Return to Transcripts main page
QUEST MEANS BUSINESS
Both US and EU Claim Victory in Trade Dispute; US Perspective on Boeing-Airbus Battle; EU Welcomes WTO Ruling; European Aviation CEOs Call for Compromise on Carbon Tax; Carbon Tax Debate; Future Cities: Berlin's Creative Vibe Lures Tech Start-Ups; azil Football Chief Quits; U.S. Markets Update; Interview with Keith Wade; The Chiemgauer
Aired March 12, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: Going against Boeing. The US is told that its subsidies were unfair, but it's still claiming victory over the EU.
Trading blows on trade wars. Brussels says that it's not going to be backing down on its carbon tax.
And corruption allegations take their toll. The head of Brazil's football association resigns.
Hello, I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.
Good evening. The United States and Europe are both claiming victory in a spat over trade rules. It's all about support given to the two major plane makers, Boeing and Airbus.
The European Commission says that it welcomes the ruling by the World Trade Organization saying that Boeing received billions of dollars in illegal government subsidies. WTO judges largely upheld original findings that showed that research grants and also tax breaks were in violation of global trade rules.
Well, the United States, on the other hand, is arguing that while it did provide funding to Boeing, it is nothing compared to what European governments have been paying out to Airbus over the years. A separate WTO panel actually ruled just last year that Airbus received $18 billion in subsidies for its part.
Well, the US says that today's decision is, quote, "a tremendous victory for American manufacturers and also workers." I got the chance to speak to the US trade representative, Ron Kirk, in Washington, and I asked him why he was claiming victory for the United States here.
RON KIRK, US TRADE REPRESENTATIVE: Well, Nina, first of all, on balance, if you look at the rulings of the two WTO appellate bodies on our offensive case against the EU on the -- what we allege were illegal subsidies in favor of Airbus, the WTO found about $18 billion of subsidies that were offered to the EU, and in every case, they were non-consistent with WTO rules. But more critically, they found that they had been to the great harm of American aircraft manufacturers.
In our defensive case, the EU alleged almost $19 billion in subsidies. The panel found, I think, less than $3 billion or $4 billion, and that in many cases, they were not to the harm of Airbus. But for your listeners, unfortunately, this can sound a bit tit for tat, like two kids on the playground.
The important thing is, we now have final rulings. We expect that the European Union would come into compliance. And more critically, there is no reason in the world that a company as large and successful as Airbus can't go out and compete on commercially acceptable terms in the market along with Boeing, and let's get both governments out of the process and let them go at it and compete fairly.
DOS SANTOS: OK, so Airbus is saying that these kind of grants and -- let's say that's the issue, really, isn't it? That they're grants and not loans, because Airbus is saying that they were loaned money, so it's legitimate. That is a point of contention, let's say, as well.
But if we have a look at the money that they say it's cost them, they say 45 -- it could've cost them $45 million. Do you think that that's an overstatement?
KIRK: I don't know those number, but you will -- the public, you will have an opportunity to examine the rulings. It's pretty difficult, when you put them side-by-side, to see how Airbus could claim this as a victory. They're going to have to remediate for the $15 billion difference in the illegal subsidies that the WTO panel found.
And what the WTO found was problematic is that the loans to Airbus in every case were non-commercially acceptable terms.
Rather than get into the technicalities of these, what we are looking for is for the EU to stop those subsidies that it knows that distort the market and harm our competitive interests and the interests of the 140,000 workers that have been harmed in the United States and allow Airbus to go out, get loans at market rates, and compete just as Boeing does.
These are the two largest civil aircraft manufacturers in the world. We are prepared to live with an even competition. All we're asking is that Airbus and the European Union do the same.
DOS SANTOS: I must correct myself before. I said $45 million. Of course, the figure is $45 billion.
On the other hand, they're saying that Boeing is slated to get -- or was slated to get -- another $3 billion to $4 billion in future aid, in tax measures, et cetera. Can't we just level the playing field, here, and what would be needed to level the playing field, to have you and your compatriots on the other side of the Atlantic see eye to eye?
KIRK: Well, we'd love to do that, but you're going to have to get France, you're going to have to get Germany, you're going to have to get the other member states to stop going against the accepted practice and rules in the World Trade Organization and making loans that are commercially outside of the market norms.
We are more than happy to have a competition in which Airbus and Boeing go out and compete on commercially even terms. That's what we have been seeking, what we have been arguing and, I think, that's what you'll find, that the panel -- determined in these two cases.
