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QUEST MEANS BUSINESS

"Sun" Scandal Casts Shadow Over Murdoch Empire; Conflicts at News Corp; News Corp Stocks Up Despite Scandal; News Corp Controversy Crosses the Pond; Luxemburg Finance Minister to Greece: Shape Up or Ship Out; Greek Crisis Market Impact; US Stocks Rise on Positive Jobs and Housing Data; General Motors Posts Record Profit; Weak Metal Prices Drive Norsk Hydro Q4 Losses

Aired February 16, 2012 - 14:00:00   ET

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


RICHARD QUEST, CNN INTERNATIONAL HOST: Call it the dark side of the "Sun." Rupert Murdoch heads to London as scandal hits another of his papers.

No more games. Luxemburg's finance minister tells me Greece has a stark choice to make.

And those cuts at Qantas. The airline's profits drop 80 percent.

I'm Richard Quest. As always, I mean business.

Good evening. Once again, the emperor has been summoned. Rupert Murdoch is to arrive in London in the next few hours as a fresh scandal hits one of the controversial corners of the News Corp empire.

The head of News Corp may get a hostile reception when he meets journalists from his "Sun" newspaper. And this time, he faces anger for being too -- not for being too soft, but for being too harsh and hard on his own journalists. If you join me at the super screen, you will see the story as it is developing.

The reason that has suddenly plunged the Murdoch empire back into chaos, the nine "Sun" journalists who were arrested. Now, they were arrested last week over alleged illegal payments made to police and other officials. Nine, including some very senior members still in position at the "Sun," including, for example, those on the picture department.

But what is different this time around, maybe, is that the "Sun" staff feel betrayed. They feel that the internal News Corp standards committee has been working closely with the police on the investigation, and they say that that relationship is now too cozy.

What one person has described one of the assistant editors as described, Trevor Kavanagh called it a "witch hunt" that's now taking place.

What will be worrying to Rupert Murdoch is what could be happening in the United States, especially the Foreign Corrupt Practices Act. Anyone in business knows that the FCPA is a sledgehammer that can be used where there is any allegation. It protects the business, it understands the law, and substantially, it bans US company employees from bribing officials.

If there is truth to the allegations in the UK and it could be traced to the News Corp in the US, then the FCPA, this draconian piece of legislation, could be something seriously worrying. Atika Shubert now explains how this "Sun" scandal has cast a shadow on the Murdoch empire.

(BEGIN VIDEOTAPE)

ATIKA SHUBERT, CNN INTERNATIONAL CORRESPONDENT (voice-over): $32 billion. That's how much News Corp, the Murdoch media empire, is worth.

And this tiny fraction, $1.6 billion, is from News International, Murdoch's British subsidiary of newspapers, including the "Sun," the most popular paper in the country, more than 7 million readers every day. But the "Sun" and News International are under close scrutiny.

300 million e-mails, that's what News Corp's internal investigation has given to police in an effort to clean up the ongoing phone-hacking scandal that shut down Britain's oldest newspaper, "News of the World."

So far, over the course of the investigation, which started last year, more than 30 have been arrested from News International, including top executives. Among them, nine former and current staff from the "Sun" arrested in recent weeks amid allegations of bribing public officials for information.

All have been released on bail, none charged, and few have spoken publicly about their arrests, but those who have maintain their innocence.

Nearly 200 million and counting, that's how much the phone-hacking scandal has cost News International from legal fees to settlements with victims.

SHUBERT (on camera): News Corp is now facing three ongoing police investigations, one parliamentary inquiry, and one judicial inquiry, as well as a number of civil lawsuits. It all adds up to one big headache for Rupert Murdoch.

SHUBERT (voice-over): So, will he rid himself of his prize British paper, the "Sun," to save the rest of his empire? The answers, perhaps, when Murdoch arrives in London this week.

Atika Shubert, CNN, London.

(END VIDEOTAPE)

QUEST: Murdoch has already sent one e-mail to the editor of the "Sun" saying that the paper is safe, but staff at the "Sun" may well give Rupert Murdoch the harshest reception when he lands.

One of Murdoch's former employees is Andrew Neil. He's the former editor of the "Sunday Times." Our own Max Foster asked Andrew Neil if Murdoch was ultimately responsible for a company that was now gripped by civil war.

