll have slightly lower growth than we thought, but nothing major.

FOSTER: OK. Olivier Blanchard. That's something. Thank you very much indeed for joining us from the International Monetary Fund.

Now, Silvio Berlusconi has told S&P to get real. The Italian Prime Minister says the decision to downgrade Italy's credit rating isn't entirely based on reality. Matthew Chance reports now from Rome.

(BEGIN VIDEO CLIP)

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, there's been a furious reaction from the Italian government to that decision by S&P to downgrade Italy's sovereign credit rating from an A+ to an A. It could have huge consequences for the amount of interest the country has to pay on its burgeoning public debt.

What Silvio Berlusconi, the Italian Prime Minister, said in a statement is that he felt that the assessments of Standard and Poor's seemed dictated more by newspaper stories than by reality. And appeared to be negatively influenced, he said, by political considerations. Perhaps that's a reference to the very fragile coalition that exists in the country. Also, perhaps, a reference to the various scandals - sex scandals, legal scandals - that have dogged the Italian Prime Minister for the past several months. There's a perception, of course, that the Italian Prime Minister's time has been very much focused on defending himself in court from these various scandals and not spent enough on solving the problems of the country's economy.

There's another reason, though, cited by S&P for their downgrade - an economic reason. They're saying that they are reassessing the amount by which they assess Italy's economy will expand down from 1.3 percent to 0.7 percent over the course of the next 12 months.

Silvio Berlusconi rejecting that as well. He said that the government has already approved measures to balance the budget of 2013 and was preparing growth-boosting measures aimed to bear fruit in the short and the medium time. So, in short, a very dissatisfied Italian government with this very damaging downgrade to the Italian sovereign credit rating.

Matthew Chance, CNN, Rome.

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FOSTER: Now, all eyes are on the U.S. Federal Reserve tonight as it attempts to find possible ways to help the ailing economy. As the conclusion of a two-day meeting tomorrow - at a conclusion of that meeting - a new strategy is expected. It's called Operation Twist. Felicia Taylor explains how it's actually not really new.

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FELICIA TAYLOR, CNN ANCHOR: The Fed's first Operation Twist was launched back in 1961 during the Kennedy Administration. The Fed originally called the program Operation Nudge. But legend has it that traders nicknamed it Operation Twist after the dance craze of the time, made famous by Chubby Checker.

And now, 50 years later, the twist appears to be back in fashion. The Fed could announce as soon as this week, that it's dusting off a program in another attempt to boost economic growth by lowering long-term interest rates.

And here's how Operation Twist might play out. For the past few years, the Fed has been buying massive amounts of both long and short-term treasuries to give support to the economy. So, one way that Operation Twist would work is for the fed to sell a portion of its short-term debt and put more money into longer-term debt. It would simply shift its holdings, but not expand its balance sheet in any way.

This should leave short-term rates pretty much the same, but it could lower long-term rates. And that's the point. That could lower borrowing costs for businesses and homeowners and help stimulate the economy by encouraging borrowing and forcing investors to move into riskier assets. But one big question is how much money the Fed might put into Operation Twist. Some estimates say as little as $20 billion. But others say, in order to be effective, the Fed needs to put more like $500 billion in longer-term debt to make a difference.

But, over the past year, the ten-year treasury has already seen yields fall off a cliff beginning in August as the debt ceiling battle raged and the Eurozone crisis deepened. Demand for treasuries have been so great, that the ten-year yield briefly fell to below two percent - to half-century lows. Some suggest lowering rates even further won't be enough to persuade businesses and consumers to spend. One thing is certain. There will be many twists to this story if the Fed agrees to launch Operation Twist.

Felicia Taylor, CNN, New York.

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FOSTER: Brilliantly explained as ever. Still to come, they're calling it smart economics. The World Bank looks at the financial benefits of closing the global gender gap.

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FOSTER: The World Bank is urging countries to do more to ensure women have access to a good education and fair pay, saying it makes economic sense. According to a new World Bank report on gender equality, women make up 40 percent of the global labor force, but hold just one percent of the wealth. The World Bank says women everywhere tend to earn less than men. That's because they're more likely to do unpaid work, tend smaller farms, and operate businesses in less profitable sectors.