DOS SANTOS: So, where do we go from here, because this has already cost millions in legislation and litigation, et cetera. Where do we go from here? This is just going to keep costing money, isn't it?
KIRK: I would hope not. We -- now that the panel -- the appellate body has upheld our findings in our case, we have moved to seek consultations with Europe on their compliance, and we have some legal remedies within the WTO to bring them into compliance.
The European Union will have the same opportunity. But we have made it plain, ever since I came into office, I have lived and tried to govern my work as USTR by one principle: that we are much better served by resolving disputes and focusing on the common good that comes between our working together.
And one of the sad realities is, this type of litigation obscures the reality that the relationship between the United States and the member states of the European Union is by far the most commercially significant relationship in the world.
And we have always made it plain, we are ready to sit down and negotiate an agreed settlement of this, but it has to start and stop with a recognition by some of the European Union member states, that there cannot be any more loans, launch aid, to airbus outside of the norms of the World Trade Organization. f they're willing to do that, we can get this resolved very quickly.
DOS SANTOS: Now, there's another trade spat brewing that could undermine that precious commercial relationship between the EU and the United States we were just talking about. It surrounds those carbon taxes for airlines. What's your view on this?
KIRK: Well, first of all, I think it is -- the European Union should be applauded, as the United States is, for looking at every opportunity we have, first of all, to make sure our environment is clean and safe, and those industries that can be most impactful on that have to be a part of that solution.
So one, we applaud the -- European Union for their sensitivity there. Now, how we do that can have an immediate harm on the rest of the industry if the rules that you put in place are designed, whether by intent or by consequence, to distort the market.
And that's the difficulty that we have right now is that, if the European Union was to proceed as how they have proposed, it would have a very disparate impact on our aviation industry.
We believe we can work together to help in a way that helps the European Union achieve their goal of having sensible carbon regulations in the aviation space, but it doesn't have to be implemented in a way that it's going to distort the market or it would be disproportionately punitive to US aviation carriers.
DOS SANTOS: Obviously, we like to bring you both sides of the argument here and, in light of this, the European Union has been saying that today's WTO decision vindicates the EU's long-held claims that Boeing had been receiving massive US government handouts in the past and continues to do so today.
I spoke to the EU trade commissioner, Karel De Gucht, earlier today and asked him if there really was a winner here.
KAREL DE GUCHT, EUROPEAN TRADE COMMISSIONER (via telephone): I must say I'm a little big surprised by the press statement by the US claiming a victory. I think nobody that that recent decision could come to that conclusion. But without going into a controversy, you have to look at what the effect of all this is, and you cannot compare apples with pears.
The -- what -- the appellate body found in the Airbus case was that there was repayable launch investments for an amount of 18 billion euros approximately, but the subsidy element in that, it's of course not the whole amount of the loan. It's just a difference between what you would have as a market interest rates and commercial interest rate, which was lower.
You cannot compare that with what has now come out in the appellate body's decision on Boeing, that clearly states that this is about illegal subsidies, grants, money, cash that had been given to Boeing.
So, if you want to be sincere about this, you have -- you have to compare the subsidies by a number of American bodies to Boeing with the difference in interest rate that you are witnessing in the Airbus case, and then it is clear that, yes, Boeing has got many more subsidies than Airbus ever got.
DOS SANTOS: Well, some industry analysts already say that because the aviation and defense sector is just so capital-intensive and it's highly cyclical, these companies will need subsidies anyway if they're to continue to produce planes that continue to keep tens of thousands of people employed.
DE GUCHT: I don't know if both sides were to refrain from subsidies and agree on a level playing field, then I don't see why new planes could not be developed, why it can't be possible. But of course, if one does it, then the others have to do the same.
And so, we make each other a scapegoat, and that's not the right way to go, I believe, for what is, in fact, a very important sector of industry for both the United States and Europe.
DOS SANTOS: Nevertheless, all of this must have cost millions in legal wrangling. What's the total legal bill like from the EU version?
DE GUCHT: I don't know how much all this has cost because we largely do it in house. Of course, it's a legal service of the European Commission, who is doing it. Because what the public sees is a dispute between Boeing and Airbus. What it legally really is is a dispute between the US administration and the European Commission.
But you are -- I give you right that what we should really do is try to get out of this and come to a negotiated settlement, but also one that results in a level playing field for the whole industry.
DOS SANTOS: An intolerable threat to the European aviation industry. That's what aerospace executives are calling Europe's carbon tax plan. We'll hear both sides of the argument right here on QUEST MEANS BUSINESS after this break.