(BEGIN VIDEOTAPE)

ANDREW NEIL, FORMER EDITOR, "SUNDAY TIMES": Of course Rupert Murdoch can't be held responsible for every individual act, just as when I was editor of the "Sunday Times," I couldn't be held responsible for every individual act that my tens of -- scores of journalists would take.

But you create a climate in which people think it's all right to do certain things, and I would argue that Rupert Murdoch, with his take-no- prisoners attitude to tabloid journalism, the end will justify the means, do whatever it takes, that created the kind of newsroom climate in which hacking and other things were done with impunity on an industrial scale.

MAX FOSTER, CNN INTERNATIONAL CORRESPONDENT: I want to ask you how the business will change by the time he's flown out, or at least the plans for change. What would have changed in his British businesses?

NEIL: I doubt there will be much change. There will be soft words from Mr. Murdoch, reassuring words that they're not handing over names of sources, that they're not really being hung out to dry, that there's not a witch hunt, that this standards committee he set up to deal with the London police isn't out of control.

He will say all that. I suspect the journalists will not believe him. They have seen 12 of their colleagues arrested. They've seen their sister paper, the "News of the World," close down. They've seen middle-age, middle-class journalists open the door at 6:00 to over 20 British policemen pouring through the door, ripping up their floorboards, going into their private letters and so on.

I think whatever reassuring words he has, they really don't believe them. They are very disillusioned, now. They frankly don't know what to do.

(END VIDEOTAPE)

QUEST: Andrew Neil with some strong words on Rupert Murdoch, and you will want to watch more of that interview on "Connect the World" with Max Foster, including Andrew Neil what he thinks Rupert Murdoch will say to the newsroom when he goes to East London tomorrow. "Connect the World" is at 9:00 here in London, that's 10:00 in central Europe.

As we just continue to look at what's happening, News Corp shares have nosedived during the last year's phone-hacking scandal. This is the way the share prices -- this is the actual point of the hacking scandal when it really blew up in the middle of last year.

But what you will notice, some of you wanting to point out to me, is the way the price has actually recovered quite dramatically and, in fact, is now above where it was before then, 40 percent recovering of the lost ground. They're up again today.

In New York for us tonight, Felicia Taylor outside the company's headquarters on 6th Avenue. Felicia, will -- the question we constantly dance around is how far is this scandal from lapping at the US shores of the News Corp empire?

FELICIA TAYLOR, CNN BUSINESS CORRESPONDENT: That is the crux of the question right now and, of course, at the forefront of that is James Murdoch. He is, obviously, at the head of the News Corp's International company, and obviously the son of Rupert Murdoch, and whether or not there was an incriminating e-mail that was just discovered about a few days ago. And there's also a question of some lawsuits that could be issued here in the United States.

That then puts the broadcast empire into question, and of course, that's the money-making division. It's not the publishing division, as Atika pointed out. That's only -- the publishing division is only worth about $4 billion. The entire empire is worth about $62 billion.

Let me bring in Porter Bibb of Mediatech Capital Partners to ask these questions. Tell us about these lawsuits that could be coming up very soon.

PORTER BIBB, MEDIATECH CAPITAL PARTNERS: Well, the most important for News Corp's perspective is the Foreign Corrupt Practices Act that they may be in violation of.

If it can be proven that anybody working for News Corp bribed or gave money to an official of a foreign government, i.e. the UK, that's a violation, a clear violation. The Justice Department will start the wheels in motion, and I think that's what Rupert Murdoch has been gearing up for in the last couple of months.

TAYLOR: But Mark Lewis, who initiated --

BIBB: Yes.

TAYLOR: -- all the lawsuits in the UK is now looking at officially doing the same thing in the United States.

BIBB: He announced today in London that he is beginning to organize a team and start litigation under the Foreign Corrupt Practices Act here in New York.

TAYLOR: And that's what's going to put their broadcast operations in jeopardy.

BIBB: It certainly will.

TAYLOR: And also the e-mail that is incriminating against James Murdoch. What does that entail?

BIBB: Well, the issue with James is, did he mislead or misrepresent or in blunt terms, lie, under oath in Parliament when he was testifying. He's been twice in front of Parliament, and he's contended that he has no knowledge of widespread phone-hacking at News International.

TAYLOR: Well, he said that he didn't read the entire e-mail chain.

