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EU Freezes Hungary Funds; Greek Prime Minister Says Bailout Can Lead to Growth, Recovery; Austerity Protests in Athens; Sony Launches PlayStation Vita; Dozens Killed in Buenos Aires Train Wreck

Aired February 22, 2012 - 14:00   ET


RICHARD QUEST, HOST: It's a carrot, not a stick, for Hungary. The EU commissioner tells me the budgetary ball is in Hungary's court.

From tax to trade war. Opponents to the EU's carbon scheme are plotting revenge.

And, well, here it is. PS, it's arrived. Sony's new handheld game console hit the US and Europe. We'll have a look and see what it does.

I'm Richard Quest. No games, because I mean business.

Good evening. Hungary, this is your final warning. Europe is ready to cut off the cash unless Hungary fixes its flawed budget. So it was announced today. And this has nothing to do with the constitutional battles with Hungary. This is all about good, old-fashioned budgetary issues.

The European Commission says it will hold -- withhold $650 million from Hungary if the country doesn't get its deficit under control. Half a percent of Hungary's GDP and a third or so of the development funds the country debt.

The money isn't to be paid until next January, so, according to the Commission, there's still time to balance the budget and dodge this bullet.


OLLI REHN, EUROPEAN COMMISSION FOR ECONOMIC AND MONETARY AFFAIRS: This decision today is to be regarded as an incentive to correct a deviation, not as a punishment. It is a fair and proportionate measure of a preventive nature.


QUEST: Now, all this couldn't come at a worse time for Hungary, which is also under enforcement notice from the European Commission for its constitutional changes, it's new fundamental and basic laws.

Hungary calls the Commission's actions unfair and unwarranted. Johannes Hahn is the European Commissioner who told me the new measures are more of a carrot than a stick.


JOHANNES HAHN, EUROPEAN COMMISSIONER FOR REGIONAL POLICY: They have now ten months time to solve the problems. And after, by they way, six months, we have definitely as a Commission to assess the improvements, hopefully the improvements. And then, we decided how we proceed.

QUEST: What is it you would advise Hungary to do? They've already to some extent massaged the numbers with the pension nationalization, and you can only go and do that so many times. So, they're going to have to cut back spending or raise taxes. That's the gist of it, isn't it?

HAHN: The point is, they have made some -- they have taken some measures, but OK, there are a lot of measures, but the most significant ones are one-off measures. For instance, they count for about ten percent of the GDP last year.

But what we need is a significant improvement of the structural budgetary position. Here, we have a provision of 0.5 percent of currently the --

QUEST: Commissioner. Sorry to interrupt you, Commissioner, but you've been asking for this since they joined the Union in 2004. Why have you got any hope other than the fact you're going to withdraw half a billion euros of funds, that they'll actually do anything now?

HAHN: We don't withdraw the money. We have simply proposed a suspension of the commitments, which is not a suspension of payments.

So, for instance, Hungary receives in the current financial perspective from 2007 to 2013 26.4 billion euros from structural funds, and if we discuss about the suspension of 500 million, which counts for 2 percent.

So, the European Union has and will also in the future provide Hungary with a lot of help. And I have to say, by the way, they used this help.

QUEST: How much of what we are seeing now, Commissioner, is the European Union with its new muscular strategy when it comes to deficits, when it comes to the -- I mean, I know the fiscal compact isn't totally relevant here, but we are seeing a Commission and a Union that is being more rigorous on these issues, aren't we?

HAHN: Yes. Because we are fully convinced, and this is also the conviction of the -- and the advice of all the experts. We need a sound financial situation in each member state as a precondition for a successful growth path.


QUEST: The Commissioner talking to me earlier. The Hungarian forint slipped from a four-month high after the announcement from the Commission. Take a look at the number.


QUEST: And right now, it's trading lower against the US dollar by nearly one percent since Tuesday. Hungary's bond yields in the opposite direction. The yield on the ten-year is a pricey 8.8 percent. Hungary once again in the news.

The weather in Athens reflects the mood: utterly miserable. We'll be in the Greek capital to see how they are responding to the new reality post bailout two. QUEST MEANS BUSINESS, good evening.


QUEST: Greece's prime minister says the country's new bailout isn't yet complete but can still lead to growth and economic recovery. Lucas Papademos says that he is very happy with the terms of the rescue plan.

When he met the Greek president earlier, he warned there are still details to be agreed upon before Greece actually gets the cash. For the prime minister, the hard work now begins.


LUCAS PAPADEMOS, PRIME MINISTER OF GREECE (through translator): In the next few weeks, there is much to be done so that firstly, the required actions for the completion of the final agreement -- for the loan agreement of the country.

