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QUEST MEANS BUSINESS

German finance minister Wolfgang Schauble bristles at criticism over German austerity and has a stern warning for Greece, saying that it needs to implement the measures already agreed to two years ago, and that if structural reforms aren't put in place, it will become a "bottomless pit." Ahead of any news from Greece, investors in Europe played it safe, with very small losses on the DAX, the CAC, and the FTSE; Germany Has Stern Warning for Greece; European Investors Play it Safe; Nokia Job Cuts; Patent Blow for Sanofi; Vestas Turbine Trouble; Wall Street Flat; All Airbus A380s Must Be Checked for Wing Cracks; Airbus CEO Responds; Airbus Parent Company Shares Slip; Analysis of Wing Crack Problems; Deadly Freeze Continues in Europe; Ukraine Energy Consumption Hits Historic High; Europe's Weather Outlook; Fabio Caepllo Resigns as England Football Manager; Interview with Jeffrey Lacker; Fed Tools; Spurs Boss Not Guilty

Aired February 8, 2012 - 14:00   ET

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


RICHARD QUEST, HOST: Don't criticize the strongest country in the eurozone. It's not fair, says Germany's finance minister on this program tonight.

A flaw in the fleet. Inspectors tell Airbus, check all super jumbos for cracks.

And a taxing ordeal. Tottenham manager Harry Redknapp cleared of tax dodging.

(BEGIN VIDEO CLIP)

HARRY REDKNAPP, MANAGER, TOTTENHAM FOOTBALL CLUB: Really, it's been a nightmare, I've got to be honest. It's been five years, and this is a case that should never have come to court.

(END VIDEO CLIP)

QUEST: I'm Richard Quest. I mean business.

Good evening. Tonight, the threat of a disorderly default hangs over Greece like the sword of Damocles. Its government working on an austerity deal to unblock vital bailout funds.

And while those talks go on and lawmakers have been squabbling in Athens over the finer points of the plan, Germany's finance minister tonight has a stern warning. Wolfgang Schauble says he's tired of hearing promises, that Greece now has to deliver. Schauble told CNN's Diana Magnay that unless reforms are implemented, Greece will become a bottomless pit.

(BEGIN VIDEOTAPE)

WOLFGANG SCHAUBLE, GERMAN FINANCE MINISTER (through translator): The point is that Greece has to adopt the measures agreed on two years ago in order to strengthen its competitiveness.

The point isn't really so much austerity, but that Greece needs reforms to get it back on a growth path, because saving without growth doesn't help anyone. And Greece hasn't done, up until now, what the IMF has asked it to do.

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: But aren't we always saying that Greece has to do this, and has to do that, and for two years, it still hasn't managed to get it all together?

SCHAUBLE (through translator): Yes, that's the problem Greece is facing. That's why the former Greek president said Greece's biggest shortcoming is a lack of credibility. Without trust, there can be no investors, no investments, no growth.

That's why we're saying, as we decided in the euro group together with the agreement of our Greek colleague, Evangelos Venizelos, that now is the time for implementation. No more promises. Now, they have to deliver.

MAGNAY: But when we see pictures in Athens of people burning German flags outside the parliament, don't you worry about things like that?

SCHAUBLE (through translator): Well, because Germany's the strongest economy in the eurozone, we get all the criticism. And that's not fair. There is a clear majority within the eurozone who think just like Germany.

I'd like to ask the Greek people who they trust more, their own political parties, or perhaps European institutions?

MAGNAY: Are Europe's banks strong enough to withstand a possible Greek default?

SCHAUBLE (through translator): We're conducting a stress test, and we're making capital requirements that exceed Basel III for all system- relevant banks in Europe. We got this system underway last year. Everyone demanded it from us. The Americans, the British, the IMF.

We are doing this, and we're making progress. The system-relevant banks are all supplied with the necessary capital, and where there are still problems, we are prepared to help via the ESFS.

MAGNAY: Christine Lagarde here in Berlin two weeks ago said that the problem about 2011 had been that it had just been sort of an endless stream of firefighting, and that in 2012, we had to find a proper solution. And the fiscal pact isn't that.

SCHAUBLE (through translator): No, I think on the whole, in Europe, we're on the right track. We haven't solved the Greek problem because the economy keeps shrinking, and that's why the structural reforms have to be put in place, otherwise Greece becomes a bottomless pit.

Once we find a solution for Greece that's credible, that works, that's sustainable, then we'll be on the right track across the eurozone as a whole.

MAGNAY: How far do you think that there is an obsession, if you will, internationally, with the fact that Germany is obsessed with austerity, and do you think that this idea of austerity is really representative of Germany's fiscal policies?

SCHAUBLE (through translator): If you were to watch the German debates where the finance minister is criticized because he's not saving more, when you realize that we are not doing anything more in terms of our fiscal policy than what is required of us by the G20, IMF, and EU, then this kind of criticism really is a bit much.

We've proven that it is possible to balance sensible fiscal policy with modest deficit reductions whilst also enabling growth. And over the last two years, we've been the growth engine in Europe. That means we didn't save money to the point that it destroyed growth. We actually made growth possible.

