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Hungary Under Fire; Hungarian Envoy to Meet IMF Head; Hungary's Defense; EU's Constitutional Concerns; ECB President Says Low Confidence Undermining Recovery; Spain and Italian Yields Fall After Debt Sales; Mixed Markets in Europe; Tesco's Stocks Drop After Dismal Holiday Sales; Fungicide Found in Brazil Orange Juice; Orange Juice Futures Explained; Grain Prices Fall After Good Harvest; Turkish Finance Minister Says Economy Headed for Soft Landing; Turkish Businesses Exporting Almost 50 Percent of Goods to Europe

Aired January 12, 2012 - 14:00:00   ET


RICHARD QUEST, HOST: A friend in need, a friend indeed. Hungary says it needs the IMF and the European Commission on its side.

Tesco's lean pickings. Britain's leading supermarket suffers not-so- super sales.

And out of juice. Orange prices soar, imports squeeze.

I'm Richard Quest. Yes, I mean business.

Good evening. Hungary is ready to talk. So says the prime minister, Viktor Orban, who says he'll discuss objections to new constitutional laws once he's received what he's calling "convincing arguments" from Europe.

The European Commission says it has concerns over the independence of Hungary's Central Bank, the sustainability of its deficit-cutting plans, and only today, the ECB president, Mario Draghi, added his voice to the chorus of criticism.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: I have to say that we are really very concerned. We're really very concerned.


DRAGHI: The ECB is extremely careful and intent about signs of pressure being put on the decision-making bodies -- by the decision-making bodies of any member state on their NCBs. I think these pressures are inconsistent with the spirit of the treat.


QUEST: The constitutional changes have been a roadblock in Hungary's application for financial aid from Europe and the IMF. Tonight, a Hungarian envoy will meet the head of the IMF, Christine Lagarde, in Washington.

The Fund says talks will be informal. They are not negotiations. Hungary's foreign minister says securing a deal is vital.


JANOS MARTONYI, HUNGARIAN FOREIGN MINISTER: That is a big fight. And I -- the situation is not easy, as you know very well. We definitely need the IMF and the -- European Commission financial arrangement. Everything is now interlinked, in a way.

But we, on our side, we are absolutely determined that the 2013 headline figure will also be under there percent, and that is a firm intention of this government, and we'll do everything, not only to convince the European Commission that we'll do it, but we'll really do it, because that's in our basic interest.


QUEST: The Hungarian communications minister, Zoltan Kovacs, is with me now. Minister, good evening, thank you for joining us. Let's start -- how far is the government prepared to move to change the Central Bank legislation and laws?

ZOLTAN KOVACS, HUNGARIAN COMMUNICATION MINISTER: We are waiting for a legal standpoint of the Commission of the European Union that is going to come out next week.

And when the debate is back to the grounds, tracks it belongs to, that is professional debate, debate about the details about legal points, then if there's a need for any kind of amendment --


QUEST: But there is clearly a need.

KOVACS: -- we are ready to do that.

QUEST: There is clearly a need, because you've heard Mario Draghi say just then there was a need, you heard the ECB says there's a need, the IMF says there's a need. So why pass the law in the first place, and secondly, not change it?

KOVACS: Well, the law is one of the last in a sequence of other laws, so-called Cardinal Laws, that are making the constitution a constitution in Hungary. So, we finished the constitutional process by the end of the last year, and what you are seeing, actually, in this moment is the rebooting of the system, the system up and running in its new form.

QUEST: If we take the Central Bank -- and we'll come onto the other ones in a second -- but if we take the Central Bank, the new members have been increased, appointed by Parliament. Merger of the Central Bank with the supervisors, submission of the agenda to government, Parliament demanding reports.

These are inconsistent with an independent Central Bank. Can you accept that?

KOVACS: Just to mention one thing, merger is just an opportunity or possibility which we are not going to take. It has been announced. Otherwise, the law is basically reconfigured to fit the new constitution. And again, some elements that used to work in this country, say in 2004, there used to be three vice presidents for the Hungarian National Bank. So, that's why we are going to look forward to this legal standpoint. That's when we'll have a clear picture what they really find --

QUEST: You're going to have to change this. You know you're going to have to change this, so the sooner Hungary gets on and changes it, the better.

KOVACS: Sure, but keep in mind that it is Parliament's authority to change any kind of law in Hungary, so we are looking forward to the legal standpoint. We see what the exact, concrete issues we have to deal with, and then we are going to sort this out in a European manner.