Secondly, for the completion of the PSI procedure, and third, for the final decision to be taken for the financial support and bailout agreement.

What I would like to stress on, with the decisions that were already taken and those that will be taken, conditions will be created that will contribute to growth and recovery of the Greek economy.


QUEST: Now, more demonstrations took place in Athens against the bailout. This was in spite of some very heavy wet weather. A few thousands protesters marched to the square outside Parliament. They didn't stay long, and there was none of the rowdy scenes, disorder, that we have seen in recent weeks. Elinda Labropoulou has been on the streets of Athens today. She joins me now via Skype.

It was one of those days, wasn't it? The morning after the night before. The deal is done. So, I wonder, what are they -- what do they still, now, believe, these protesters, that they can do since the deal has been done?

EILINDA LABROPOULOU, CNN INTERNATIONAL CORRESPONDENT: I think they're just mainly voicing their discontent, their anger, the fact that they believe that these measures are not good for them, and they're there just to express their opinion.

They don't really expect anything to change. There is a vote in parliament that's to take place shortly on some additional austerity measures that were decided just before the eurogroup. Initially, we thought this vote was going to take place today. It has been postponed for a little bit later. So, this is why the unions initially called for these protests.

But the truth of the matter is, they were never expecting anything to change at this point. They just wanted to make their presence felt and show, once again, that they do disagree with the austerity measures.

QUEST: And Elinda, if we take a look at what's been happening out there and the people you've been talking to, what's the mood?

LABROPOULOU: Well, I went to a number of shops, small business. Basically what the Greek economy is based on is very much these small businesses. And tens of thousands of them have closed since the crisis hit, and people in Athens are concerned about what comes next for them. Let's have a listen.


LABROPOULOU: This cafe has been standing on a busy Athens corner for the last six years, but since the crisis hit two years ago, its customer numbers have dropped. Kostas, you are the owner of this cafe. How has the crisis affected your business?

KOSTAS TZANETIS, CAFE OWNER: We have a big problem because we have a reduce of the consumption, and we have an increase of the taxes. People are not spending money. That has affected us. Maybe I might let people go, because we have big decrease of sales.

Look, I have a big problem, I have two kids, a house, rent. I have to work more. We earn more now, and we have a big problem in Greece. I cannot see how again we see development.

GREGORIS VARLAMIS, CUSTOMER: Life has been more expensive. And the salaries are the same and less. It's difficult for the Greek people to have the life that they had before. Hopeless. It's hopeless, the future. We want someone to give us hope to live for the future.

We are very anxious about -- the young people, like me, to make a family. We cannot imagine to make a family in this situation. It's very hopeless.


LABROPOULOU: Well remember, Richard, that unemployment is at 21 percent in Greece and youth unemployment stands at 48 percent, so for the young in particular, these measures seem extremely harsh, and they can't see anything out of the bailout that will change that and will bring growth.

QUEST: OK, so, is there -- I hesitate to use the word "acceptance," but perhaps that is the only word, bearing in mind Venizelos said yesterday, "Work, work, work," the prime minister said two days ago that there were hard times ahead, is there an acceptance now from people that whatever they've been through before, there's more to come and worse?

LABROPOULOU: Pretty much. I think people feel that they're going to have to give this a serious go because the alternatives are just not good. They're going to try and do their best, they're going to try. Then their political leaders are changing their stance, they're saying that it's time to unite and take this very seriously.

So, I think if within the next month we see positive results, that's going to have a very positive effect on the people. If we don't, then we could see conditions, obviously, deteriorating again in Greece.

QUEST: Elinda, many thanks to you joining us tonight, live from Athens.

Now, a bit old myself for all this handheld TV games. I can't even get the name out. Well, Sony's new handheld games console, that's the phrase I was looking for.


QUEST: It's hit Europe and the United States. We did get our grubby hands on it. Jim Boulden, who's not far behind me on the age stakes, but he certainly knew how to operate the PS Vita. In a moment.


QUEST: All right. They have been foolish enough to allow me to play with this. It's a game-changing day for the gamers of the world. Today, Sony released this, its next generation games console in Europe and North America.

It's called the PlayStation Vita, and you probably can't see too closely, but just in there, there is actually an avatar of -- supposedly of me. Well, as you'll see in just a moment, it's not a very good likeness.

But the game itself has caused a great deal of consternation and interest. Assuming I don't break it, Jim Boulden has taken this for a test drive with one of Sony's European bosses.


MICHAEL DENNY, SONY: You look at this console, and the first thing that strikes you is its beautiful, five-inch OLED screen that's absolutely stunning. It's fitted with a four core processor, the graphics look stunning.