(END VIDEOTAPE)

QUEST: And that's Germany's finance minister, Wolfgang Schauble, talking to Diana Magnay. Minister Schauble raised the question, there, concerning the Greek people, "Who do you trust more, your politicians or European institutions?"

It's a question I might very well ask you. If you're in Europe, or if you are elsewhere in the world, who do you trust more? The email address is quest@cnn.com, or you can, of course, tweet and Twitter @richardquest. Who do you trust more?

And if you're not in Europe, the question becomes, do you trust your politicians? @richardquest.

(RINGS BELL)

QUEST: The markets, now, and ahead of any news from Greece, investors in Europe played it safe. These are the numbers, just very small losses on the major indices of the DAX, the CAC, and the FTSE. Commerzbank actually did get a gain of 7.6 percent in Germany. The Polish unit beat bank earning estimates today.

Now, as we look at other estimates for earnings and -- earnings that have actually come along, let's start with Nokia. Nokia announced it is moving its assembly plants to Asia, leading to thousands of job cuts across Europe and Mexico.

It's a restructuring of its plants. Basically, European factories will now finish and customize smart phones, bu the main manufacturing base will now be in Asia. Around 4,000 jobs will go by the end of this year, with 3 percent of the workforce in Hungary, Mexico, Finland. The products will be aiming to go to faster markets.

All in all, Nokia has now cut 14,000 jobs since the Windows phone partnership in 2011. Even so, the shares are down more than 50 percent in the past 12 months.

A profit warning for Sanofi, where -- which saw earnings could slump 15 percent this year. As patents expire, generic copies will eat into the farmer's products. The shares were down some 1.7 percent.

Vestas. A lot of wind. This time it blew the chairman and the chief financial officer out of the board room. They've resigned after a massive loss. 2011 operating loss, $80 million, four times bigger than analysts' expectations. The shares are down nearly 14 percent in Copenhagen.

The big board that is open and trading in New York, it is down just a mere 18 points, 12,859. Basically, the movement in the New York market has stalled ahead of any news that comes out of Greece.

When we return in a moment, they are tiny, tiny cracks, but they are big problems for the super jumbo of a plane. The 380s are being told to take safety checks. How serious? In a moment.

(COMMERCIAL BREAK)

QUEST: Right. This is a map that shows you currently where all the A380s that are currently in the air and where they are at the moment. You'll see, for example, that over there, that's a Singapore Airlines plane that's come up. That's a Qantas plane, another one over there.

You can see these show all the different -- and not surprisingly at the moment, they are grouped around the hubs of the airlines that run them. So, we have a large configuration over here for Singapore Airlines, down here in Australia for Qantas, and up here for Lufthansa and Air France.

Well, all these planes will need to be checked for tiny cracks inside the wings. Now, European regulators say the super jumbos must be examined, even though Airbus says they are safe to fly. Join me over in the departure lounge, and you'll see why.

The wing cracks have been found -- they're tiny, they are in the brackets, and we'll talk more about that in a second. Airbus said it's not a critical issue. No new cracks have been found, but even so, the safety agency says they must be checked within four weeks.

Also, proving that there are woes for the 380, in Australia, a Qantas plane has experienced another cracking incident, which has led the airline to ground one of its planes. Frank Coletta from Ten News reports from Australia.

(BEGIN VIDEOTAPE)

FRANK COLETTA, TEN NEWS, AUSTRALIA (voice-over): Passengers were hurt when the Charles Kingsford Smith A380 hit turbulence over India last month. That scare led to a full inspection, and engineers found 36 hairline cracks in the wings.

GEOFFREY THOMAS, AVIATION WRITER: All airplanes have minor problems. All airplanes -- and I mean all airplanes -- have cracks.

COLETTA: Qantas officials would not comment on camera, but insist there's nothing to worry about. In a statement, they said, "During these inspections, minor cracking has been found on some wing rib feet. This cracking is traced back to a manufacturing issue. Airbus has confirmed that it has no effect on flight safety."

They say it is not the more serious type-two metal bracket problem, which has seen European regulators order 28 380s be urgently checked.

THOMAS: It's the most tested airplane in history, apart from the new 787, which is now coming out. Incredibly strong wing, amazingly strong wing. These hairline cracks are of no consequence whatsoever.

COLETTA (on camera): There's no doubting that it has been a checkered, short history for the A380. First, there were significant delays on the delivery of the first plane, and then two years between its maiden test flight and its first commercial flight with Singapore Airlines.

COLETTA (voice-over): Since then, there have been canceled orders, compensation payouts, the Qantas engine failure near Singapore, grounding of an entire fleet, and a worldwide check put in place.

Qantas may do the same checks on its 12 plane fleet with reports cracks were also found in a second A380.

Frank Coletta, Ten News.

(END VIDEOTAPE)

QUEST: And these are the number of 380s around the world at the moment. The biggest fleet, of course, is Emirates in Dubai. They've got 20 in service, more than 90 on order. Singapore Airlines, the launch customer, with 15. Qantas, who you just heard about, with 12. Air France/KLM with 8. There's also Lufthansa, Korean, and China Southern.

So, quite a large number of 380s. One of the -- and the fleet's going to more than 250. With so many planes and in such a prestige project, just a couple of weeks ago, when this story first came out, Tom Enders, the CEO of Airbus, admitted that there was no safety considerations, but it was embarrassing.