QUEST: All right, let's talk about the parliament. Hasn't the government, to some extent, taken its very large majority and rammed into law a whole raft of legislation that subsequent governments will find it difficult to overturn.

For instance, the fiscal rule, two-thirds -- two-thirds majority required to change tax law. It's going to make it difficult in the future.

KOVACS: But the fiscal doesn't set the amount. If it's said that the --

QUEST: But why have that anyway? Why have -- why bind successes, whether it's on prosecutorial appointments, judges, fiscal laws, whatever it is?

KOVACS: Please don't have the worst reading of every and each legal piece we have been through the last year. The new constitution is providing a new framework institutionally and constitutionally for the country to be able to run on a sustainable basis.

That's the main goal of the government, to provide the solid foundations for the country in constitutional terms, and then apply that in the field of economy, as well.

QUEST: Turn to the economy, now. Now, it's -- you'd have to agree, surely, it is slightly embarrassing for a government to say, two or three months ago, two fingers up to the IMF. We don't need them. And next thing, we're on a plane to Washington to borrow money from them. It's a bit embarrassing at best.

KOVACS: Well, if you bring back the debate to where it belongs to, the professional debate, we -- we never were against the IMF. We wanted to go on our own, to have an independent way, because we wanted to do the structural changes we are in the midst of from our own will and best interest.

So, that's what we are doing. That is a major -- not only constitutional but structural change in this country fro the better of the country.

QUEST: Every banker I've spoken to says, yes, the headline numbers look great. Deficit's coming down, mass drift, three percent. But if you look underneath, questions of growth, questions of confidence, questions of structural deficit.

Let me read you something from HSBC this morning. "Policy-making, it brings a credibility blow to the Hungarian government and significant market weakness." Isn't that your real problem, now, in Hungary, financially? You've got to convince people you've got it right, and you haven't.

KOVACS: That's right. We were cleaning up the mess the past year and a half. That was a huge fight, I've got to tell you. And we're in the midst of -- in the midst of that process. We are trying to show our best will, how we are going to pull this out -- pull the country out of this huge pileup, what was left behind by the socialist government.

QUEST: You have one problem, don't you? And it's this. Nobody believes that actually that is what this legislation and these economic measures are doing.

And I'll tell you why I say that. Because when you get the EU, the EC, the IMF, the ECB, parliamentarians, people who've got no political ax to grind, all saying you're wrong, why are they wrong and you're right?

KOVACS: This is a heated, exalted debate, what we are witnessing for the past couple of weeks and months. It's been a tough period. We've been through some tough decisions, because the new constitution requires some tough decisions.

We are doing it from -- in our best interest from our own will, and that's going to be --

QUEST: People don't believe you.

KOVACS: Yes, but -- we are finished setting up the new system, and by the running of this system, with the running of a new constitutional and economic system, we would be able to prove that this is a --- this is on a sustainable basis.

And if you cut and come back, actually, on the measures announced by the Commission yesterday about the excessive deficit procedure, I've got to tell you, we appreciate Commissioner Rehn's mentioning that this is not actually the present government's mistake to come to that point.

QUEST: All right. We'll be with you in a moment. Stay with us as I come back for the moment.

Guy Verhofstadt is the former prime minister of Belgium, leader of the European parliament liberal MEPs. He's described the new Hungarian constitution as a "Trojan Horse" for a more authoritarian political system.

Mr. Verhofstadt joins me now from Brussels. Mr. Verhofstadt, you've obviously what Mr. Zoltan -- Mr. Kovacs says. Are you any more convinced that actually Hungary does have a mandate and will change its rules as necessary?

GUY VERHOFSTADT, MEMBER OF EUROPEAN PARLIAMENT: Let's hope. We shall see what the actions are from Mr. Orban's government.

But at this stage, what we see is that state Secretary Hillary Clinton, Mr. Draghi, the chief of the European Central Bank, letters by Mr. Barroso have been sent to the Hungarian government, and all these are saying the same thing, that there is a problem for the moment with a number of legislation in Hungary who are, in fact, against the basic values of the European Union.

QUEST: But when you describe it as a "Trojan Horse," I mean, I've read some of the fundamental law. It's all there. All the rights, all the responsibilities, they're all there. So, what is your fundamental fear here?