The first time on a portable device, an OLED front touch screen and a back touch pad.


DENNY: But there are twin sticks, as well, for totally uncompromised gaming. I think the other important point to make about it is that it's a truly connected device, as well, whether wifi or three-inch -- 3G as well for true social connect --

BOULDEN: Right. So I can play anybody around the world if I'm on the network.

DENNY: Absolutely.


DENNY: Absolutely.

BOULDEN: I've seen some of the reviews. They've been very positive. We've seen other players, obviously, it's a very crowded market. Sony hasn't had the best time in the last year or so. Is this a game-changer for Sony, or is that just a cliche?

DENNY: No, absolutely it is. This a champion product for Sony. You look at some of the other gadgets out there, some of the other systems out there that are put forward as competitive, and I think at PlayStation, gaming is part of our DNA.

And Vita was designed with gaming at its heart. No compromises at all. So, for people who care about gaming, who want a deeper, richer, more immersive experience, we believe they will want a Vita.

BOULDEN: A lot of people are going to tablets, now, for games, which is not an area that you're trying to promote. You're trying to promote something a bit bigger than a phone but smaller than a tablet. I think tech radar said that this really beats the iPad. Because a lot people are thinking maybe the tablet's the place to go.

DENNY: I think it's the point I was just making before. Those multifunctional devices do a lot of things well and some things not as well. With PlayStation Vita, it was designed with games at its heart.

BOULDEN: Obviously, it's always about the games that come with it. A lot of titles?

DENNY: Absolutely. I'd go as far as to say this is the best launch line that we've ever had on a PlayStation device. We've announced over 50 titles. But it's not just about quantity. I think the quality, there, is there, as well.

BOULDEN: And there's obviously FIFA Football, there's Call of Duty.

DENNY: Yes, we've always had great support from the third parties at launch. We have FIFA, as you say, it's massive here in Europe. We have Formula One, as well, games like Rayman. And then, further down the line, yes, announce that Call of Duty will come to the system, which is fantastic.

CROWD: Three! Two! One!


BOULDEN: So, you had the midnight launch, and now it's available in a great deal of places.

DENNY: Absolutely. It was great, the excitement to do a midnight opening, our fifth console launch, CDX time, and seeing people's hands for the first time, great.

BOULDEN: And of course, like any mobile device these days, it has to have a camera in the front and a camera in the back.

DENNY: What we're concentrating on is augmented reality experiences, where it tries to put you at the heart of the game or bring the real world into the game itself.

And the other important thing about Vita is that, I think for the first time, we now have a high-end home console and a high-end portable console that are truly connected together. A PlayStation interconnect system.

BOULDEN: I have something on here. Will I be able to see it on my TV if I wish?

DENNY: So, what we're doing is something called cross play. So, in online gaming, you can be playing the same game, some people on the PlayStation3, some people on the Vita.

BOULDEN: Got it.

DENNY: With some games, also, you'll be able to cross save, start a game on your home console, take it away with you and continue it on your portable.

BOULDEN: So, the Cloud is in the --

DENNY: Absolutely. Cloud-saved, yes.


QUEST: Well, lots of "stunnings" and "magnificents" and -- this is it, isn't it?

BOULDEN: This is it, and this is their --

QUEST: This is the avatar of you and me.


QUEST: Let's see if we can actually see it.

BOULDEN: And this is a fighting game, so we've added you and I.

QUEST: Right.

BOULDEN: Put on our glasses.

QUEST: Which is which?

BOULDEN: You're the one with the more gray hair, apparently.


BOULDEN: But I didn't -- I'm not the one that made the avatars. So, we'll pick the English countryside, here.

QUEST: Right.

BOULDEN: And as we're chatting, we're going to fight. And I practiced two or three times in the office earlier today, and you beat me every single time.

QUEST: So tell me, how significant is all of this sort of stuff?

BOULDEN: For Sony, this has to work, and this has to work well, because they had all the problems last year when their network was hacked. The PSP has sold 60 to 70 million units, however, a lot of people think that gaming has moved on to the mobile, and that gaming has moved onto --

QUEST: You're distracted here, aren't you?

BOULDEN: -- to the tablet. Well, I want to see us fighting. There we go. And -- so, people are saying, actually, do you really need one of these at $300, $400 a pop?

QUEST: How much?

BOULDEN: Then you've got to buy the games.

QUEST: How much?

BOULDEN: Then you've got to buy -- well, $250 for the small one, 299 pounds.

QUEST: Right.

BOULDEN: Depending on how you look at it. And euros is in the same - -

QUEST: Yes, yes.

BOULDEN: Then, you've got to buy the games, each one of them, 20, 30. Then you've got to buy the memory as well.