(BEGIN VIDEO CLIP)

TOM ENDERS, CEO, AIRBUS: Richard, I cannot say I'm proud of it. And obviously, we're investing how it -- how it could happen. We think we have a pretty good understanding, but this investigation is ongoing.

What we have developed already is a repair solution. This is what we will apply on the various aircraft if and where it is necessary.

And by the way, I say I'm not proud of it, but unfortunately, this has happened on other aircraft, competitive aircraft, not to mention the competitor or the aircraft before. So, this is, to a certain extent, embarrassing, yes, but we will do everything, make sure that safety is not compromised, and we repair damaged rib feet for the customers.

(END VIDEO CLIP)

QUEST: Damaged rib feet, damaged share price. EADS, the parent company of Airbus, down nearly 2 percent in just today as people worked out what might be the ramifications of this. Not many planes, but an embarrassment for the airline.

We need to put this into full context, not only from a financial point of view, but from a safety point of view, and discuss this even more.

(BEGIN VIDEOTAPE)

QUEST: With this model of the A380 and John Strickland of JLS Consulting, we can start to get an idea of the area involved and what needs to be done.

So, John, we know that the area involved is pretty much in the middle of the wing, it's the bars that go, and it's part of that wing. But how serious is your understanding in terms of what needs to be done on the repairs and the way in which it's operating?

JOHN STRICKLAND, DIRECTOR, JLS CONSULTING: Well, based on the fact that the aircraft is still in service, that tells us that the manufactures of and the air worthiness authorities believe it's something which is repairable, it's something which is minor, and a repair kit will be put in place.

Initially what Airbus has said is that parts will be replace in time, because they've also stated about issues with manufacturing processes and materials, a modification set will come in.

QUEST: But whenever we hear about anything to do with the wing, we always naturally get very concerned and get worried. So, should we take comfort from the fact that they haven't grounded the fleet?

STRICKLAND: Absolutely. This industry is nothing without an overriding focus on safety, and we saw when it was an issue in the past with the engine on a Qantas A380, we saw aircraft grounded for some time while that was looked into to satisfaction that the aircraft was safe to fly.

This has now been running for a couple of weeks or so in the public domain. Aircraft are still flying.

QUEST: OK, so putting this into the full perspective. On this 380, we've had an in incident, and I'll draw it on. We've had an incident with a manufacturing defect in an engine. We've now got incidents of manufacturing defects or problems with wings. Are they getting the planes out too fast, or is the technology simply at the very forefront of what's capable?

STRICKLAND: Well, all new aircraft face teeming problems. If we look back even 40 years, when the venerable 747 first came into service, I remember seeing the first one arrive at Heathrow several hours late because it had had overheating engine problems.

So, planes do have problems, and the whole point is having an inspection and a safety oversight regime which ensures that they are not safety-critical.

It's fair to say, as you completed there, that we have a lot of new technology, both in the Airbus A380 and in Boeing's new aircraft, the 787. and it's challenging, from a manufacturing point of view, to bring in new technology, new methods of production, and get all this out when the airlines want those planes as quickly as they can get them.

QUEST: So, final question. Tonight, I've got a ticket for you to get on a 380 going somewhere hot and exotic. Are you going to go?

STRICKLAND: I would go, and in fact, I have got a ticket on a 380 to travel from Dubai to London in early May, so I'm looking forward to this being resolved completely to travel in confidence.

QUEST: John Strickland --

STRICKLAND: Thank you.

QUEST: -- many thanks, indeed.

(END VIDEOTAPE)

QUEST: Coming up in a moment on this program, the human cost of Europe's freezing February. It's currently minus 15 in Kiev, and for the homeless, these powerless tents are all that stands between them and the deadly cold.

(COMMERCIAL BREAK)

QUEST: Europe's deadly cold snap is now expected to continue until the end of the month. At least 250 deaths have been reported across the continent. In Ukraine, 135 people have died, and authorities are scrambling to help thousands more people at risk.

The country's homeless are among the most vulnerable. Frozen victims have been found on the streets and in makeshift shelters. CNN's Matthew Chance is in Kiev, and a warning, viewers, you may find his report disturbing.

(BEGIN VIDEOTAPE)

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): This is the impact of freezing temperatures when you've got nowhere to live. This man was found half frozen, sleeping at a bus stand in Kiev, his toes and fingers blackened by frostbite.

It's badly affected his feet and hands, the doctor tells me. There's also painful frostbite on his nose and face, he says. Another casualty of the cold.

CHANCE (on camera): There are huge problems in Ukraine at the moment with the cold. People are really getting severely injured and worse.

We're just going to see somebody who's being prepared for surgery. Apparently, they're going to have their hand amputated. There have been instances over the past week or so, as well, of people having their legs amputated because of the cold, and it gets much worse, as well.

Look just through this window, here, you can see -- over there, there's a body that's been shrouded in a white sheet. Somebody who was a victim of this freezing weather.

CHANCE (voice-over): At a mobile soup kitchen, one of 11 now plying the streets of Kiev, city officials admit the problem of deaths caused by cold is increasing. But they say it's not through lack of effort to help on their part.