VERHOFSTADT: The fundamental fear is that you see a drift from a democracy to, in fact, a number of legislations, who are against the European values.

In article two of the treaty, we have described these fundamental values, democracy, parlimentarianism --

QUEST: Right.

VERHOFSTADT: At the same time, independence of European Central Bank, independence of the constitutional court, the freedom of religion. And all this, all this is now under attack by a number of legislations.

I'm not saying that. I'm not saying that. It is European Central Bank, Mrs. Clinton who is saying that, and the European Commission is saying that. And what we try to do with the European parliament is to use the procedure foreseen in article seven to stop that and to send a number of recommendations to the Hungarian authority.

QUEST: Have you got the stomach in the parliament for a fight which could get nasty if Hungary doesn't change direction?

VERHOFSTADT: Well, I think there is a huge majority here in the parliament to use article seven paragraph one of the treaty.

So, that's not a question of sanctions immediately, it's a question about sending recommendations to the Hungarian authorities to change a number of their basic legislation, to make it compliant to the European treaty.

I think such a majority exists and, on top of that, I have to tell you that the Commission has already --

QUEST: Right.

VERHOFSTADT: -- announced in letters sent to the Hungarian government that it should start a number of procedures if the Hungarian government is not complying with article two of the treaty.

QUEST: Guy Verhofstadt, many thanks, indeed, for joining us from Brussels.

Last word to yourself, Mr. Minister. The fact is going to happen. Is it not time for the Hungarian government to recognize that perhaps they might be in the wrong on this?

KOVACS: Look, it's going to happen in a week, we are going to see the standpoint of the Commission, and the moment we see the legal argument, we are going to have our own argument, and it's going to be sorted out in a European manner. If there's any problem with these issues, then we are going to sort this out.

We deny what Mr. Verhofstadt mentioned, it's way beyond the point what we think is necessary or justified.

QUEST: But that's the problem. What he says is now rapidly becoming the view that Hungary has -- you're the communications minister, and Hungary now has a reputation as being a country -- as a country that is an on autocratic route.

KOVACS: I'm not going to argue against that, because even mentioning the word is unjust. So, the thing is that we are going to sort this out in a European manner at the moment we see that our legal argument is not coming in line with any kind of European value, then we are going to adjust it.

QUEST: We thank you -- there with Mr. Verhofstadt, but thank you for joining us.

KOVACS: Thank you.

QUEST: We'll talk more about this in the weeks ahead. We look forward to you coming back on the program. Many thanks.

Busy day on the markets. It's all to do with Tesco's, from one side to the other, QUEST MEANS BUSINESS, back in a moment.


QUEST: Now then, Mario Draghi, president of the ECB says Europe's recover is becoming a damp squib. The ECB president says Europe can't get going because of confidence. It's still too slow, dampened recovery.

Now, rates were kept on hold by the ECB as, indeed, did the Bank of England. But there are two things that are dampening the recovery. First of all, low confidence and moderate growth.

So, recovery will happen very gradually. The economy is still, according to the president, in the danger zone.


DRAGHI: We see a weakening of the economic activity in the euro area that we also -- we see significant downside risks, and that we see a very high level of uncertainty.

Yes. Some survey data seem to indicate that there may be some stabilization at low levels. But it's very hard to -- essentially, not possible to express a judgment of confidence.


QUEST: This is a judgment of confidence, at least in the short term. Italy's bond yields fell, ten-year bonds, down to 6.6 percent after successful debt sales. Combined Spain-Italy sales of $28 billion.

So, the Italian yield has fallen quite sharply, at rates of now more than halved on Italy's short-term debt. Spain also managed to raise quite a lot of money, $12 billion, twice as much as it has hoped.

And these are the market numbers. FTSE was down just a tad, as was CAC -- down by the same amount. Two down, two up. I think you can call that pretty much a balanced market trading day.

However, in the UK, there was some shock on the British High Street as the largest food retailer, Tesco, issued a profit warning. The company blames its poor performance on disappointing holiday trade and price- cutting, which failed to get customers through the door.

Shares in Tesco, which is quite a giant in the UK, shares in Tesco were down 16 percent, by more than $6 billion, 16 percent, $6 billion off Tesco's market value.

And to rub salt into the proverbial wound, Tesco's principle competitor, Sainsbury, said it enjoyed the best Christmas ever. Jim Boulden now reports that from Tesco's point of view, it's time to change tack.


JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): A tough period for Tesco, a tough first Christmas for Tesco's new CEO, Philip Clarke. The world's third-largest retailer suffered at home during the six-week holiday period and shares dropped hard when the company said the outlook for profits is subdued for the next two years.

PHILIP CLARKE, CEO, TESCO: What we've said is that next year, profits will -- we'll have minimal profit growth because we're going to invest back in the UK.

BOULDEN: Tesco is trying to revitalize its home market as it continues to grow strongly overseas. During the holiday, it says Asia sales grew by eight percent, Europe up seven percent. And despite some bumps, in the US, its Fresh and Easy chain saw a 19 percent growth in stores opened for more than a year.

RICHARD PERKS, MINTEL: Tesco is hugely successful overseas because it really understands that if you're going to market -- go to a new country, you've got to adapt to that market. And Tesco in Poland, Tesco in Thailand, they are local retailers. They understand the local market, and they succeed because of that.

BOULDEN: Tesco is known for building huge stores in the UK, so-called "hypermarkets." It's now building fewer of those as Tesco online is taking more of the non-food sales. So, the big stores are being build outside the UK, while international online catches up.

CLARKE: Only two weeks ago, we launched grocery home shopping in the Czech Republic. We already have it in Korea and in Ireland. It'll be coming wherever we trade over the next couple of years, so a big investment by Tesco into making sure our online efforts is as good as our store efforts.

BOULDEN: Still, Tesco gets the vast majority of its $100 billion of annual sales in the UK, where Wal-Mart's ASDA chain is a big competitor, and once struggling chains, like Sainsbury's, have recovered.

Tesco's Christmas stumble may remind some investors of the problems facing the world's second-largest retailer, France's Carrefour.

PERKS: Is Tesco the Carrefour of the UK? What's happened to Carrefour is, again, brilliant business overseas, but its core business in France has gone sick and they've lost direction. I think it's much to early to say that that's happened for Tesco.

BOULDEN (on camera): Why? Well, some analysts say this name still strikes fear in the hearts of retailers the world over, especially the world's number one, Wal-Mart. Jim Boulden, CNN, London.


QUEST: Supermarket shares may be falling, but the price of some of the groceries is certainly getting higher. A discovery from Coca-Cola has put a squeeze on the orange juice market. QUEST MEANS BUSINESS after the break.


QUEST: Coca-Cola says it has made a sour discovery, which has sent the price of orange juice futures to record highs. The company says it's found fungicide chemicals during routine checks on orange juice imported from Brazil.

Now, this is a fungicide that is not approved for use by the US authorities. US officials stopped all shipments of foreign orange juice as a result, and OJ futures have gone through the roof. Volatile times indeed, as I shall now demonstrate to you.

Now, three years ago -- three years ago, one pound of frozen concentrate was just about 50-odd cents. Or 75 cents, actually. What then happens, the price gradually rises, right away through 2011. The price continues to rise all the way up to about $1.69.

Since the fungicide delivery -- or discovery of this, the price has really rocketed up. It's gone to more than 212 cents, that's $2.12. So, you get an idea of how the price has moved. Even with an easing of the pressure today, down to $1.78, in just over 18 months, we've gone from here all the way to up here.

And what the people worry about, of course, is that if there's a bad season or a bad crop, then the risk, if you like, is on the upside.

We've just had a major crop report from the United States that could be the catalyst for a further rise in prices. Maggie Lake is in New York to put it into perspective.

MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: And Richard, you know, I'm sure the same thing went through your mind as it did here with us, orange juice futures, what do you think of when you hear that? We know. Have a look.



UNIDENTIFIED MALE: Consumers can expect orange and orange juice prices to fall dramatically.


LAKE: The classic "Trading Places." Everybody remembers it. The thing is, those reports really do exist, and you're right, they're out today. And it's a little bit of life imitating art, I think, because we did see wild swings, hooting and hollering, based on what was being described as a shocker.

We want to talk not about orange juice futures, though, about grains. Because those are the products that affect us all, really so important. And it turns out, there's a lot more stockpile than people were anticipating or forecasting, and that caused a big plunge in some important prices. Have a look.

Just today, when you're looking at corn, down six percent. That is the limit allowed at the Chicago Board of Trade. Soybeans down two percent, a big move for that market. Wheat down six percent.

Now, theoretically, that should be good news for us consumers, because these are the building blocks that are in everything, plastics, vegetable oil, not only the food that we recognize.