QUEST: All right. That's enough of -- I think that's enough of that. Sony's had a lot of problems.


QUEST: Not only the hacking. It's obviously had problems when -- not of its own making, with the earthquake --


QUEST: -- and the distribution line --


QUEST: -- and all those sort of things. And now it's going to have a new CEO.


QUEST: Where does gaming fit into the Sony ecostructure?

BOULDEN: The new CEO is from the gaming side, so obviously, you think of Sony of all these things that they have, TVs, and you think of the movies, think of everything, but the gaming side, like I said, needs to work, because this is what people think of.

And the guy said in the interview, as Mr. Denny said, it's in their DNA. They want a portable games maker. The PSP did OK. But they're losing -- they're losing to the tablets, they're losing to the mobile phones, and Sony Ericsson as a phone barely has any market share at all, so --

QUEST: You and I are not really qualified to say whether this is going to be a success, are we?

BOULDEN: No, but the critics love it. The critics love it as a gamer. The question is, will Sony make any money at it?

QUEST: Will your 18-year-old love it?

BOULDEN: He told me about this last night, and the 16-year-old did before I even knew about it.

QUEST: And before the 16- or the 18-year-old get the thing --

BOULDEN: We have to give it back tomorrow.

QUEST: We have to.


QUEST: Thank you, Jim. Who won?


BOULDEN: I'm not sure.

QUEST: That doesn't look like either of us! Well, there's no way that could be regarded as looking like Jim Boulden or Richard Quest.

BOULDEN: Oh, you won, because you're smiling, and I'm looking defeated.

QUEST: As life, indeed, itself.


QUEST: Many thanks, indeed.

All right. As you just got a glimpse of our clock, there, which says it's 26 minutes past the hour, the Bank of England's monetary minutes came out, and the pound went down. We will discuss why the bank was so concerned.


QUEST: Ready just after the ads.


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.

We need to tell you, at least 49 people have died in a train crash in Argentina, in Buenos Aires. More than 600 people were injured when the train smashed into a platform in Buenos Aires. Marcos Stupenengo joins us, now, on the line from Buenos Aires.

Marcos, when you -- what actually happened? Do we know how this incident took place?

MARCOS STUPENENGO, CNN CORRESPONDENT: Hi, Richard. We actually don't know what happened, if it was a failure on the train, on its brakes -- on the brake systems, if the driver of this train, the motorman, had any trouble, if he collapsed or something happened to him.

Actually, we know that the train was traveling at 12 miles per hour when it should be, like, at 4 miles per hour at the end of this station, Once Station, which is the final destination for this train.

It was coming from the suburbs of Buenos Aires into the city, the capital city, at the most crowded time, the rush hour for here after two days of holidays, people were going back to work, boys were going to school, and families complete were traveling.

We have at this time 49 people killed. One of them is underage. And we have 600 injured. Of them, we have 50 in critical condition, at this hospital they are being and receiving their first attentions here by the doctors.

We had a lot of families which are arriving to the different hospitals to try to know the luck of their loved ones. We know we just spoke with a lady whose son was with her grandson in his arms traveling on the train.

She's trying to reach him, calling him at his cell phone, and he is not answering. He was traveling with his 10-month son in his arms. Both, this man and his son, don't appear on the list of injured, and they are waiting for the list of dead people on the mall here in Buenos Aires.

QUEST: Marcos, in Buenos Aires for us this evening. We'll come back to you in the hours ahead to update us on the position. A reminder, there again, of 49 dead, at least 49 dead, and many hundred injured after a rail incident in Buenos Aires.

Amongst the other news, in the past few moments, Britain has summoned the Serbian ambassador to the country's Foreign Ministry where it'll lodge a protest about the deaths of the two foreign journalists in the Syrian city of Homs.

The American, Marie Colvin, was a veteran reporter for the "Sunday Times of London" and the French photographer, Remi Ochlik, had covered conflicts from Haiti to Libya.

The Syrian, Kamara No Rami al-Sayyed (ph), was also killed. He worked for an opposition group and put video of the brutal crackdown on YouTube.

The deaths today didn't stop the shelling and the bombing. The violence continues. Activists say government rockets and bombs killed up to 80 people, according to Reuters. The U.S. is now hinting it might intervene if a political solution cannot be found.

Recovery crews in Italy have discovered four more bodies in the wreck of the cruise ship, the Costa Con Cordia. They say one of the bodies is that of a woman and another of a little girl. This raises the confirmed death toll to 21. You'll remember the ship hit rocks and rolled over on January the 13th, near the island of Giglio.