BIBB: That's right. Well, the incriminating e-mail that you've mentioned was vaporized by a company that News Corp brought in to destroy all of their e-mails, but somebody found a hard copy of that e-mail in a storeroom and -- four months ago. The Management and Standards Committee that Rupert set up had turned that over to the police right now.

TAYLOR: Very quickly, do you think that he could be arrested?

BIBB: It's hard to say, but it's a possibility.

TAYLOR: So, that's what's obviously a concern right now for James Murdoch and the News Corp International empire.

But listen, I spoke to other analysts who said that as a business, this really doesn't matter. Could he divest or possibly spin off the publishing empire? The answer is yes, and that would make shareholders very happy. This is not the -- like I said, this is not the empire -- this is not the division, rather that makes them any money. Richard?

QUEST: Felicia Taylor, who is getting wet in New York for us --

(LAUGTHER)

QUEST: -- tonight. Next, you can stick it out or cut and run. Luxemburg's finance minister with a warning that Greece's destiny is in its own hands. QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

QUEST: The man tipped to become Greece's next prime minster is optimistic about a European rescue. New Democracy leader Antonis Samaras said today that, "We did everything possible to secure the bailout."

Even so, Luxemburg's finance minister believes if taxpayer money is going to be spent on Greece, he wants observers on the ground to check reforms are being implemented. Luc Frieden told me that Greece had played too many political games and now must decide if it wants to go it alone.

(BEGIN VIDEOTAPE)

LUC FRIEDEN, LUXEMBURG FINANCE MINISTER (via telephone): That's not my preference, because I think you can have a start within the European monetary union, but then you have to comply with a certain number of conditions, which have been agreed upon between Greece and the European Union, but you also can have a new start outside the European Union, outside the eurozone, if that is your wish.

QUEST: So, when the Greek finance minister says that there are forces within the eurozone that would like to see Greece outside or would like to see Greece leave, do you know what he's talking about?

FRIEDEN: I think that the difficulties of the Greeks are easily understandable. It's very difficult to put in place these reforms.

But the Greeks have to understand that, in our effort to help them, you also have to explain to our taxpayers that we are giving money to Greece in order for Greece to restore its competitiveness. And therefore, those who say that we want to be sure that this will help Greece are those -- and I among those -- who say that Greece has to do a number of reforms being done.

QUEST: You would agree, though, that there is a news firmer tone being taken by the eurozone and by the Triple-A countries.

FRIEDEN: That's true. That has to do with the fact that too much time was lost since the beginning of these discussions with Greece. There has been too much political games being held in Greece. And therefore, I think that it's now really high time to conclude this.

QUEST: Right.

FRIEDEN: In one way or another, and I hope that can be done on Monday.

QUEST: OK. Now, when you say -- and when this statement from the eurozone talks about specific mechanisms to strengthen the surveillance of program implementation, what you're basically saying there is trust but verify. You want proof that these things are implemented.

FRIEDEN: If we give again next week or so about 130 billion euros, money from our taxpayers, we must make sure that that money is used for the right purpose --

QUEST: OK.

FRIEDEN: -- that it -- and therefore, it's not exceptional to ask that together with Greece, we have our people on the ground to make sure that the programs, including the structural reforms, are really implemented also after the general elections.

QUEST: Minister, as you look at the situation tonight, are you more or less confident from what you're hearing in Greece that Greece will go along the road of the troika?

FRIEDEN: I'm more confident since the conference call our finance ministers of the eurozone last night, because Greece proved with the vote last Sunday that it took steps into the right direction. We got the letters from the two main political leaders of Greece.

And Greece committed before the end of February, before the first dispersement of the next package will be paid to Greece that they will enact quite a number of other laws regarding structural reforms.

(END VIDEOTAPE)

QUEST: Interesting line, there, from Luxemburg's finance minister. They want boots on the ground, or at least officials in Greece to make sure that the money is being spent properly and the policies are being implemented.

As Greece falls into line with the troika's demand, investors are, indeed, taking notice. Wind the clock, and you'll see Athens has risen for the first time this week, and some of the -- some of the gains they're experiencing, Eurobank, Paribas Bank, up more than 10 percent, hefty gains.

Aerospace shares down 2.4, a victim of the austerity moves in the UK. 2011 revenues fell 14 percent, and that was also US defense cuts, as well.