But -- you knew there was going to be one in there -- we talked to an agriculture expert who said these numbers -- he's a little skeptical about the accuracy. It doesn't jive with what he's hearing from farmers who are immediately texting him when this came out. They're, of course, concerned about prices.

He also said that even though stockpiles are higher than forecast, they're still, especially in the case of corn, very low and lower than they were last year. And then, of course, there's always the weather.


PETER MEYER, AGRIBUSINESS CONSULTANT: Well, the United States has always been the marketplace for the world. We're always the biggest grower of corn, the biggest grower of soybeans.

However, over the last few years, Argentina and Brazil combined have kind of bypassed us a little bit on the soybean production. So, there has been a little bit more reliance on the South American crop.

But this year, unfortunately, we're seeing tremendous drought in Argentina and the southernmost part of Brazil, so even their production is in question.


LAKE: And that's the thing, and these reports, Richard, won't catch some of the drought that's happening down there. So, there is going to be a question. It could be that we see some of these prices move back higher and change. But one thing is for sure, when you're trading these commodities, it is not for the faint of heart.

QUEST: It's most certainly not. And as we look at the orange juice debacle which, as you say, "Trading Places." Maggie, finally, briefly, the -- the commodities are often overlooked, but they are a crucial element in the inflation that eventually feeds through to the wider economy.

LAKE: That's right, Richard, incredibly important. We've seen a lot of food inflation in recent years. That's a problem. And there are big shifts going on. The world is eating different kinds of things, and it's putting a lot of pressure, that demand, is putting a lot of pressure on the supplies that are available.

Add some weather into it, and there's another layer, which is very, very important this year. We have elections all around the world. If you start to see those food prices move higher, it's really going to factor into those political elections and the volatility. So, this is an incredibly important area of the world --

QUEST: All right.

LAKE: -- area of the market to keep an eye on.

QUEST: Maggie Lake in New York with the commodities. Many thanks, indeed. Now, I've just got the next problem. How do I get the orange juice back into -- well, I'm not going to let you witness that debacle.

But coming up next, it's a soft landing for Turkey. The country's finance minister on this program, why it's not heading for a recession. Boom and bust, not for Turkey.



QUEST: A slow down, but no recession; the forecast from Turkey's finance minister. In Istanbul, Mehmet Simsek told me the Eurozone crisis will have an affect on Turkey's economy. He still expects the landing will be soft.


MEHMET SIMSEK, TURKISH FINANCE MINISTER: Beyond recession, we do think that we will have about four percent real GDP growth rate. You know, we're not in the business of point estimates. But here's what I'm trying to say, is that yes, we will slow down. But a hard landing is very unlikely because credit growth has slowed from about 40, 50 percent in early part of last year, to about 10 percent more recently.

QUEST: Are you satisfied with the unorthodox methods being used by the central bank to control the money supply, through liquidity and the inter-bank markets, rather than straight forward interest rates?

SIMSEK: Let's face it, we are faced with, I mean, challenges that are not -- that don't have text book remedies. I mean, we come out of a global economic crisis where there has been a lot of money printed by Fed, by other central banks. And that has created different challenges or difficult challenges for central banks.

So, on one hand, we try to avoid significant inflows. I'm talking about last year. And on the other hand, of course, you've got inflation targeting. And you've got other considerations.

So yes, it's an unconventional monetary policy. It's quite controversial. It's being debated.

But we need to give central banks the credit for being proactive.

QUEST: If we look at the Turkish economy, it seems to me that we see a very fast growing economy with tremendous imbalances. And if history has taught us nothing else over the last three years, these are economies that are great in good times and absolutely awful when things go wrong.

SIMSEK: The issue is can we avoid a boom and bust episode? I think we can. The reason for that is public finances are in great shape. General government deficit is less than one percent of GDP. Debt to GDP ratio is less than 40 percent, first.

Secondly, banking sector is extremely healthy. And if you were to apply Basil (ph) III today, which comes into affect in 2018, then Turkish banks will have almost two times the equity needed by international standards. It's a well capitalized banking sector.

Thirdly, household sector is not highly leveraged. It's been in good shape. We've created jobs. We've created 1.7 million jobs over the last 12 months.


QUEST: The Turkish finance minister talking to me earlier. Nigerians take a stand. Unions tell the government, reverse your decision.