"I think it's just a tragic coincidence," the deputy head of Kiev's administration tells me. "We're putting three times more money into helping the homeless than last year, but the weather is a harsh test," he says.

Back in the hospital, another homeless patient is being prepped for surgery, his frostbitten hand, say doctors, can't be saved.

(END VIDEOTAPE)

QUEST: Matthew Chance, there, reporting. As people struggle to keep warm, electricity use in Ukraine has hit an historic high. Russia's accusing the country of siphoning gas from its pipeline, gas that's headed to Europe. Ukraine's energy minister, Yuriy Boyko, told Matthew Chance that's simply not true.

(BEGIN VIDEO CLIP)

CHANCE: Now, as you know, there's been a 30 percent drop in the amount of gas received in European Union countries from Russia. Is Ukraine siphoning off gas from Russia, from its pipelines, which is meant for paying customers in Europe?

YURIY BOYKO, UKRANIAN ENERGY MINISTER: No. The main reason about low in -- amount of gas coming to Europe is extremely cold weather in Russia, first of all. That's right on the west border for our country, we received a smaller amount of gas than it was before.

According to technical conditions, we must receive 500 million cubic meters per day. We received 400 all those days. That's why 100 million didn't come -- doesn't come to Europe from Russia.

CHANCE: But the Russians, of course, denies this. Gazprom says -- the Russian gas monopoly -- says that it has not lowered the amounts, the volumes of gas that it's pushing through to its European customers. So, somebody's not telling the truth.

BOYKO: I think that their information was from the deputy chairman of Gazprom said that they didn't ready to give additional gas in this period to Russia -- to Europe. I think it was the most true information, and that's right -- the fact is that a smaller amount of gas came to our western borders.

CHANCE: Doesn't this whole issue highlight the problems associated with Europe being overly dependent on gas from Russia, especially gas that transits through Ukranian pipelines?

BOYKO: I think that in this situation, it's very important to have a clear contact between Russia, Ukraine, and the European Union, and to be in touch when it was extremely cold weather. It's very important to have clear contact and intact connections between these three parts, in order to push additional gas to avoid the situation.

(END VIDEO CLIP)

QUEST: Matthew Chance, there, speaking to the minister in Kiev. Perhaps of all I've said this evening, besides obviously the very high and distressing number of death toll, at more than 250, it si the fact that it is going to continue, this cold weather. Jenny Harrison is at the World Weather Center.

Jenny, when you and I spoke last night, I asked you whether you saw any sign of that high pressure or low pressure moving around. And now tonight, we're reporting that it looks like it might be set in for the rest of the month.

JENNY HARRISON, CNN METEOROLOGIST: Yes, it really might be, Richard. That's the long-term forecast, and within that long-term forecast, you'll have some fluctuations, but the different areas of low pressure, we've got one right now affecting the southeast that will bring the snow with it, but also slightly milder air with the circulation of the air, so coming in more from the southeast.

But for the most part, there's just no sign of this huge area of high pressure breaking down at all. So, again, look at the temperatures. It's across this Tuesday night into Wednesday morning. In Kiev, again, one of the coldest places at minus 19 Celsius, at Paris, minus 10, so another very cold night and morning there.

And I just wanted to talk again. We know what you should do in cold weather. Now, of course, with the report from Matthew, that's a very different situation. You're talking about people who have no homes to go to, so no heating at all.

But it was interesting, of course, that a lot of this is to do with drinking alcohol, and we talk about not drinking alcohol, so you might wonder why, because we all have a little sip of alcohol when it's cold, and your face feels flushed, and it does feel as if it's warmed you up, it warms you up inside.

But in fact, what happens in this really cold weather is something called vasodilation, and literally, the blood vessels increase in size, it increases the blood flow to your skin, and so actually, your body loses that heat much, much quicker than if you weren't to do that.

And so, this is why it is strong advice to not, obviously, drink any alcohol, particularly with the weather the way it has been and will continue to be.

Look at this. The days are just staggering, 24 days, now, in Kiev where it's got nowhere near zero Celsius, it has to be said, 15 days in Warsaw, 14 in Bucharest, and so it goes on.

And when you look at the average temperatures, the average high, that's when you realize just how far below the average it has been. Even in Paris, now, seven says of the temperature not reaching freezing.

Now again, yesterday I was showing the pictures of the icebreaker across the portions of the Danube in northern Austria, but this is now a bit of an ongoing problem here, because you have all these smaller tributaries that feed into the Danube.

Of course, the flow, not quite so fast, the actual tributaries generally not as deep. So, they are beginning to freeze if not, indeed, are already completely frozen. So, that, then, decreases the flow of water down the Danube, so that begins to slow as it's getting colder.

And right now, 170 kilometers are blocked, you can see here where we are, Serbia on towards Bulgaria. And then, this whole stretch here, about 20 to 80 percent of this is now frozen, and also it is frozen when you get to the river delta, there, close to the Black Sea.

So, at the Danube, such a vital river in Europe, and this will really have a knock-on effect. Maybe not now, maybe not next week, maybe not in a run of time, but much longer on from there, just drinking water becoming a problem, irrigation, crops, all of that.