If you mind the clock, the ECB survey on a growth forecast, professional forecasters, they believe that this year there will be a contraction and next year, just growth of 0.1 tenth of one percent. So, a pretty dismal performance for the eurozone and from those forecasters. And the blame, of course, austerity tightening and worries of crisis of confidence.

Staying with that crisis of confidence, look at the -- at what Moody's, another rating agency who's decided to put the boot in, 114 European, 17 global banks on review for a downgrade. And the reason, according to Moody's, they quote the phrase "adverse prolonged impact of the EU crisis," euro crisis. Deteriorating credit worthiness.

You're getting a picture that on this side of the Atlantic, it was a pretty miserable sort of day, both on news, on forecasts, and on a potential downgrade.

Compare and contrast to the United States, which had positive economic data, and that helped matters. Alison Kosik is in New York. All right, does it matter which one we talk about? PPI? Home sales? New home starts? Jobless claims? Every number that came out of the US today was rosy.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Exactly. When was the last time you heard that come out of the US? It's really one of the big reasons why you are seeing this rally today. The Dow is up 117 points.

It's not hurting that there's a little bit of optimism today on Greece's ability to get a second bailout, but it is clearly this positive economic data that is moving stock higher, especially the employment data. This upbeat trend is continuing.

Weekly jobless claims fell by 13,000 last week. It's their lowest level, Richard, in almost four years. It's a bigger drop than expected, and it's staying under that 400,000 level.

And you mentioned housing. This is a second laggard. The two big drags on the economy, jobs and housing, we got positive news on. Data from the housing market coming in better than expected. The number of new houses built in January rose 1.5 percent from December.

Building permits also increased --

QUEST: All right.

KOSIK: That's a good indicator of future building activity, so this is all good stuff, and we're seeing green on the screen today, Richard.

QUEST: And the biggest sign was the long bond, the US 30-year treasury, today, didn't it? Which lost a point and the yields went up.

Now, if these numbers are right, the yields on the 30 is over 3 percent. If these numbers are right, Alison, then the Fed's 2014 -- idea of holding rates starts to look a little tenuous.

KOSIK: But you know what? That's not surprising, because even here in the Fed minutes yesterday -- and you can think about the meeting that happened in January -- the feds really left that door open about when and how long it's going to keep rates as low as they are.

But there's always been the door open. The foot's kind of always been kind of near the door, and it's really not a huge surprise that there's that wiggle room, there. And that's how a lot of investors see it, Richard.

QUEST: When I look at the results from GM, what a busy day you've had. When I look at the corporate results from -- this is a company that was -- went into bankruptcy, that's pinned its hopes on China, that's losing money hand over fist in Europe. But you're going to tell me had record profits. So, what happened?

KOSIK: Yes, it had record profits because what happened was, when it was going through the whole bankruptcy process, GM became leaner and meaner, making big cuts, and pretty much setting itself up to make more money. And that's why you see the profits rolling in.

But there's also a backstory to this, on some of these cuts. The workers are feeling it, too. GM's pension plan is running out of money. So, what GM is doing is shifting some of its costs to workers. Those people who are salaried, they're going to 401Ks instead, because they're cheaper than the traditional pension plans.

And you have to also remember, Richard, the government still owns 30 percent of GM. The government is still waiting until GM's stock price ticks up more so it can sell it and make a profit.

GM shares right now, sure, they're going gangbusters, they're up 8 percent, but they're still trading below that IPO price of $33 a share, so it's still a government -- a partially government-owned company, but it's making a profit for the first time. All the three big automakers are making profit for the first time in seven years.

QUEST: We'll talk more about that in the future. Alison, you have had a busy day. Lots there to get through, thank you for taking us through that. Alison Kosik, who is in New York.

Now, a different talk of corporate results, particularly when it comes to rising costs and weakening demand, and a fourth quarter loss. So, why, then, are the shares up nearly 5 percent? Norsk Hydro boss Svein Richard Brandtzaeg, is on the program next. QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

QUEST: The Norwegian aluminum maker Norsk Hydro says restructuring has paid off, and yet, more needs to be done, reporting fourth quarter net loss of more than $120 million, nearly as much as it made in the same quarter a year earlier.

Now, the results were better than expected, but -- but -- even despite that loss, the shares go up nearly 5 percent. Norsk cut production in Spain, in Italy and, most recently, in Australia as the metal touched --

(AUDIO GAP)

QUEST: -- month lows. But crucially -- crucially -- it wrote off a large part of its investment in a smelter in Australia. I spoke to the chief exec and asked him why Norsk Hydro had to write down its Australian operations.