QUEST: So to the situation in Nigeria, where an oil union has given the government 48 hours to restore fuel subsidies or face an oil production shutdown. The union says its members will strike this Sunday if the government doesn't meet its demands.

Nigeria's president, Goodluck Jonathan, is now locked in crisis talks with union leaders. Business remains closed. Protests are in their fourth straight day.

Vladimir Duthiers with one entrepreneur on the effects of the hikes at the sharp end of the economy.


VLADIMIR DUTHIERS, CNN INTERNATIONAL CORRESPONDENT: What is the informal sector? Talk to me about that.

TUNJI LARDNER, BUSINESSMAN: The informal sector is the (inaudible), the (inaudible) -- those young men you seeing plying the streets, selling stuff. After you get to the amateurs, a sizable chunk of economic activity in Nigeria.

And the reason why this subsidy issue is particularly painful to them, because petrol is the fuel that drives the businesses. It's not just the function of cars. It's the little generators that they own, that power their small salons, that power their small barber shops, that power their small mom and pop shops, that power the refrigerator they're using selling their beer.

And so it's at the very heart of it. And at night, it's a very little generator their using powering their homes. Why? Because of the systemic collapse of the infrastructure over the last 50 years. It has (inaudible) particularly over the last 12 years.

Under the last regime of President (inaudible), they spent 16 billion dollars improving the power. And nothing came out of it. We still generated way below 5,000 megawatts of electricity a year.

So the rest of that is subsidized, indeed, by Nigerians, right? If you aggregate all the numbers of generators we have, we're probably generating close to 30,000 megawatts. But that 30,000 megawatts is privately owned.

So you have the state that has failed to produce social goods and services, right? And everybody is their own independent state. They provide their own water, their own light, their own food. There's nothing they get from the -- from the government.

And this is the one thing, in the public opinion, that they derive from being an oil producing country. That is why it is a deeply emotional issue, right? It is beyond the reason of pure economics.


QUEST: Nigeria's transport industry is being hit as well. Flights have been canceled by major airlines now for three days.


QUEST: And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead, I do hope it's profitable. "MARKETPLACE EUROPE," that is next.


QUEST: Hello. And welcome to MARKETPLACE EUROPE. I'm Richard Quest, reporting from Istanbul. January may not be the most perfect time to visit the city if you want to see the sites and sounds of the (inaudible).

But if you want to find out how the economy is weathering the economic storm of Europe, now is the perfect opportunity.


QUEST: Coming up, two views of the Turkish economy, the political and the industrial. I sit down with the finance minister, Mehmet Simsek, and I meet one of Turkey's leading industrialist. Gular Sabanci, who warns 2012 will be a crucial year for the country.


QUEST: The current Eurozone crisis has thrown into sharp focus Turkey's attempts to join the European Union, because more and more people here are now questioning why the county wants to join.

The country's finance minister says joining the Union is still important, and believes that Turkey is an asset, not a liability.


QUEST (voice-over): Turkey's bid for E.U. membership has been controversial for decades. European politicians have questioned its right to join, its economic and sectarian make up. The tables seem to have turned, with Turkey economically out-performing the E.U. in 2011.

Turkey's politicians now have to convince their own people joining the Union is the right thing to do.

SIMSEK: It is a problem. It's a big problem. European Union is shooting itself in the foot by essentially trying to keep Turkey at bay. I think that's wrong.

But at the same time, my party just got 50 percent of the vote. And our platform strongly supports E.U. membership. So people still support change.

It's all about shared goals, shared interest, shared vision. I think for regional stability, for energy supply security, for better standards of democracy, for more transparency, for more competitiveness, I really still think that both Europe needs Turkey and Turkey needs Europe.

So we need each other. Whether or not we end up joining the E.U., in my view, is academic at this state. The debate is academic. What matters for us is that we do what it takes to become an E.U. member.

QUEST: Right. Because the fear in Europe is that you are Italy, Spain, Greece, writ much larger.

SIMSEK: No, that's not true. That's not fair. But that's wrong. That's wrong. We -- we actually -- we are an asset for Europe, not a liability.

I mean, look at it. Our balance sheets are so much stronger than Europe. First of all, we represent dynamism. We represent growth for the next several decades.

QUEST: The Euro crisis is not the only challenge. Turkey's location, much credited for being one of the reasons for success, could just as well prove to be a hindrance.