So, there's the high pressure. Here's the snow coming in, very heavy snow across the southeast, the Balkans on towards Turkey. These are the current temperatures. We're at freezing in London, minus 21 in Kiev, you factor in the wind, minus 27 is now it feels, minus 5 in London.

And unfortunately, so it goes on, so more pictures like this, in Italy, where the snow's just building up and building up will continue. And of course, transport on the roads are just becoming more and more problematic for just about everybody.

But Richard, unfortunately, yes, no sign of it changing in the short term.

QUEST: Jenny Harrison at the World Weather Center, we'll talk more about this, a great deal more about this, in the next couple of says. And please, at the moment there's more to report, come back.

Now, one piece of news I need to bring to you, Fabio Capello has resigned as manager of England, and he had reportedly been upset at the English FA's decision to remove the captain's seat from John Terry, who is facing criminal proceedings and legal action against allegations of racist abuse.

Capello had originally planned to step down after this summer's European championships. He held a meeting with the FA who, no doubt, were not best pleased at Capello's criticism of their decision to remove Terry. Capello is known to be very much against that decision.

And now, from his multimillion pound contract, he's gone. We'll talk more about this, more about the story, with Pedro Pinto in just a moment or two.

In a moment, dissent at the Federal Reserve, more dissent, this time not over football, but over monetary policy. We're back on our own bailiwick. Member Jeffrey Lacker tells us why he voted against the long- term pledge for record low interest rates, in a moment.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest.

More QUEST MEANS BUSINESS in a moment.

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

This video appears to show more shelling in the Syrian city of Homs. An opposition activist says 60 people were killed there on Wednesday. Such clashes come a day after city and state news reported the government was committed to ending the violence.

Much of Europe continues to shiver in the bitter cold. In the east, heavy snow. In Bosnia and Herzegovina, bulldozers are pushing mountains of snow from the streets of Sarajevo into a river. Elsewhere, 170 kilometer stretch of the Danube is closed to shipping. The river has frozen over.

The German finance minister, Wolfgang Schauble, has told this program criticism of Germany is unjustified. He says he would like to ask the Greek people whom they trust more, their own political parties or European institutions. Minister Schauble says Greece needs to restore trust and without that, there can be no investors, no investments and no growth.

European leaders are running out of patience with Greece. They're waiting for politicians in Athens to commit to new and further cuts. The talks have been dragging on for days without an agreement. EU officials may withhold bailout funds, which would lead to a catastrophic, disorderly default.

Fabio Capello has resigned as the manager of England. He had reportedly been an -- upset at the England's Football Association's decision to remove the captaincy from John Terry, who's facing allegations of racist abuse. Capello had originally planned to step down after this summer's European championships.

Europe's aviation safety agency is ordering wing inspections on all Airbus A380 planes within the next few weeks. At least four airlines have discovered cracks in the jumbo jets. There are 68 planes in operation. The new inspection order does not ground the aircraft, and the aircraft manufacturer says the cracks are minor and pose no danger.

When the Fed met at its last Open Market Committee meeting and decided to announce it was keeping interest rates low until 2014, the decision was not unanimous. There was one holdout who didn't agree with such an open- ended promise to the people.

Maggie Lake is in New York to put this into perspective -- in Washington, I do beg your pardon. You've moved from -- you've -- you've moved down the road from the financial capital to the nation's capital, visions of grandeur for Miss. Lake.

MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: That's right, Richard. And it's always good to be able to -- to talk to these federal officials one- on-one. And I did have the chance to sit down and have a very nice long conversation with Jeffrey Lacker.

And it's really relevant now. He dissented. He was uncomfortable with pinning this sort of pledge, promise to keep rates low to a calendar point. And now, that -- that, in itself, has become very relevant, because, of course, after that very strong job number we saw in January, a lot of investors are confused.

What is the Fed looking at?

What do they see that we don't see?

What does that language exactly mean?

So we sat down to set the record straight, get some -- an idea of what the Fed is thinking.

And I started by asking him about the strength of the economic recovery itself.

(BEGIN VIDEOTAPE)

JEFFREY LACKER, PRESIDENT, FEDERAL RESERVE BANK OF RICHMOND: It's picking up steam right now, but we've had a lot of ebbs and flows in the rate of growth over the last couple of years. The recovery is tracking somewhere between 2 and 3 percent. We're going to get some fast quarters, we're going to get some slow quarters.

I think we should just expect 2.5 to 3 percent, on average, over the next couple of years.

LAKE: Investors seemed to greet the data with a little confusion because it -- it seemed at odds with the Fed's assessment, which was rather bleak, and especially that plan to keep interest rates low until 2014.

Are they at odds?

And what does that mean for Fed policy?

LACKER: Well, in fact, the -- the fact that we've had a data flow over the last couple of months that's a little stronger than expected and consistent with the pickup in growth that we were expecting a few years -- weeks ago, a few months ago, because of that, that's one reason I dissented on the decision in the -- in the statement saying that we expect interest rates to be exceptionally low through 2014, late 2014, instead of, as we were saying, mid-2013.

So I -- I do think it's a bit of a disconnect there. I think that we're -- we're going to have to be very careful over the next couple of years to be sure that we resist inflation pressures if they emerge. We...