(BEGIN VIDEOTAPE)

SVEIN RICHARD BRANDTZAEG, CEO, NORSK HYDRO: Well, in principle, the technical reason for the write-down, and also the economic reason for the write-down is that this goes into the cash flows from the operations that we are expecting in the future did not fit with the --

QUEST: In other words, the thing's not performing or won't perform. But what does that tell us? Does that tell us anything about the mine or about the economy?

It tells us that the cost level of the smelter is higher than the value as explaining in our books. And that means we had to write it down. And this is, again, based on the fact that this smelter is struggling on the cost side.

QUEST: Right. But I come to a point. Is it telling us something about economic growth, economic costs, commodity costs, and inability to help pricing pressure? What's it turning us on economic grounds?

BRANDTZAEG: It is telling us that there is a pressure on raw materials in aluminum. The price is fairly low at the moment. Several smelters in the industry are struggling, and there has been announced containment of 1 million tons of aluminum lately.

QUEST: What is driving that? Because we know that China is still growing fast, as indeed is India. Not as fast as before, but they're still growing fast. So, why are we seeing weakness in the aluminum? Is it a supply problem or a demand problem?

BRANDTZAEG: In aluminum, there is currently an oversupply. Their production is higher than the demand, we maintain a growth of three to five percent this year outside China, and containment of one million pounds, so we expect that their market will be more balanced, that there is a tightening in the market -- aluminum market during 2012.

QUEST: And during that timing, you would expect to see prices rise?

BRANDTZAEG: We will expect that if the market is tightening, it should have influence on the prices, yes.

QUEST: If we look at the eurozone and what's happening in Europe at the moment, Norwegian, so you are --

BRANDTZAEG: Yes.

QUEST: -- associate and concerned. How concerned are you that, as regards to euro and the eurozone, they haven't got a handle yet on this crisis?

BRANDTZAEG: First of all, 75 percent of Hydro is a global business, global pricing. But we have a downstream business in Europe, which is really affected by the sovereign debt crisis in the eurozone, 75 percent of our downstream is exposed in Europe.

And we really see that the building and construction market, for example, is really weak, and we had to adapt to that situation through containment of capacity, cost-cutting. We are focusing very much on cash in Europe for the moment.

QUEST: So, you can't leave the market, but at the same time, it is an exceptionally challenging environment for you as the chief.

BRANDTZAEG: In Europe, we have a challenging market, but as I mention, we have 75 percent of our business globally, and we see that the markets in the US are growing, the emerging market, Asian, Brazil, is growing.

So, in fact, in total, we are quite optimistic with the future of aluminum. The world will need much more aluminum in the future. In the short term, we have to handle the European situation.

(END VIDEOTAPE)

QUEST: Norsk's shares rose sharply as the company saw its profits fall.

It was the same story at Qantas, where profits plunged and the shares rose. A different story as to why, on the program, next.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. This is CNN and here on this network we always bring you the news first.

So allow me to tell you that within the next hour, the United Nations General Assembly is set to debate and vote upon a non-binding symbolic resolution on Syria. It calls for the country to end human rights abuses and attacks against its own civilians.

Our senior U.N. correspondent is Richard Roth. He is at U.N. headquarters in New York and joins me now.

Is this -- bearing in mind it's non-binding, it has a symbolic implication, is it likely to be as controversial as the last vote at the United Nations?

RICHARD ROTH, CNN SENIOR U.N. CORRESPONDENT: It won't be as controversial because there is no veto power by any country inside this chamber, unlike the Security Council, Richard, where China and Russia were able to block it.

It does ignite more momentum to show Syria that much of the world is against. Big tussle behind the scenes, as usual, on the votes to see how high a vote count supporters of the resolution can muster while Russia, Syria, are certainly lobbying regions such as Africa to see if they can get them to at least abstain.

The U.N. General Assembly overwhelmingly approved a resolution after a damning human rights report back in December, just a few days ago, Navi Pillay, the U.N.'s human rights chief, said that crimes against humanity may have been committed in Syria after March of last year.

So it comes at a really interesting moment in this crisis. Usually the General Assembly is perceived by the media and by many governments as just on the sidelines, not as significant as first seen when the U.N. was founded 60-plus years ago.