DOS SANTOS: Compromise or face serious consequences. The leaders of these major aviation companies have been saying that the EU's plan to cut carbon emissions now risks starting an intercontinental trade war.
TEXT: Airbus, British Airways, Iberia, Virgin Atlantic, Air France, Air Berlin, Lufthansa.
DOS SANTOS: As nations outside the EU plan to fight back, well, these are the kinds of people who are speaking up these days. The CEOs of these firms say that the EU must look again at its so-called carbon tax or the situation could become, quote, "intolerable."
They want the European Council to talk to countries who are opposing the emissions trading scheme, and they say that without a compromise, they could expect suspensions, cancellations, and also punitive actions, which could grow from here on.
They say only a global solution would be adequate to resolve the problem of global aviation emissions. Let's go over to Jim Boulden, who joins us now with all the details. Jim?
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Thanks, Nina. Yes, the tax on carbon emissions for airlines are for all airlines flying in the European air space. That's not just EU-based airlines.
So, also, the whole flight, not just the bit that's in European air space, also should or will count against the European trading scheme. Now, this came into effect January 1st of 2012. The revenue won't really be collected until April of 2013.
The whole point of this is that Europe is trying to cut its overall emissions by 85 percent by 2050, and the European Union says of course that airlines have got to be part of this whole scheme that actually started in 2005. Many industries are involved in this. Now it's time for the airlines to play their part. At least that's the argument from the European Union.
Now, there has been an international backlash, it actually started last year. Some of the carriers tried to stop this through the courts in 2011. China, in fact, has banned its airlines from paying this tax, and the United States says it wants Europe to cease the application of this scheme until they can have further negotiations. In fact, both China and the US are saying they want a global agreement.
Well, the EU does, as well, but it says it has had enough time waiting for a global agreement, which has not come along, so it's time for the EU itself to start this scheme.
And it says that most modern fleets should actually meet the early targets of emissions in a couple of years time, because they are vastly changing over to many more efficient airplanes. However, the airlines are not happy, and this could, as you heard earlier, turn into a trade war. Nina?
DOS SANTOS: As you said, the airlines aren't happy, and that's what I'm going to come to next. Jim Boulden, many thanks for that.
Well, Bertrand Lebel is Air France's vice president for organization and corporate social responsibility. I got the chance to ask him about half an hour ago whether a serious blow on the -- whether this is a serious blow for the carbon trading tax and its effects on the airline industry. Take a listen to this.
BERTRAND LEBEL, VICE PRESIDENT FOR ORGANIZATION AND CORPORATE SOCIAL RESPONSIBILITY, AIR FRANCE: It's an old project from the European Commission and from the European government to install this EU ETS system for all the industries through Europe.
So, the airline is free in Europe already to go to this scheme, but only for intra-European flights. And the issue was that at the end, when the law was passed in 2009, that this law was passed for every flight flying from and to Europe, whatever was the country operating the aircraft. That's the issue at the moment.
DOS SANTOS: The timing of this is extremely unfortunate, because we've had the oil price remaining persistently high. How worried are airlines about the costs and the increasing cost of doing business? This just adds to the costs.
LEBEL: Yes. You are perfectly true. At this moment, you know that fuel prices are really a threat for European carriers. They need to -- accentuate between dollars and euros on top of the cost of the fuel. And to have on top of that this EU ETS system is adding to the cost of fuel for all the European airlines. You are perfectly right.
So, I think we must be very prudent in the way we have to install this system in Europe. It's one more reason to install it only for the intra- European flight, because it would present a cost for intra-European flight for an airline like Air France around 10 or 15 million euros per year. So, it's not negligible, but it's not a major strike.
DOS SANTOS: So, that's the view from the industry, Bertrand Lebel, there, from Air France speaking to me earlier on. But of course, as the course of criticism against this carbon tax plan grows, I also got the chance to broach the topic with the European Trade Commissioner, Karel De Gucht, and I asked him whether there's any chance the EU may back down now.
DE GUCHT (via telephone): Well, the reason that we introduced the ETS system with respect to airlines is because we couldn't reach a global solution in the international civil aviation organization, and that's what we continue to say, let's get to a global solution.
Because obviously, emissions by airlines are an important fact of climate change. So, we are ready for discussions within the International Civil Aviation Organization. And if we come to a global agreement, then we are also ready to review our legislation.
On the other hand, the system that we have put into place, the European Court of Justice in a very recent ruling has confirmed that it is legally sound and compatible with the EU's international legal obligations, so we are not going to let it down.
We are continuing with they system and, as recently as last Friday, all member states expressed their full support for this legislation during the council meeting -- in the environmental council meeting.