LAKE: Are there any signs we're going there?

LACKER: We're not seeing that now. I think inflation is in a good place, 2.4 percent, the -- the way we measure it best. I think it's going to track around 2 percent in the last couple of years.

LAKE: What is it that the rest of -- of your colleagues are worried about?

I mean you did dissent, clearly. You weren't that comfortable with the language for 2014.

But what is everyone else worried about?

LACKER: Well, I -- I think there's sort of two visions about this recovery. One is that if you draw a trend line that takes off from 2007 and keeps going, we're way below that. The other vision is we suffered a large one time shock and now we're growing at normal from where we found ourselves in 2009. I'm more in the latter camp.

LAKE: What about Europe?

What kind of threat does Europe pose to the recovery here?

LACKER: At the margin, if -- if they -- if things get bungled over there and growth stalls out pretty seriously, that would cut into our export demand. But we're not seeing any of that yet, even though growth has slowed a bit over -- in the fourth quarter over there.

So I'm hopeful that it will be just a minimal impact.

LAKE: If we go back to the U.S. economy here, I know that when you were doing your forecasts, you did cite that some of the risks for 2012 might be that things are stronger.

LACKER: Um-hmm.

LAKE: And -- and, clearly, you dissented with the decision.

What does that language about 2014, is that a -- is that a pledge?

Is that a forecast?

If you're a small business owner and you're looking to borrow, you say that is a promise?

LACKER: Yes, that's one of the things I was little unhappy with about that language, and the -- the 2013 language we introduced last August, same thing.

So it's not an unconditional pledge, I think that's clear, because everyone recognizes, on the Committee and -- and I think more broadly, that if things change materially, if growth picks up dramatically and we need higher real interest rates, if inflation pressures emerge that we need to resist, that we could change -- change path and raise rates before then. I think everyone recognizes that.

So what -- does this mean that policy is going to be easier than it otherwise would have been?

I'm not so sure. And it's not that clear.

LAKE: There are still people who think there will be additional, more -- another round of quantitative easing, additional stimulus.

Is that now off the table given what we're seeing in the economic data?

LACKER: No, I don't think so. I mean there -- there's always a risk of unexpected developments that make further stimulus warranted. But I don't see those prospects as very likely right now at all. And -- and given the type of growth picture we have, between 2 and 3 percent, if we keep getting data like we've been getting, I -- I don't see a rationale for further easing at this point.

(END VIDEO TAPE)

LAKE: Pledge, Richard, that language is very important. The market is going to have to come around to that.

We do have the full interview on the Web, if you want to check it out.

QUEST: Yes.

Maggie Lake, who is in Washington for us tonight with the dissenter on the FOMC.

Maggie, many thanks, indeed.

More news now on the decision by Fabio Capello to quit as manager of the English national football team.

Pedro Pinto is with me now.

As you know, my great in-depth knowledge of -- of these matters.

Was it a surprise to you?

PEDRO PINTO, CNN CORRESPONDENT: It's a bombshell. I -- I think I'm - - I'm completely surprised. I...

QUEST: Well, you knew he was going to have a meeting and they knew there was going to be strong words said.

PINTO: Yes. But four months before a major tournament kicks off, I was expecting him to not take this decision. Let me tell you exactly what happened earlier today.

The English Football Association and Fabio Capello have been at odds over the decision to strip John Terry of the captaincy. This decision was taken by the FA without consulting the Italian coach. He did not appreciate this. He felt he was undermined. And in an interview with an Italian television channel over the weekend, he said that he did not agree with this decision and that John Terry, in other words, was still his captain.

They met for the first time today at Wembley Stadium, at the offices of the FA. David Bernstein, the chairman, Alex Horne, the general secretary, and Capello. And he decided to quit. He has resigned with immediate effect. And this leaves England in a very, very strange position.

This -- this -- I can't really tell you the last time this happened, because leading up to a major tournament, the last thing you do as a national team is -- is change anything, much less with your -- with your manager.

But he has obviously decided that at this stage in his career, he has won titles in Italy and Spain, he's won the Champions League, he's 65 years old, he doesn't want to deal with this.

QUEST: Why did he wait until today, do you think?

Because the Terry announcement is a few weeks old. The Terry did -- proceeding, it was a few months ago. So we've known that this has been bubbling along.

Why wait until today?

He could have -- he could have -- I mean let's face it, if he's so annoyed about it, he could have (INAUDIBLE) again.

PINTO: Well, he -- he could have, but the decision to strip Terry of the captaincy is only about a week old. And he was in Italy at the time. This is the first time face-to-face, he has met with the English foot -- Football Association. And, obviously, the discussions came to a head and Fabio Capello is a manager who has a lot of experience. Let's face it, England didn't really have much of a chance to win euro 2012. You have the whole issue with Wayne Rooney being suspended for -- for the first two games. He -- I know this for a fact, that he's tired of the dealing with the pressure, considering the -- the -- the English press.

So he's had enough. I mean...

(CROSSTALK)

QUEST: Enough. Enough.

PINTO: Yes.

QUEST: I don't need it.