Protesters marched peacefully in Athens on Wednesday as Greek lawmakers worked on measures needed for Athens to receive its new bailout from the euro zone. Some economists have doubts about whether the bailout will end the country's debt crisis. Fitch has cut its long-term credit rating on Greece, saying a de facto default is on the way.

The people pulling the money tree levers in Britain seem unsure of just how much (inaudible) they need to give the economy. We have the minutes from the last meeting of the Bank of England, MPC, Monetary Policy Committee.

All members voted in favor of quantitative easing. That's the printing of central bank reserves. Some wanted more money and others considered little at all.

On balance, policymakers agreed. Now, read what they said. The committee recognized that there was substantial risk for inflation in both directions in the medium-term. In other words, they were very unsure.

Now, investors weren't expecting the level of uncertainty and it gave a jolt to the currency markets. Just look at that. I mean, that's a very small, narrow line and it does recover very quickly, but you do get an idea.

The pound is now at a 10-week low against the euro. Trading it makes one euro worth 84 British pence. So, what did they do?

You remember, they added 50 billion pounds, around $78 billion in stimulus through quantitative easing, a total of 325 billion has now been added, but this is interesting.

Amongst the voting, there was a split. Seven were in favor. Two wanted even more stimulus to be added, including Adam Posen, there, who you see. So, seven were happy with what they did and two wanted 75 billion pounds sterling to be added.

This debate over how much Q.E. to do can also be seen in the Fed, where, as you look at their meeting in the minutes on whether or not to launch a third round of bond purchases.

Joining me now here is the Investec chief economist - forgive me, Philip - it's been a long day. Philip Shaw is with me.

We've a lot of ground to cover. When I look at these minutes, they do seem to be betwixt and between on what to do. * PHILIP SHAW, INVESTEC CHIEF ECONOMIST: Well, indeed, yes. The future is very uncertain and, if we all knew where the economy was going, then policymaking would be very easy.

Unfortunately, the degree of uncertainty is very high and policymaking is very difficult and that tends to spawn a very wide range of opinions.

QUEST: So, they've done 50. They've done 325 in total. Is it your best guess that they will do more?

SHAW: I think so, absolutely. We have seen some signs of an upturn in the British economy, which are very welcome, but there are no guarantees that that's going to continue.

And, with the various uncertainties coming from around the world, it's more likely than not, we think, that the policymakers will sanction a further, perhaps 50 billion, in three months time.

QUEST: They do have a bit of wiggle room on the base rate, don't they, but not much. So - and there is some doubt as to whether or not cutting rates ever does any good.

SHAW: Well, absolutely, I think it probably caused more problems than solve them and the main tour for trying to get more spending in the economy is through quantitative easing, as it's called.

QUEST: OK, let's talk about PMI, the purchasing manager's index. We've got lots of PMIs from the euro zone, from the U.S. That tells a very difficult story to understand. Some countries are doing rather well. Other countries have still got weakness.

SHAW: That's basically the case. Absolutely.

QUEST: How are you interpreting the PMI numbers?

SHAW: Well, we're seeing that different parts of the global economy are recovering quicker than others, so, for example, we've signs of an upturn in the United States economy now for the past five to six months.

In the U.K. economy, we've begun to see that over the past two months. The euro area, by contrast, is more sluggish, particularly, the Mediterranean and others.

QUEST: The history of the U.K. is that you get monetary easing and you suddenly get a burst of inflation. The U.K. has a preponderance to inflation that other countries don't, basically.

SHAW: It has done in the past.

QUEST: Why do you think it's different?

SHAW: Well, it's different now, essentially because of the labor market and over the particular past 20 years what we've seen is more hiring and firing in the British economy.

Now, whilst that might sound a bit harsh, what it was done for the economy is this kept down the pace of wage increases and that, compared to the '70s and '80s, is what we haven't seen over the past two decades.

QUEST: Finally, I've just got to ask on Greece because we haven't had a chance to talk about that. Did yesterday's - you can be as blunt as you like here - did yesterday's deal do the trick?

SHAW: It has in the short-term.

QUEST: Ah, come on. You're qualifying yourself there.

SHAW: Well, I think there is a very important point that the euro area needs time to get its economy going, its recovery on firmer ground, and to recapitalize its banks.

That short-term fix, if you like, will do the euro zone a lot of good. Longer-term, we do question Greece's debt dynamics and its economy.

QUEST: That's what we talked about last night, but many thanks, indeed.

Now, the global economic growth concerns are taking a toll on the U.S. market. It's only yesterday that you and I were talking and, indeed, we led the program on the fact that we're over 13,000, just for a scintilla of a moment, but we're now back down again, down 13 points, 12,952.

The market has tried, but failed.