DOS SANTOS: But that's the theory, it may be legislatively sound, but on the other hand, what it might be is uncompetitive, and what we're seeing already is the plane makers warning you already that some of the big orders that they have could be in jeopardy because of this legislation.
LEBEL: Yes, I'm aware of this initiative, and I also have seen that the Chinese are denying this. I'm not going to fall into that trap. This is legislation, democratically decided by the European Union. Yes, it has an external effect, an extra-territorial effect. It's not the first time in history that there was legislation with an extra-territorial effect.
I think everybody should agree that this is necessary and that the message that I want to give to all our counterparts is, get to the negotiating table in the International Civil Aviation Organization and let's get to a global agreement.
DOS SANTOS: Up next, "poor but sexy" and oozing plenty of creative wealth. Berlin, Europe's capital of cool, is fast becoming the hottest starter-up. We'll have more of that after the break.
DOS SANTOS: In Berlin, money won't make you cool, but being cool can be pretty lucrative, on the other hand. The city's Bohemian atmosphere is drawing in a new wave of tech innovators, artists, and also musicians, and they're fast turning their creativity into some pretty substantial cash. Richard Quest's met some of Berlin's new entrepreneurs.
RICHARD QUEST, CNN INTERNATIONAL (voice-over): Oozing creativity and spirit, today, Berlin is Europe's capital of cool. It's full of culture, with renewed economic hope. It's a city reborn.
Berlin's chief custodian, Klaus Wowereit, caught the imagination when he summed up the city's state of mind.
QUEST (on camera): The mayor's phrase, "Berlin is poor but sexy," may not be the most flattering idea. But in some parts of the city, it's worn as a badge of pride.
QUEST (voice-over): "Poor but sexy" painted a realistic yet optimistic panorama of a city that may be virtually unrecognizable from two decades ago and still carries the scars of its past.
KLAUS WOWEREIT, MAYOR OF BERLIN (through translator): This description was intended to illustrate the economic difficulty Berlin still faces due to the formative vision of the city during the Cold War, when the world's two super powers were confronting each other.
QUEST: Berlin's wartime hangover created a can-do, will-do atmosphere, notably visible in the minds of young entrepreneurs who set up shop. Alex and Eric, Daniel, Stephanie, and Conrad are Berlin's future.
ALEX LJUNG, SOUNDCLOUD: We fall in love with sort of -- this intersection of arts and technology. It's a very creative, raw city. And we just felt at home here.
DANIEL HAVER, NATIVE INSTRUMENTS: Berlin is just an amazing place when it comes to creativity in general, but specifically music.
CONRAD FRITZSCH, FOUNDER, TAPE.TV: Everybody thinks, "Ah, Berlin in the next couple of years is like New York in the 80s." No. We think it's a really new way. Now we have all the dot-com things and the fashion things coming up.
QUEST: Hundreds of new tech companies have launched here over the past few years. A hundred or so cropped up in the last year alone.
STEPHANIE RENNER, FOUNDER, TAPE.TV: So many people are coming to Berlin because they can feel something is happening here. Even the money is coming to Berlin.
QUEST: In 2010, 64 million euros came to Berlin's tech start-ups from venture capital funds. Last year, the amount involved nearly doubled.
QUEST (on camera): The openness that now permeates this unified city can be seen from the murals at the East Side Gallery, which is the longest continuous stretch of the Berlin Wall. It can also be seen by the types of entrepreneurs moving here and the sort of companies they are creating.
LJUNG: What is sound to me?
QUEST (voice-over): SoundCloud is dubbed the world's leading social sound platform.
LJUNG: Sound is kind of like a color that you can hear.
QUEST: It has more than 10 million registered users. Think of it as the YouTube of sound.
LJUNG: For me, Berlin is very much a sort of counterculture kind of city, where you do things your own way, it doesn't matter if it's crazy. And a start-up is really about that. You see things in the world, and you think it should be done differently.
QUEST: Across town at Tape.tv, trendy is part of the story. The founders, Conrad Fritzsch and Stephanie Renner, have turned the online music video channel into a hollering success. The fledgling start-up made a profit of 20 million euros. Fritzsch points out that Berlin is a city where this sort of thing happens.
FRITZSCH: After I saw the wall break down, I think, OK, this is the biggest change in my life. And now, I think, no it wasn't. It was the online movement was the biggest change.
QUEST: It may be a cliche to talk about the war and the wall, but Daniel Haver, who heads up the tech starter Native Instruments, says you can't escape Berlin's past.