The mortality rates for females are higher than males in many low and middle-income countries. And they're on the increase in Sub-Saharan Africa and countries hard-hit by the AIDS epidemic. Earlier, in my interview with the World Bank President, Robert Zoellick, I asked him about the four million women in developing countries aged under 60 who die every year.

ROBERT ZOELLICK, WORLD BANK PRESIDENT: They are compared with the women in developed countries and also men in developing countries. And about 40 percent of those are young girls who are never born. About another third are women who lose their lives in childbirth or in child bearing age. And the rest are young girls that are gone. So, it's equivalent to about, losing Yokohama or Los Angeles or Johannesburg. And this is not only, obviously, an issue of fairness and equality, but, I think, part of the gender story is also - at a time when the world's looking for a basis of growth, empowering women can help global growth.

FOSTER: I know that you've looked at - in developing nations, for example - the role women can play in farming and these countries are missing out in a massive way by not making use of the women in their communities, right?

ZOELLICK: Well, right now, most of the farmers in Sub-Saharan Africa are women. But what they're not getting is the benefit of the full productivity or their ability to reach their potential, because a lot of them don't have property rights. They don't have access to credit. Some of the studies we showed was that if you provide additional access to inputs like fertilizer and seeds, you can increase the productivity 10 to 20 percent, depending on the country.

So, whether it's developing countries, but also, frankly, developed countries. Whether it's education, whether it's rules that inhibit movement to different jobs and professions, whether it's various biases, or whether it's these access to things, such as property - the women who provide, after all, 50 percent of the population, have a lot to contribute.

FOSTER: But I was also, just as you read in the report, how actually, things have developed. There have been improvements around the world in terms of gender equality, but actually boys and young men, in many parts, are actually at a disadvantage right now.

ZOELLICK: Yes. And that's why it's not only a question for girls and women. We've seen some improvement in terms of education. Some basic health in some of the rural areas and some of the poorest countries are still behind on it. But, for example, the terrible issue of boy soldiers in many of the conflict-based countries. So, part of the report is to look overall at recognizing gender as a developmental issue.

FOSTER: And there are more girls in school than boys. So, economically, boys are at a disadvantage in some parts of South America, for example, East Asia?

ZOELLICK: Well, it depends on the level and it also depends on - as you get to some of the secondary schools and then some of the connections of jobs to the educations. So, for example, in Jordan, I think over half the university graduates are women, but there's still a difficult time bringing them into the workforce.

FOSTER: OK, and in terms of the improvements to gender equality, give us a positive story. Where's the positive story here, right now? Because it seems pretty gloomy on the face of the report.

ZOELLICK: Well, one that I recall is that actually, in a number of emerging markets, the pace of change is quicker than it is in the developed countries. So, for example, in Morocco, I believe, in some of the changes for girls' education and some of the basic advancements in health, they've accomplished more than a decade than it took multiple decades to achieve in the United States and Europe.

So, there have been investments that have paid off. And that's the good news story. And I don't see it as a bad news story that, with the proper policies and with investments, that you can be able to both empower women and help economies.

And there's other insights in this. For example, in Mexico and Brazil, the basic social safety net programs are giving the money to the women heads of households. And we now have data that shows the effect on child mortality is a multiple of giving it to the men head of households. So, I think the good news is the huge potential yet to be tapped.

FOSTER: Well, coming up next, investing in future savings. We speak exclusively to Lufthansa Airlines' new CEO about why he's spending big on biofuel.

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FOSTER: Well, there's a case of good news and bad news for the global airline profits according to the latest forecast from the International Air Transport Association. Here's the good, IATA has revised its 2011 profit forecast from $4 billion to $6.9 billion. But brace for bad news. The Association is predicting a massive 29 percent fall in profits next year. That's because of sluggish global economic and high jet fuel price - economic growth. Now, this year, IATA expects Asia Pacific Airlines to the standouts, earning $2.5 billion in profits. Though, it's a fraction of the $8 billion the region made last year. Besides Africa, Europe is expected to be the worst performer, with $1.4 billion in profits in 2011.