Recession fears chilled European investors, which saw stocks retreating. Peugeot Citroen was the bright spot, with the shares up 12 percent on talks of a tie-up with G.M. The CAC still closed down half a percentage point.

In a moment, China, the U.S., Russia, and India, they have all finally found something in common. They want revenge on the Europeans for the E.U.'s carbon tax. In a moment.


QUEST: So, the world's economic super powers have finally found a policy upon which they can all agree - stop Europe's carbon emission plans.

The E.U. is taxing airlines for flights stopping at European airports and, today, more than 25 countries vowed to do whatever it takes to postpone or cancel the plans.

Talks took place in Moscow where there were countries like Russia, India, the U.S., China, and they all agreed. They created a basket of counter-measures.

They'll do everything they can, they say. This is the phrase - "cancel or postpone" the plan, according to Russia's deputy transport minister, also, incidentally, the chief of Aeroflot.

Now, Russia said it may limit European flights over Serbia. So, that's one particular thing.

Other countries might ban airlines from taking part in the scheme.

The climate commissioner for Europe fired back on Twitter. Connnie Hedegaard wrote, "Unfortunately, our question for the Moscow meeting participants remain unanswered." She said, "What's your concrete, constructive alternative?"

So, Europe is backed into a corner.

Here at the super screen, you'll see exactly what I'm talking about. It takes real skill to get this number of countries all agreed in opposition to you.

Let's start with some of the ones that are most vehement and most vicious. Over in China, the country there, now, the Chinese authorities have banned their airlines from taking part in the whole business. They're basically saying they're not going along with that at all. So, there's already a fierce potential battle there.

Over in the Gulf, some of the major carriers, like Etihad, have added a $3 surcharge. That's something that's been done in other countries, as well.

And, even European airlines - and the largest one in Europe, the Irish carrier, Ryanair - Ryanair has slapped a surcharge on all its flights and is being downright rude about the whole plan.

The United States says Congress is going to vote on a ban and they are looking towards a quid pro quo, a tit for tat. In other words, they will fine European airlines going back.

And all this because of the airlines all flying into the European Union. That's when you get charged.

What the other countries want is basically a global agreement under the ICAO, which is the U.N. body which has the potential to mediate and put all of this together.

So, that is the background. James Murray is editor of BusinessGreen and joins me now.

James, I don't think I'm being - are we closer to a trade war as a result of this declaration?

JAMES MURRAY, EDITOR, "BUSINESSGREEN": Oh, we absolutely are. I mean, it is a lot of saber-rattling, but it's quite severe saber-rattling. There are elements of this agreement that, if brought into force, could spark a very, very serious trade war.

QUEST: OK, but the Europeans are adamant that they're not going to budge.


QUEST: Basket of counter-measures, already the Chinese - where do you think this is going?

MURRAY: There's two ways it can go. One is a very, very bad way and we do have a quite severe trade war, potentially, in the offing.

I mean, some of these counter-measures they're talking about, banning their airlines from taking part, altogether, in the E.U. emissions trading scheme ...

QUEST: Which is the Chinese view.

MURRAY: Well, the Chinese view. Russia are talking about the same. The U.S. could do the same.

If that happens, if you're an airline, you'd be breaking the law not to comply when you land in the E.U., but you'd be breaking the law to comply when you leave your sort of home state.

So, the airlines are very, very worried. If that escalates it could get quite disastrous.

However, there is a route out here. All parties are saying they want this to go to the International Civil Aviation Organization.

The E.U. are speaking to sources in Brussels this evening and they're just basically saying, bring it on. If it goes to ICAO, that's where we want it to go because we want an international agreement, too.

QUEST: But do you get the impression that the E.U. would suspend this, pending going to ICAO?

MURRAY: Almost certainly not. They are very, very bullish. I mean, sources I'm speaking to around Connie Hedegaard today were extremely bullish that they're not going to move on this. They regard this as absolutely essential to the E.U.'s green economy. It's fast expanding, low-carbon economy.

And they've also the point quite significantly today that we're talking about very small sums of money initially. I mean, Ryanair had put a surcharge. It's about 25 euro cents.

QUEST: But, with the airlines involved, I mean, I've spoken to major carriers who have had to put in place quite sizable infrastructures. I mean, they don't take nominal flights, do they? They actually measure each individual flight. And they're now buying all these carbon emissions, though they get some credits, but they have to buy others.


QUEST: So, it's quite an infrastructure.

MURRAY: It absolutely is, but then the E.U.'s argument is that's what the scheme's there for. The argument goes that you still have to measure your carbon. You put a small price on it initially then people start to take it seriously and they will start to invest in more efficient aircraft.