HAVER: It was the line which split the city into these two parts and the eastern part really made Berlin in the end what it is today, because it was all this space available, all these spaces where people with maybe a little income more creative power, could move in and turn this into something new, something great.
QUEST: A prodigious Berlin is part of Mayor Wowereit's vision.
WOWEREIT (through translator): Our economic performance has improved, and unemployment has receded. We may not be as rich as Paris, London, or other cities, but we're still sexy.
QUEST (on camera): And even amongst the tall glass towers of Potsdamer Platz, Berlin is determined to be, well, different.
QUEST (voice-over): Just like the cabaret of old, today's Berlin is bold and buoyant, with talent and tolerance. Throw in technology, and you have a mixture that will catapult Berlin into the future.
DOS SANTOS: Hello and welcome back.
I'm Nina dos Santos.
You're watching QUEST MEANS BUSINESS.
But in the meantime, here are the main headlines this hour.
Afghanistan's parliament is demanding a public trial for the U.S. soldier accused of killing 16 civilians in Kandahar Province. But a Pentagon spokesman has said that any prosecution would be in an American military court. An official with NATO's International Security Assistance Force says that all evidence suggests that the soldier acted alone.
U.S. Secretary of State Hillary Clinton has urged Russia and China to support Arab League efforts to resolve the crisis in Syria. At the U.N. Security Council talks on Monday, Clinton said that the international community should speak with one voice to end the violence. The UN's humanitarian chief, Valerie Amos, tells CNN that aid teams are planning to conduct assessments in the hard-hit areas of Syria starting this very Thursday.
In the meantime, an opposition group reports that 14 new deaths took place in Syria, as video emerges of recent fighting in the hard-hit city of Homs. In that same city, anti-government activists say that at least 45 women and children were slaughtered on Saturday. The government acknowledges the murders, but instead blames them on armed terrorist groups. At least 23 Palestinians have been killed in four days of Israeli air strikes on Gaza. Palestinian officials say that five of those deaths came just today.
Israeli officials, on the other hand, have said that the strikes are in response to a barrage of rocket attacks by Palestinian militants. The latest cycle of violence began after Israel killed a top Palestinian militant on Friday.
Germany's finance minister says that a second bailout for Greece will be finalized this week. Euro Group finance ministers are currently meeting today in Brussels. The bailout is worth more than $170 billion for the country. The path for the bailouts was cleared when Athens' creditors agreed to restructure the country's bonds in order to slash Greece's debt.
The controversial kingpin of Brazilian football has quit after more than 20 years in charge. Ricardo Teixeira is leaving the Brazilian Football Federation and the World Cup Organising Committee just two years before the tournament comes to his home country. Well, Teixeira took medical leave about a few days ago and now he's stood down permanently. His name has been linked to a number of corruption scandals, though, during his time as head of the CDF, including allegations of money laundering and tax evasion.
Pedro Pinto is in our London studio to tell us more.
It's a bit of a shame that he's stepping down just before Brazil has its moment in the spotlight, I suppose.
PEDRO PINTO, CNN CORRESPONDENT: Yah. And it would be his crowning moment as the most powerful man in Brazilian football over the last 23 years. He took over in -- in January of 1989. And I think it would be fair to say, you know, that -- that this has been a tenure filled with highs and lows. He did lead Brazil to two World Cup titles. While they won two titles during -- during his time as president. He won several Copa Americas. He changed the format of the Brazilian League, the Brazilian Cup.
So his legacy, as far as results on the pitch, is -- is very strong.
A statement, a letter was read earlier today in Rio de Janeiro, at the headquarters of the CDF. And it was read by the man who's now taking charge, who was already the acting president, as you've said, Teixeira had taken a leave of -- of absence because of -- of medical reasons.
This is an excerpt from that letter that was read out by Jose Maria Marin: "It's not easy to preside with passion. Football in our country is associated with two things -- talent and disorganization. When we win, talent is praised. When we lose, it's about disorganization. I did what was within my reach, sacrificing my health. I was criticized in the losses and undervalued in the victories."
This is a man who has been hurt by a lot of the criticism directed his way, both at Brazil's apparent inability to keep up with all the dates of building for the 2014 World Cup and also the corruption.
DOS SANTOS: Yes, they have been criticized, haven't they, for the infrastructure, at least where it stands at present?
It's not clear what, medically, is wrong with him yet. We -- we don't know anything about that yet. But let's talk about the corruption allegations, because that really has been the weight on his shoulders.
Thirteen corruption allegations he's been facing?