QUEST: OK. But, Richard, how many -- this is perhaps an impossible question at this point, how many countries and which countries, besides obviously Syria, would you expect to vote against it, not just abstain, take the middle ground, but actually vote against it?

ROTH: Well, it's very hard to predict, 113 voted for the human rights vote last time, with 43 abstentions. One senior Western diplomat thought there would be fewer abstentions. That this time countries would want to put on the record their opinion of the Assad regime.

However, others may still want to hide behind the abstention and let the sponsors of the resolution, the United States and a host of other countries, the Arab League members, carry the weight on this.

I think it will probably be in that vicinity. It could be more than the 113.

QUEST: Richard Roth, who is at the United Nations. And we'll continue to watch that and come back the moment there is more to report as CNN's coverage of that vote will happen in the next hour with "WORLD ONE" and Hala Gorani.

The results are in and the Australian airline Qantas has capped a horrid six months with a dramatic profit slump. And with that, the announcement of hundreds more job cuts.

And look at the picture and I will show you why. The profits were down 83 percent, just $45 million. Now a year ago it was six times that. The reasons are quite clear, high fuel costs, which obviously hits a long haul airline like Qantas.

An industrial dispute that was nasty, bitter, and temporarily grounded the entire fleet, as Alan Joyce, the CEO, decided to play hardball with the workers.

But the underlying performance of Qantas's international long-haul operations, Qantas International, has been poor. And as a result, another 500 jobs are to go. Those 500 follow the thousand that went in August.

If you look over the last four years, 5,000 employees have gone from Qantas. And this is what the airline is planning to do for the International -- Qantas International. It's going to slash spending over the next two years. Its withdrawing from several key routes.

For example, London via Singapore and Bangkok -- (INAUDIBLE) London via Bangkok and Hong Kong. Some of the Los Angeles routes to Auckland are to go. In other words, lots of consolidated maintenance and catering operations.

What did the market make of it? They liked it. It cheered the cost- cutting. Qantas shares were up more than 6 percent. That's a gain of 13 percent year-to-date. Because, remember, Qantas does have its Jetstar subsidiary. It does have the domestic operations. It's Qantas International that is perceived to be the major problem.

Right now more than 2,200 Qantas workers are wondering if their jobs are safe as it does have its turnaround. And the chief exec. says more jobs will go.

Ross Greenwood breaks down the numbers behind the cuts.

(BEGIN VIDEOTAPE)

ROSS GREENWOOD, CNN CORRESPONDENT (voice-over): Crippled by fuel costs, strikes, and competition, the Flying Kangaroo today became a whole lot leaner.

ALAN JOYCE, CEO, QANTAS: Tough decisions today will ensure we don't need to make harsher ones later.

GREENWOOD: But it's tough. Gone from today, 50 pilots, 122 cabin crew, 65 catering staff, 225 engineers, and 45 ground crew.

JOHN LEE, AUSTRALIAN TRANSPORT & TOURISM FORUM: If you don't respond, if you don't react, you'll suffer.

GREENWOOD: But 37-year Qantas veteran engineer Bryce Edwell has a different idea.

BRYCE EDWELL, VETERAN ENGINEER, QANTAS: Everything is done for the dollar, isn't it? The dollar rules the world.

GREENWOOD: And dollars outside, half-year profits slumped to $42 million. The (INAUDIBLE) industrial campaign alone cost $194 million. And jet fuel costs blew out by $444 million. Without Jetstar and its frequent flyer scheme, Qantas would have suffered an embarrassing loss.

BILL SHORTEN, AUSTRALIAN MINISTER FOR WORKPLACE RELATIONS: We understand why Qantas is reviewing its operations.

GREENWOOD: And more modern aircraft, like the A380 put a cloud over another 1,500 engineers.

JOYCE: We have to do less maintenance less often, the same way you have to do less maintenance less often on your home car.

UNIDENTIFIED MALE: And we want to ensure that not one job, not one job is going to be exported out overseas as part of this review.

GREENWOOD: The message from the Qantas chief is blunt.

JOYCE: We will not be propping up the past at the expense of the future.

NICK XENAPHON, AUSTRALIAN SENATOR: It seems that Alan Joyce's legacy will be to turn the Flying Kangaroo into kangaroo stew.

GREENWOOD: Ross Greenwood, Nine News.