They will stop running aircraft that are half-full. And we will start to see emissions across the sector come down, which is what the aviation industry says it wants.

QUEST: Credits are cheap at the moment, aren't they? You can go and fill your boots with credits in the market.

MURRAY: Well, there are other aspects of the market aren't functioning particularly well. That's certainly true.

QUEST: OK, finally, is it your gut feeling - your gut feeling - that this gets better or worse?

MURRAY: It depends on the personalities involved. Like all things, trade wars are never particularly rationale. If people are rationale, they're going to realize if you start putting on bans and counter-measures and counter-surcharges that's going to harm your economy and your airlines as well as it harms the E.U. airlines.

So, there is plenty of room for a compromise still ...

QUEST: But you're not confident?

MURRAY: I'm not 100 percent confident because there are forces who don't particularly want a green economy to be pushed forward in the way that the E.U. does.

QUEST: We're grateful that you came in this evening to help us understand what's happened. Many thanks, indeed.

In a moment, markets are skeptical as South Africa makes a surprisingly sunny forecast on its budget deficit. We are in South Africa after the break.

"Quest Means Business," (inaudible).


QUEST: South Africa has set itself some tough budgetary targets. The finance minister, Pravin Gordhan, is projecting that the deficit will fall to 4.6 percent of GDP in '12 - '13, down from 4.8 percent the year before and well below the previous estimates.

Mr. Gordhan says higher taxes and wage cutbacks will help meet that target. Meanwhile, increased spending on railways, power plants, and ports boost economic growth.

South African bonds strengthened and slipped back on skepticism, not about the promises, but about the ability to meet those very goals.

BMW might help South Africa come some way towards that. The luxury carmaker plans to double production of its 3-series models there.

CNN's Robyn Curnow spoke to BMW's managing director in South Africa about the company's growth in that emerging market.


ROBYN CURNOW, CNN INTERNATIONAL CORRESPONDENT: We're here at a BMW production line in a factory just outside of Pretoria in South Africa.

Now, 50,000 BMWs are built at this plant every year. Eighty percent of those are exported onto the international market. One-in-two of those are sold to the American market, but how important are now emerging markets to BMW?

Well, Bodo Donauer is the managing director of BMW South Africa and this is what he had to say.

BODO DONAUER, MANAGING DIRECTOR, BMW SOUTH AFRICA: For BMW's emerging market (inaudible) and what we see there is interesting double-digit growth. You can talk about Russia. You can talk about Brazil. (Inaudible) from 50 percent up to 30 percent growth and that shows the importance.

CURNOW: You talk about the emerging markets. We talk about Brazil, India, Russia, a big one for you. China is its whole own game, isn't it?

DONAUER: China is certainly its whole own game and mainland China has seen an increase last year of more than 35 percent. That shows the importance and we are building a second plant there, at the moment, so it's a focus for us and for other car manufacturers, as well.

CURNOW: And South Africa's still the biggest market in Africa. I mean, your footprint in Africa is still very small, isn't it?

DONAUER: It's comparably small and South Africa is the core of Africa, but what we do, we have started to increase our footprint into Africa.

CURNOW: The big question, euro zone, how has it impacted BMW? Not that much if I look at the (inaudible).

DONAUER: Sales-wise (inaudible), we have a nice grown in the euro zone of roughly 8 percent for the BMW growth. Yes, we have, of course, higher growth in the United States and we've even got a higher growth in Asia, but the important thing for BMW Group is, first of all, that we are leaders with the premium car market (inaudible).

And the other point is to keep it in balance. If the sales have not grown in the same way, for example, in Spain or in Crete, we have made it up with more sales volume, for example, in the United Kingdom.

CURNOW: And the luxury car market? Despite all the bad news, all that negative sentiment, people still want to drive a fancy car and they're buying it.

DONAUER: They're talking about BMW is the best car you can get and we are (inaudible) ...

CURNOW: You've got to put yourself (inaudible) ...

DONAUER: ... (inaudible) customers want us.

No, but to talk, there is a serious demand. Normally, the demand of the premium car market than the passenger car market, as a whole.


QUEST: You've got to admire them, haven't you? Whether it's the head of Sony Playstation Vita, telling us it's stunning and magnificent, or the head of BMW, telling us it's the best luxury car. They never miss an opportunity to get their plug before we pull the plug on them.

Talking of pulling the plug, Jenny Harrison's at the "World Weather Center."

JENNY HARRISON, AMS METEOROLOGIST: No, that's not (inaudible). You should have gone with the stunning and magnificent and then you come to me. I don't know where you got that from, honestly (inaudible).

QUEST: Hey, listen, hey, it's positively balmy -- and I don't mean bally with an "L," not an "R" -- in London. Sunbathing?