PINTO: Yes, he was investigated by the Brazilian government and those charges ranged from -- from tax evasion to money laundering. A Brazilian newspaper recently also questioned his role in -- in the sale of TV rights for a friendly between Brazil and Portugal, saying he overcharged and took some of the money that -- that was negotiated for that particular deal.
So this is a man who, right now, you ask most Brazilians on the streets and they'll be happy to see the back of him, just because he has a connection with -- with so many questionable stories. And I think one of the things that will be good for Brazilian football right now is getting a fresh face, a fresh name.
For him personally, obviously, it's a tainted, tainted presidential time for him during Brazil's countdown to the World Cup.
DOS SANTOS: Pedro Pinto, as always, here in our London studio to break it down.
Many thanks for that.
Now, stocks in the United States just keep on rising and the bull market begins its fourth year today.
Alison Kosik is at the New York Stock Exchange to tell us whether it really can keep up that kind of momentum -- Alison, do you think it's got further legs to run, this bull market?
ALISON KOSIK, CNN CORRESPONDENT: You know what, you talk to analysts and they do think they're -- that the bull market still has legs to run, not seeing the bulls running in any strong way today. But the Dow is up 40 points as we get closer, about 20 minutes to the closing bell. The NASDAQ and S&P are down slightly.
You know, at this point, investors are kind of in wait and see mode. Tomorrow, Tuesday, the U.S. Federal Reserve meets. So investors aren't making any big bets ahead of that, even though there's no drama expected. The central bank is expected to leave interest rates unchanged.
Also, the Fed isn't expected to reveal much about future plans for more bond buying. Remember, earlier this month, stocks sold off after Fed Chief Ben Bernanke seemed to downplay the possibility of more than quanti - - more quantitative easing.
But some analysts say the Fed may still act, possibly by launching a new effort aimed at helping the housing market, by buying up mortgage- backed securities. But even those analysts who predict that we'll see more stimulus, they don't know it's going to happen before the Fed's next meeting in April -- Nina, 20 minutes ago, the Dow was up 39 points.
Back to you.
DOS SANTOS: Yes, and Alison, before I go, you were talking about the Fed's meeting. You were saying that they may not come out with more quantitative easing. Obviously, we know that they're going to stand pat on interest rates for a while now, because they've said that before.
But they were able their outlook for the U.S. economy?
Things really seem to be looking up for the U.S. economy?
KOSIK: They do. And what -- what many people are going to be looking for is to see if Fed Chief Ben Bernanke changes his tone. In the past several meetings, in fact, the meetings that we can all remember, you know, he's had a very cautious tone, even as the economic data here in the U.S. has been improving. It will be interesting to see if he acknowledges that things have been getting better. But one thing is for sure, he most likely will certainly mention how gasoline prices could hurt the recovery. That is certainly what analysts say. They are worried about it, as well, as -- as gasoline prices here in the U.S. remain at elevated levels -- Nina.
DOS SANTOS: Yes, as always, Alison Kosik, many thanks, standing by there at the New York Stock Exchange to tell us all.
DOS SANTOS: Up next, new bonds, same old story, though. Greece just can't please the bond markets these days. We'll tell you what more high yields mean for the future of the Eurozone. That's next.
DOS SANTOS: Well, Greece went back to the world's bond markets today and came away with (INAUDIBLE) with something of a bloody nose. Several new government bonds were launched today and this is -- how's this for a vote of no confidence?
Take a look at that. They immediately became the highest yielding bonds anywhere in the entire Eurozone. The bond that pays out the soonest, that is in 11 year's time, saw its yields soar more than 18 percent. And that's, in turn, sent shares in Athens sharply downwards on a day when there wasn't much action around in the rest of the European markets to, let's say, detract investors from the issues that Greece is facing.
Greek banks took the steepest losses. We saw Alpha Bank down more than 12 percent. And as you can see, the Athens General put on another decline of about 2.5 percent on the day.
Well, Eurozone finance ministers are set to officially signoff on the Greek bailout, the second one, today, then immediately move on to the next problem, which is Spain's deficit, because Spain's deficit plans are near at the top of the agenda at the ECOFIN meeting in Brussels, because this country has given up on targets that it had originally agreed with the EU this year. And mainly, that was designed to try and cut its deficit to 4.4 percent of its total GDP.
Instead, now, Spain has set its own, less ambitious target of 5.8 percent.
High yields in neighboring Portugal are also a concern for investors these days. The chief economist at Schroders, Keith Wade, says that we could see a debt deal with private bondholders for that country before the end of the year.
I asked Keith Wade, will we soon see some of these countries back in the situation like Greece? and with Greece needing a third bailout, there won't be much money to go around, will there?