Despite the weak profit forecast for airlines worldwide, Germany's Lufthansa isn't shying away from investing more than $9 million into research on biofuel. The airline has begun a six-month trial to power planes on some domestic flights with a mix of regular fuel and bio kerosene. The new CEO, Christoph Franz, spoke exclusively to CNN's Ayesha Durgahee in his first TV interview as head of the airline.

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CHRISTOPH FRANZ, CEO LUFTHANSA AIRLINES: We have to prepare for a new world of aviation using bio kerosene in a very substantial amount. There are two challenges ahead. First, does it work at all? And then, the second one is, do we get enough off bio kerosene in the future.

AYESHA DURGAHEE, CNN INTERNATIONAL CORRESPONDENT: But then, the other challenges are, one, cost, and second, which biomass is the right fit for aviation fuel?

FRANZ: Exactly. And this is why it is interesting that different airlines, so far, have tried different sources of bio kerosene. For us, it is necessary to have biofuel which is not competing with the food chain, which is not competing with the water supply. And we have to maintain the credibility of the process by an adequate certification.

DURGAHEE: Do you agree that, in general, as demand for bio fuel increases, these specific crops that are grown for biofuel will eventually compete with food production?

FRANZ: Well, basically, we have to choose it in a way that it is not the case. Because, as soon as we have this kind of competition, we will be in trouble because there will be other people complaining. So, we have deliberately chosen those plants which can grow in areas where normal crop production will not be feasible anymore.

DURGAHEE: So then, the investment that you've put into this program, the biofuel trial, it's about $9.3 million. Is it - is the investment worth it, when, maybe, perhaps, your focus should be - or the temptation is - to cut costs where you can?

FRANZ: I think if you run a company with a long-term perspective, in terms of having a sustainable mobility approach, then you have to do both. We are not quite sure at this point in time that bio kerosene is really cheaper. At this point in time, if you buy it, it's much more expensive than buying classic jet fuel. So, we hope that, on a large scale, in the future, it will be able - we will be able to have availability of bio kerosene at the same - first target - same price level as jet fuel.

And eventually be able to decouple a little bit of the volatility of the oil market, which has increased over the last years and has created a new risk exposure of every airline worldwide. So, you're very much cost focused and, in our industry, we are always cost focused. But, this does not allow you to forget the spendings which are safeguarding our future and the next decades to come.

So, for us, it's obviously always a challenging balance inside the company. And you can imagine, some people from our financial will say, "Hey, guys, this is very, very expensive and we don't get a return on investment". It's true. For the next budget, there is no return on investment. But maybe for the next decade, the return on investment will be huge.

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FOSTER: All right. We'll be back in just a moment with the Stock market action for you, after this short break.

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FOSTER: We're going to have a look at the Stock market numbers for you. On Wall Street, we're seeing gains on all the major industries. The Dow Jones currently up more than one percent. Optimism over Greece's bailout is helping to calm investors nerves. Sort of distracting them from poor data from the housing sector. New housing stocks in August came in at just - in at a seasonally adjusted annual rate of 571,000. That's lower than the 590,000 economists were expecting. Apple and Intel are two of the biggest gainers. Right now, they are both up around two percent.

In Europe, news of the Italian downgrade didn't drag on stock markets. In fact, Europe's big four were each up by one and a half percent or better. Greece managing to meet its latest debt repayments gave the stocks the boost they were looking for.

Utility firms in Germany also rose after attacks on nuclear fuel was suspended by German court. French banks were the odd ones out, though. BNP Paribas was off by six and a half percent. Soc Gen, Credit Agricole following closely behind. That's partly due to the Bank of China deciding it will no longer trade foreign currencies with some European vendors.

That is "Quest Means Business". I'm Max Foster in London. Thank you for watching. You're watching CNN, the world's news leader.

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