HARRISON: Actually, the temperatures have just gone a bit ridiculous, Richard. It's been below average. Now, we're well above average. Yes, your temperature in London is getting on to double at the monthly average.

But let's have a look and see what else is going on because a bit of a problem coming up now, of course, with the possible rapid thaw of all that snow and ice across central and eastern areas.

But, meanwhile, got a system coming into the north and this one across the central (inaudible), which is winding itself down, thank goodness. My goodness, as it went through the earlier part of Wednesday, look at the amount of rain that came down - 111 millimeters, winds at around 130 kilometers an hour.

But, as I say, things are looking a lot calmer there right now. The winds, for example, sustained winds in Palermo, nine kilometers an hour. A few hours ago, those winds were around 40 to 50 kilometers and hour, but they are strong across the northwest of Europe.

Sort of blustery right now, but, unfortunately, this forecast has more very strong winds coming into northern U.K. and, of course, those coastal areas of Norway, which could be a problem with the avalanche threat. There's a lot of snow still on its way into Norway, as well.

But this is what's been going on. So much (inaudible), we've seen rain for the last few hours, no sign of any snow across western and central regions and look at this. So, this is the concern.

These temperatures, not only are they back up to average, they're now above average, all the way into the southeast. The cold look, indicated by that blue, is that really receding further eastwards.

Now, the U.N. has actually called on countries across eastern and central Europe to be prepared for possible flooding and this is why. Look at these temperatures here. Bratislava, 14 Celsius, the average is 6.

Similar in Budapest. Not quite as mild further to the east, but, even so, the temperatures are certainly back up to average and above-average in the over hours.

So, this is the vast area that is sort of, you know, under flood watch, shall we say -- the Danube River Basin - because all that snow, all that ice that we've been reporting on for the last month, it has got to go somewhere and it goes into the Danube River.

And, so, this is why they're actually warning of this severe risk of floods because the temperatures are going so mild, so quickly, and they're saying it could be the worst flooding in about a decade.

Now, as we go into the next couple of days, as I say, more snow across into Norway, across Sweden, pushing into western Russia, quite heavy snow in Norway, and those winds are strong, hence, my warning about the avalanche risk.

But you can see as we go into Thursday at the major reports, windy conditions still extending across into Berlin, Copenhagen, Prague. And the snow in Sweden in Stockholm, that could cause some lengthy delays on Thursday morning and eventually those winds are going to push into Russia, as well.

So, long delays expected there. There's the snow. Nothing really else there, in terms of accumulation, but we will see more rain coming in with that front as it slides in from the north.

But look at these temperatures -- 15 Celsius in London.

Now, we're getting to the end of February, but the average in February's about 7, 8 degrees Celsius, so you can get the idea as to just how mild it is going to be.

But let's just finish on something a bit different. Up there, in space, NASA - it's always NASA - the astronomers have recorded the fastest wind yet around a stellar-mass black hole. It's got a kind of a cache, this name - IGR J17091.

They - they're obviously always monitoring these black holes, but what's amazing with this one is the strength of the wind, pulled in from this nearby star - 32 million kilometers an hour.

But, Richard, it's 28,000 light years away, so I guess it probably doesn't really affect us down here.

QUEST: Ah, no. No, no, no, but I saw this story. It's very interesting, isn't it?

Just think about all that wind blowing at that sort of speed, Miss Harrison.

HARRISON: Well, yes. Yes, I can't go there. You, wind, hot air, Berlin, come back from there, temperatures in London. You, hot air, windy, temperatures in London.

QUEST: Thank you. Thank you, Jenny Harrison. Thank you with you there, more hot air.

Back in a moment.


QUEST: So, tonight's "Profitable Morning." "Profitable Morning?" "Profitable Moment," more like.

Well, it was a morning and it was also a warning and that warning could not have been clearer. Countries opposed to Europe's airline emissions trading scheme said they would not rest until this scheme was cancelled or postponed.

There've been a raft of counter-measures that have now been proposed and some of these are draconian, tit-for-tat charges and official complaints and lawsuits and telling, in the case of China, telling their airlines not to take part.

Well, it all has the potential to get out of hand, if it hasn't already and quickly. Europe has angered just about every other country and airline in its unilateral action.

The Europeans have a point. They are doing something while others are talking, but what Europe can't do is hold out against everyone else forever, not without squandering goodwill and respect.

Frankly, the Europeans have got themselves into this mess and lost so many friends there are few willing to help them get out. A trade war is on the way.

And that's "Quest Means Business" for tonight. I'm Richard Quest. Whenever you're up to in the hours, I hope it's profitable.

The news is next.