SIMSEK: We have large trade surfaces with Arab nations, with Middle East and North Africa. And unfortunately, Arab Spring, even though in the long is something great, something that we fully support, has disrupted our external balance.

We are also concerned about the developments in the Gulf, meaning -- vis-a-vis Iran. So yes, our neighborhood -- I mean, you can't choose your neighborhood.

Our neighborhood is quite noisy. And our neighborhood right now is not stable.

That's why -- that's why we need E.U., meaning we becoming an E.U. member and serving as a catalyst, that you can be pro -- you can be with the west. You can be secular. You can be Muslim. You can be prosperous. And you can be stable.

QUEST: As it comes to the end of our discussion here, I always wanted to know, you've got so many issues on the plate at the moment. What keeps you going?

SIMSEK: What keeps us going?

QUEST: No, you. What keeps you going?

SIMSEK: Well, it's essentially the idea that -- that we can make a difference, the idea that by serving for our people, extremely young demographics, within a very unstable neighborhood, that we can make a difference on a global scale. On a global scale, not at the local level.


QUEST: The finance minister, Mehmut Simsek, on the Turkish economy. If you had any doubts about this country's trading ability, just visit the Grand Bazaar, here in Istanbul. There's a deal to be done just about everywhere.

When we come back after the break, more on the entrepreneurial spirit, this time from the chairman of one of the country's largest companies, Gular Sabanci, after the break.


QUEST: Welcome back to MARKETPLACE EUROPE in Istanbul. This magnificent house used to be the home of the Sivanchis, one of the most prosperous and powerful industrial families in Turkey.

The house is now a beautiful museum. As for the Sabanci family, they still run a vast enterprise of more than 30 companies. The current chairman is Gular Sabanci, the third generation chair of the group.

We sat and discussed how her company and the country was handling the economic problems.


GULAR SABANCI, SABANCI HOLDINGS: First of all, of course, the Eurozone is an issue, for Turkey and for my company. We are so integrated. You know, about half our exports go to Eurozone, 47 percent of our exports. About 75 percent of the borrowing are from the European banks in Turkey.

And about around, again -- about 75 percent of the -- you know, most of the tourism is from Europe. FDI -- 75 percent of the FDI comes from Europe. So Europe's slow down is an important issue for us.

QUEST: As the chair of one of Turkey's largest companies, what do you want government to do in 2012 to help foster your corporate growth?

SABANCI: This year, 2012, is a critical year for Turkey. One, we have a new parliament has been elected, only six months ago. And their first, number one issue, duty is to do a new constitution.

QUEST: But on the economy, what do you --

SABANCI: On the economic side, I am expecting reforms on the tax reforms.

QUEST: If you look at the -- the arguments now for and against Turkey joining the E.U., there is a groundswell of opposition now building in the country, that basically says, A, we're doing better than you lot; why would we bother. And two, you don't want us anyway. So you know what you can go and do.

SABANCI: My perspective no this is that, first of all, you are right, of course. Turkey's economic performance has out-performed E.U. zone. And this, of course, has brought great confidence and pride to the Turks.

This is a long road. We have given too much on this road. We have --

QUEST: What do you mean by that?

SABANCI: By that I mean we have already -- we are already economically integrated with Europe. Since '96, we are -- we have the Customs Union. And we have done -- so much effort has been put in all aspects.

QUEST: I'm starting to get the view that decision makers in Turkey are resigning themselves that full membership may not be the answer.

SABANCI: I'm not saying that. I'm not saying that. But I'm saying that things have changed so much. The conditions have changed so much. Look, is England -- the U.K. is a full member or not? Yes, it is a full member, but it has a different model.

So there are different models. You can still be a full member, but there are other models can be achieved.

QUEST: The influences of Europe on Turkey's art can be seen in the Sakib Sabanci (ph) Museum. Ms. Sabanci believes that today the influences can still be seen between Turkey and her neighbors.

SABANCI: I used to say that Turkey ascension to Europe is not a revolution. It's just an evolution. We have been so much part of our -- each other's history.

Years ago, I wrote an article in (inaudible), we have 700 years behind us, between Europe and Ottoman. We have been -- if we like it, we don't like it, we fight sometimes. But we have been part of our -- each other's history.


QUEST: And that's MARKETPLACE EUROPE for this week. I'm Richard Quest in Istanbul, as the traffic goes between Europe and Asia, and back again.

As always, whatever market you're in, I hope it's profitable.