PINTO: Yes. But this is a man who is on $10 million a year. This is a man who could have very easily swallowed his pride in this circumstance and said, you know what, I'll do this job and then I'll go back home.

QUEST: Who takes over?

PINTO: Well, that's...

QUEST: I mean is that...

PINTO: -- that's the question right now. Harry Redknapp was the odds-on favorite to take over after Euro 2012, which is when Capello's contract came -- came to an end. He's just been acquitted today of tax evasion charges in England, as you know.

So you would think that he is the next in line.

However, midway through a season where Tottenham actually have hopes of winning the title, is he going to -- to -- to quit the Spurs?

I don't think so. If anything, maybe they can negotiate a deal to have -- and it's happened before with other national teams -- you have Redknapp stay with Tottenham and he takes over England, as well. He does that as a part-time job until taking over full-time in the summer. Maybe that's what happens.

QUEST: How realistic would that be...

PINTO: On a scale of zero to 10?

QUEST: Yes.

PINTO: About a seven. I think that can happen. Josheding (ph) did it recently when he was managing a national team and he was still in charge at Chelsea, as well.

So it can happen.

QUEST: As for Mr. -- we'll come back to -- to Redknapp in a second. But as for Mr. Capello, his reign at England...

PINTO: Yes?

QUEST: -- on a scale of zero to 10?

PINTO: I would give him a four.

QUEST: That much?

PINTO: Yes, because he still managed to qualify England for -- for the World Cup, which was -- really was the -- the least -- the least he could do. At the World Cup, of course, they were knocked out by Germany...

QUEST: Was he worth his...

PINTO: -- a 4-1 defeat.

QUEST: -- was he worth his money?

PINTO: I don't think so. I mean he already had made so much money in Italy with AC Milan, with Juventus, at Real Madrid, as well.

Did he need this job for his profile?

No.

Did he need this job for his bank account?

No. I think if you ask him, in hindsight, would he have taken this job, I think he would have said no.

QUEST: Why does England have such disasters when it comes to the managers that they pick?

PINTO: It -- it's not only the managers, it's the players, as well, and it's the constant scandals. And it's curiously you asked that...

QUEST: But why?

PINTO: -- and I'm going to take an opportunity to plug my blog, because I just wrote one about it yesterday.

QUEST: Please. Not into the camera.

PINTO: Yes.

QUEST: Not into the camera.

PINTO: No, but seriously, I just wrote about this yesterday...

QUEST: Oh, boy.

PINTO: -- which is a coincidence.

It's two reasons, Richard, OK?

QUEST: Yes?

PINTO: It's the unrealistically high expectations that people in England have for their athletes and coaches, as soon as they put on that England shirt or as soon as they represent their nation. They -- they expect them to be perfect in everything they say and do.

And, number two, I think it's the power and influence of the press that is not afraid to expose any scandal or any kind of turmoil that happens around the national team. In many other countries, I can tell you that there's just as many scandals and just as many clashes behind the scenes.

QUEST: Right.

PINTO: But just the -- the -- the press doesn't have the power to expose them, because they're scared that something might happen to them or that they might be compromised. Not here.

QUEST: Well, we're not -- we're not going to pay you anything like $10 million, but we are going to give you a plug for your blog, which is -- there we are.

PINTO: Oh, wow!

QUEST: There you can see the (INAUDIBLE)...

PINTO: Look at that.

QUEST: Ah.

PINTO: Look at that.

QUEST: This is QUEST MEANS BUSINESS. We've got -- we move fast on this.

You can read Pedro's views there online.

PINTO: There...

QUEST: Who...

PINTO: I wanted to interrupt you, because I wanted to ask if we did have an excerpt from the statement from the English Football Association. I -- I am told we do.

So let -- let me show you a little bit of the -- of the statement that was posted on the English Football Association Web site just a few months ago.

"I would like to stress that during today's meeting" that happened between Capello, Horn and Bernstein, "and throughout his time as England" national team manager "Fabio has conducted himself in an extremely professional manner."

This is David Bernstein, the FA chairman, a statement that was just posted a few minutes ago.

I have to tell you, Richard, that...

QUEST: Because it goes on.

PINTO: It goes on. We have more. "We have accepted Fabio's resignation, agreeing this is the right decision. We would like to think - - thank Fabio for his work with the England team and wish him every success in the future."

I mean this is diplomacy at its best, isn't it?

But I can tell you right now, no one is happy about this. The FA, it's a shambles before a major tournament. Fabio Capello, this is very, very poor for his overall CV, for his profile. And right now, I would say that the most likely scenario is you get in Harry Redknapp. You tell him manage a couple of friendlies before Euro 2012, take over on a full-time basis in the summer, leave Spurs then.

QUEST: Thank you very much, indeed.

PINTO: You're welcome.

QUEST: We'll have you back tomorrow to see if that's what's going to happen. There's going to be a press conference tomorrow. No doubt, they'll be making some sort of arrangements.

Many thanks.

There will be more of this on your program later.

PINTO: Yes.

QUEST: We thank you for that.

When we come back in a moment, a big victory for the manager of Tottenham, as you were just talking about. It's a case that had English football's (INAUDIBLE) Harry Redknapp cleared of tax evasion and given what's happened, if Pedro is right, he's got a job and a half to do.