KEITH WADE, CHIEF ECONOMIST, SCHROEDER: Well, I think there's probably quite a good chance that they will need another bailout. The -- the problem that Greece faces is that it's now in its fifth year of recession. And that really makes it very difficult to hit your fiscal targets. So if your economy is weakening and your tax base is weakening, you're having to pay out more in unemployment. And unemployment benefits are increasing as the unemployment rate has gone over 20 percent.
So our view is that there will be more fiscal slippage, as economists call it. And that will mean that the troika, the EU, the ECB, the IMF, will come in and say to Greece, well, you're not hitting your targets. And Greece will say, well, we're going to need another bailout.
DOS SANTOS: And already, just in the last couple of days, we've seen another about turn here, because people have been trying to market the Greek situation as being an anomaly here and that it was ring fenced, eventually. Now it seems as though even Spain is going to be enduring some of this fiscal slippage. Its deficit is going to come in bigger than expected.
How worried are you about contagion?
Does that come back to the forefront?
WADE: Well, contagion is a worry. But I think the European Union have been at pains to point out that Greece is a one-off. And, of course, Greece is special in many, many ways.
But, of course, the thing that all the peripheral countries have in common is that growth is very weak due to a lack of competitiveness. And that is what's making it so hard for those economies to grow out of this situation and really deliver on their fiscal targets.
So I think there is a risk that we do see some contagion. And, of course, the market, at the moment, is already very focused on Portugal, which is facing a problem of rising debt against the backdrop of weak growth.
DOS SANTOS: Yes, now, if we home in on Portugal, that was going to be my next question, yields, I think, soaring to about 13 percent in today's session, despite the fact that the situation vis-a-vis Greece, for the moment, at least, seems to be temporarily solved.
Is it going to be necessary that countries like Portugal will have to impose haircuts on investors and have some of their debt wiped off?
Some people say they will.
WADE: Well, it is a possibility. And, of course, I mean it's something that the European Union has said it won't happen, that they -- they won't actually have what we call PSI, private sector involvement in an economy like Portugal.
But, of course, when you look at the debt dynamics, you realize that the task that Portugal faces is very, very, very difficult. It's very hard to successfully reduce your budget deficit when you don't have much growth. And history shows that economies that have successfully reduced their budget deficits in the past, you know, have had that growth, that nice sort of tail wind keeping things going.
But we don't have that in Portugal. So I think they will be looking at PSI. And, of course, whatever people say, Greece has set a bit of a precedent. And I think Portugal will say, well, look, you know, why can't we have a restructuring?
Why can't we reduce our debt at a stroke of a pen and put ourselves on a more sustainable footing, rather than have to go through all this pain of fiscal austerity?
(END VIDEO TAPE)
DOS SANTOS: Keith Wade there from Schroders, speaking to me a little earlier on.
Time now for a check on your weather for you.
Meteorologist Karen Maginnis is standing by to tell us more at the CNN International Weather Center -- hi there, Korean.
KAREN MCGINNIS, ATS METEOROLOGIST: Hello.
And as we do take a look at what we anticipate going into the hot and dry summer months. It looks like it's going to be fairly bad across the United Kingdom, where already, water restrictions we're looking across the southern and eastern edges of the U.K. and into England, all the way from London into Birmingham, Peterborough, Lincoln and Norwich, water restrictions there because the last two years, there have been drought conditions. And going into the summer months, which are typically dry, it doesn't look like that's going to improve very much.
So the risk is high for a continuation of drought.
What does that mean?
It could mean higher food prices, certainly the crops are affected, as well as agriculture and into the fisheries. They are hampered, as well, as some of these riverbeds are really drying up.
But not just across the United Kingdom, looking down across the Iberian Peninsula, where, in this red-shaded area, over the last few months, since November of last year, they've only seen a small fraction of the precipitation they normally would, less than 25 percent.
So a devastating situation there, not just because of the agriculture and the economics of this, but you can see that this is tinder dry. It's going to make for very dangerous conditions. And already in Spain, as you look at this image, a lot of these fields are tinder dry. And there have been a number of fires that have been burning there, four in particular that have been burning out of control. We've seen a number of pictures coming out of there over the last week or so.
Take a look in the forecast overturns 48 hours. It looks like against the Aegean, we start to see that area of low pressure start to pull away. But not before places like in Romania, Macedonia, also into Bulgaria, they're reporting now some freezing fog and some ice fog. So very dangerous conditions here.