(END VIDEOTAPE)

QUEST: Report there from Australia.

Next, if you thought Italy's economy was on ice, here's some concrete proof, cold and its impact on tourism. It is the check of the weather, and its pretty cold, in a moment.

(COMMERCIAL BREAK)

(WEATHER REPORT)

JENNY HARRISON, CNN WEATHER ANCHOR: Let's go have a look at the Coliseum. Remember this picture from February the 4th? All the snow, of course, turning to ice with that cold air, and all the visitors who have not been able to visit since.

Have a look at these images then. So this is what has been taking place for the last day or so. They're trying to de-ice the Coliseum. It's a bit of a long, painstaking process, as you can see there.

And, of course, the reason they're doing this is that whole freeze- thaw cycle that goes on. And you know from the potholes on the roads that they get worse and worse throughout the winter months. And it's the water getting into any cracks, anything like that.

And, of course, it expands when it freezes. And that cracks things further. So they've had to shut the Coliseum because they've actually had some of the masonry coming down. It is quite dangerous, of course. It got right into the building. And as I say, cracking it and bringing some of it down.

But you know what, they might not needed to have worried too much, because look at the temperatures for the next few days, actually, if anything a little bit above average as we get into the weekend.

And the overnight temperature as well not close to freezing. And Sunday quite mild with an overnight low of 6 Celsius. So that's good news for the 7,000 visitors a day who actually stop in at the Coliseum.

(WEATHER REPORT)

QUEST: Now and that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. As always, whatever you're up to in the hours ahead, hope its profitable. I've got "MARKETPLACE EUROPE" next.



JULIET MANN, HOST: Welcome to MARKETPLACE EUROPE. I'm Juliet Mann, in La Defense, Paris, the financial district.

It gets its name from this statue, a symbol of resistance during the Franco-Prussian War. This week's show is all about French resistance under increasing economic pressure.

With growing unemployment, rising sovereign debt, and the loss of its triple-A rating, fears are growing, but France could become the next victim of the euro crisis.

So all eyes are on spring's presidential elections, hoping that the next leader will have a plan to cultivate growth and ease economic fears.

On this week's show, former French finance minister Thierry Breton on French debt. And I sit down with Antoine Arnault, the son of Europe's richest man, and CEO of Berluti, owned by LVMH, one French company defying the current economic gloom.

Momentum is already gathering ahead of the French presidential elections in April and May. Each candidate is laying out their respective plan for economic revival.

(BEGIN VIDEOTAPE)

MANN (voice-over): Thierry Breton, finance minister under Jacques Chirac's presidency from 2005 to 2007, said for the first time all three mainstream candidates agree on something, that France needs to focus on balancing the budget.

Paris cafe Les Deux Magots, famed meeting place of the great philosophers, the big thinkers of the 20th Century. The early crowd are regulars, starting their day with a coffee and croissant, mulling over the headlines, and despairing about their country's issues.

(on camera): Like how to dig Europe's most centralized, state- dominated economy out of debt.

(voice-over): It's easy to find people here who blame the government for their economic woes, and dismiss suggested measures to improve the big picture, like increasing their work hours and reducing their state benefits.

This former finance minister says everyone needs a reality check, starting with the government finding a way to reduce the debt burden. He takes a midterm view.

THIERRY BRETON, FRENCH FINANCE MINISTER 2005-2007: We have to refinance our debt in Europe, and by certain in France, France will be the country in Europe with the highest level of debt to be refinanced in the market. So the pressure will be extremely high. We know what we have to do. It's not rocket science.

MANN (on camera): What you're talking about is a date in the future. But as we know, the markets are impatient. Can they wait that long?

BRETON: Unfortunately, we have an example now in Europe, which is Greece. They (INAUDIBLE) two years or three years (INAUDIBLE) to go to zero, it was too painful, we know, we see what happened.

For us, if we say five, six years, we will do it, I'm convinced.

MANN (voice-over): The OECD says France has re-entered recession. Backed by German Chancellor Merkel, French President Nicolas Sarkozy has plans to boost the economy and create jobs.

To make France more competitive, he wants to raise VAT, or sales tax, and dismantle the 35-hour week. But who would vote for that?

(on camera): The latest polls show Socialist Francois Hollande as the presidential frontrunner. He wants to raise taxes, and already high government spending, which could push France deeper into debt.