(COMMERCIAL BREAK)

QUEST: So following on providers cashed in a moment ago. Harry Redknapp, the manager of the Tottenham Hotspur, has been cleared of tax evasion by a London jury. And that could clear the way for the biggest job of his football career.

Redknapp, on the left here, was accused of illegally taking almost $300,000, which he kept in a bank account in Monaco.

Now, prosecutors said he got some of that money after he sold players while managing Portsmouth 10 years ago.

Today, he was fully acquitted on all charges.

Redknapp is one of the best known managers in English football. He won the FA cup with Portsmouth back in 2008.

And after today's verdict and Fabio Capello's surprising resignation a short while ago, the bookies say he is the odds-on favorite to be England's new manager. For now, Redknapp is just glad to have (AUDIO GAP) have been embarrassing revelations for the Spurs manager throughout the case.

Atika Shubert was outside the court in London.

(BEGIN VIDEOTAPE)

ATIKA SHUBERT, CNN CORRESPONDENT (voice-over): After more than a day of deliberations, a unanimous verdict for Tottenham Hotspur's manager, Harry Redknapp, not guilty.

HARRY REDKNAPP, MANAGER, TOTTENHAM HOTSPUR: It really has been a nightmare, I've got to be honest. It's been five years and this is a case that should never have come to court, because it's -- it's unbelievable, really.

SHUBERT: Britain's tax authority is now under scrutiny for why they pursued Redknapp in the first place.

CHRIS MARTIN, BRITISH REVENUE AND CUSTOMS: We have no regrets about pursuing this case, because it was vitally important that the facts were put before a jury for their consideration. We accept the verdict of the jury, but I would like to remind those who are evading tax by using offshore tax havens that it always makes sense to come to talk to us before we come to talk to you.

SHUBERT: Has been a football manager for nearly 30 years, but Harry Redknapp's first big taste of success came with West Ham, the team he'd played for as a midfielder. He coached The Hammers, a club without the resources of the big teams, to fifth place in the Premier League in 1999. After he made some unguarded comments to a fans' magazine, Redknapp left East London in 2001.

But he was soon back in management at Portsmouth, on England's south coast. He took the club into the top flight of English football, burnishing his reputation as a coach who got the best out of players.

After a brief spell managing Southampton, Redknapp returned to Portsmouth, which he described as his spiritual home. And that's where he worked under Chairman Milan Mandaric. Is this relationship that became the focus of attention for U.K. tax authorities, as well as a salary of more than $6.5 million, Redknapp also received $295,000 in additional payments from Mandaric. The money ended up in a Monaco bank account, Rosie 47, named after Redknapp's birthday and his dog. The prosecution alleged Redknapp evaded tax on the income.

In a police interview played in court, Redknapp claimed he knew little of how his money was handled, that his accountant, quote, "ran his life." He said he had never sent a fax, didn't know what e-mail was and wrote letters, quote, "like a 2 -year-old."

While the police investigation continued, Redknapp continued to enjoy success in management. After leaving Portsmouth, he guided Tottenham to the quarter finals of the UEFA Champions League in 2010 and the Spurs are currently third in the Premier League.

Redknapp's prowess in the transfer market is renowned. He has brought in star players such as Luka Modric, Rafael van der Vaart and Emmanuel Adebayor to White Hart Lane and developed others, like Gareth Bale. And he's elevated Spurs from also-rans to title contenders.

(on camera): So successful, in fact, that Redknapp had been widely tipped to replace England boss, Fabio Capello.

(voice-over): Now, with his acquittal, it puts him firmly back in the frame.

Atika Shubert, CNN, London.

(END VIDEO TAPE)

QUEST: And we'll have more after the break.

(COMMERCIAL BREAK)

QUEST: Right, now some video -- new video. We've told you earlier that Fabio Capello has resigned as England manager. When we get the video of him leaving Wembley, we will be bringing it to you.

As you heard from Pedro Pinto earlier, the meeting took place. It's the first time that Capello had come face-to-face with FA director of management since they had decided that John Terry was to lose the captaincy of England while he awaits his legal issues to be resolved.

Meanwhile, Jack Wilshere is the first England player to Tweet about the news Capello has resigned as England manager. On Twitter he says, "Shocked about news of -- on Fabio Capello. Gutted, to be honest. He gave me my first cup and believed in me. Thank you, Mr. Capello."

Michael Owen, the former England striker, has just expressed his surprise with the news. "Wow!" he says, "only just seen the news."

Well, now he's seen it more and more again.

We'll have a Profitable Moment after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

The cracks in the wings of the 380 were a nasty embarrassment for Airbus, its manufacturer. It's an inconvenience for airlines and, unfortunately, it's a worry for the passengers, if you ask me, who have to sit on board.

There seems to be little doubt that the plane is safe to fly, says EASA, the safety agency, Airbus and the airlines. What seems to be clear today is that most modern jet liners are going to be beset with problems in their manufacture.

So tonight, when you ask me the question, as many have during the course of the day, would I get on board an A380 and fly across an ocean to the other side of the world, my only answer to you is really very simple -- are you buying me a first class or business class ticket?

Because that's 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.

The news is next.

END