BRETON: The first I will do immediately was, of course, to put in place the "Golden Rule," that's really something that we have to do very quickly. Take a commitment, again, to go back to a balanced budget and stick to it. The longer you wait, the more painful it will be for the population.

MANN (voice-over): The far right's anti-euro, Marie Le Pen, is gaining more column inches. Sarkozy may well try again to make good his pledge to the French from last time around to "work more, earn more."

Whoever wins over voters here will need a decisive plan for the economy. It's the same economic story playing out across Europe to varying extremes, from cash-strapped Greece, to Italy, to Spain, it's infectious.

In France, the presidential elections will be crucial. If the people vote for what suits their pockets now rather than what many economists believe is the greater long-term good, the French economy could sink lower and lower and bring the rest of Europe down with it.

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MANN: It's not all doom and gloom in the French capital. Coming up after the break, I speak to a man who has the support of luxury giant LVMH, to help him manage his first clothing line.

It's a growing lucrative market, he says, where high-end men's wear is key.

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MANN: Welcome back to MARKETPLACE EUROPE, in Paris, one of Europe's most exclusive shopping districts.

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MANN (voice-over): Despite the challenging European economic climate, luxury brands are booming. Last year the market grew 10 percent to a value of $250 billion. Men in particular are spending more.

(on camera): The numbers look good for this week's "Face Time" guest.

From measuring up to the final fitting, a shoe like this takes about 20 hours to make by their craftsmen. Berluti is billing itself at the very top end of luxury men's fashion, and they say they'll have no shortage of takers.

ANTOINE ARNAULT, CEO, BERLUTI: I do believe that the Berluti man is one and unique. First of all, he travels a lot, so he can be Chinese, but he often comes to Paris. He often goes to New York. It is global. Men's market is growing twice as fast as women's markets.

MANN: When you open the papers, when you listen to the news, all we hear about is the debt crisis in Europe, recession. Yet this is the time that you've chosen to launch a new luxury men's wear line. What's the strategy?

ARNAULT: Well, you know, luxury industry has always been a little bit countercyclical. And usually in these times of economic crisis the big luxury brands and the brands who produce the highest quality products actually gain market share in that sector.

There is no real strategy behind it, I just feel that it's a time where quality and craft is of the utmost importance.

MANN: What would you say, though, if you could list the main advantages of having the LVMH group behind you? Is it financial? Is it the network? Is it the context?

ARNAULT: Of course the financial aspect is extremely important. It's very expensive to increase a network, to develop -- to create a creation studio. Then we have the guidance of the LVMH senior management who, you know, comes and sees us very often to, you know, see how things evolving, see what we're developing, and to give us advice.

MANN: Are there any downsides? Is there a risk that being part of such a big company could maybe dilute the value of the brand, cheapen it in a way?

ARNAULT: No. I really doubt it. I worked for Louis Vuitton for five years. I'm on the board of LVMH, so I kind of oversee all the companies. And I see how each of them is actually competing with the other. And it's very healthy, even in the same conglomerates, to actually compete against each other.

And also I must say that every brand in the LVMH portfolio has been nurtured and has been treated in a way that what we, LVMH, ask these brands is to actually always preserve the legacy and the heritage of their history.

MANN: And how do you see the luxury fashion world changing? Is it a case of big groups like LVMH, like PPR, gobbling up the smaller players? Or is there going to be scope again for small niche players to shine on their own?

ARNAULT: Groups such as ours enable these smaller companies to actually remain in their roots, to preserve their heritage, for some of them to remain French, because, you know, you have big investment funds abroad, and especially in Asia, that are very glutton on all of these beautiful brands.

You know, if you think about it, these brands are, for some of them, 300, 400 years. It's almost the only brands who are -- and the only houses who are that old. Think about Apple or Microsoft today. They are the most important companies in the world today. Are you sure that in 100 years these companies will still exist? You can't be sure of that.

Our brands, Louis Vuitton, Krug, Dom Perignon, Berluti, will almost for sure still exist in 100 years. And that's thanks to the fact that we're all together and we're, you know, nourishing each other's positive sides.

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MANN: Antoine Arnault there.

That's it for this week's MARKETPLACE EUROPE. Don't forget, you can tell us what you think by visiting our Facebook page, or you can tweet me @JulietMannCNN.

Do join us next week, good bye.

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