However, high pressure is across much of Western Europe. So it doesn't look like the rainfall is going to materialize here in the short- term, but we can see in the long-term, it doesn't look very good for that, either. And temperatures across London and into Paris and into Madrid are running three to seven degrees above where they should be for this time of year.
Right, we could see some weather-related delays coming up for Tuesday in the morning in Paris. And for Athens, some windy weather conditions, as that weather system pulls away.
And it looks like it -- for Athens, it could be the lengthiest delays, 60 to 90 minutes -- Nina, back to you.
DOS SANTOS: OK, Karen Maginnis there at the CNN International Weather Center.
Many thanks for that.
Up next, here's another idea to give your town a bit of a boost. We'll be taking a look at local currencies and also local currencies, to be specific, that are designed to keep your cash within your community.
DOS SANTOS: Well, across the globe, communities are trying to take control of where their money goes. This, for instance, is a Lewis pound. You can only spend it in the English town of Lewis in Sussex. Local currencies like these are designed to boost the local economy rather than, on the other hand, lining the pockets of some pretty big retail chains out there. At least that's the idea that's been taking off around the world.
Let's have a look at some other international examples of ultra local currencies like this, starting out with the United States.
Here, what we have is the Cascadian Hour, which was introduced into the town of Cascadia, Portland near Oregon.
Up next, if we head south, we can focus in on Ciudad de Deus in Brazil. As you can see, this is their local currency, which is the CDD. And that was introduced a couple of years ago.
And if we home in on this one, the German state of Bavaria, we have the Chiemgauer, as Diana Magnay that's a look at the economics of this local currency in the southern part of Germany.
Take a listen.
DIANA MAGNAY, CNN CORRESPONDENT (voice-over): It's a strange looking currency, more like a lunch token than hard cash. But down in this small pocket of Bavaria, one Chiemgauer is worth as much as a euro, perhaps much more, to the local community.
Julia Kollmannsberger sells mostly local produce from her store in Prianamkinse (ph), much of it bought and sold in Chiemgauer. "It basically encourages you to think about where you buy your produce from," she says.
Products like the Stuttsie (ph) cheese, half mare, half goat's milk, made half an hour down the road at St. Leonhard's Farm from mares bred specially for their milk.
"We support the Chiemgauer because it means the money we use in the region stays in the region," the farmer tells me.
But it will cost you. The Chiemgauer devalues every three months and costs 2 percent to extend the note.
Christian Gelleri, who came up with the idea, says that's to keep money, and therefore goods, changing hands.
CHRISTIAN GELLERI, CHIEMGAUER CREATOR: The reason is that money shouldn't -- shouldn't be hoarded or it -- it's not a speculation object, but it's an -- meaning -- a medium of exchange or media of exchange and -- and because of that, we -- we want that.
MAGNAY: But economist Gerhard Roesl, who wrote a report for the Bundesbank on the more than 20 local currencies in Germany says they only work in regions where consumers can afford them.
GERHARD ROESL, ECONOMIST: This is the traditional argumentation for subsidies. But there's a huge literature and there's a huge agreement between economists that the subsidies, in the end, only is favorable to producers, but lead to additional costs in terms of foregone possibilities on the consumer side.
MAGNAY: At a time when people are losing their faith in the euro and in the monetary policies of their government, local currencies can seem especially attractive, boosting community values and giving local people control over the way their community cash circulates. But it would seem they remain a luxury item, pegged to the euro, but in reality, a fraction more expensive.
Diana Magnay, CNN, Chiemsee, Germany.
(END VIDEO TAPE)
DOS SANTOS: Now, when it comes to this Lewis pound, I've been looking forward to spending it, but unfortunately, it seems to have expired. It went off as of the 31st of August, 2009.
I'll be right back with more QUEST MEANS BUSINESS after this short break.
DOS SANTOS: Well, it looks like it's game over for Game Group. Europe's largest dedicated videogames retailer has seen some of its suppliers now refusing to do business with this company and it's reportedly, as a result, looking for a buyer.
Let's have a look at what exactly is going wrong here.
Well, Game started losing its market share to Internet rivals and also supermarkets some time ago. A move into digital gaming just didn't seem to work for this company. And, as a result, well, banks cut the capital that they were willing to lend to this firm. Some credit insurers also stopped agreeing to reimburse suppliers if Game, in turn, couldn't pay them back for the stock that they supplied.
That was really where things went wrong.
But then what we saw was Nintendo and Electronic Arts -- there's some really big gaming companies here -- starting to withhold blockbuster games to Game as of last month. And that, in turn, sparked a collective panic attack over the company's future prospects.
This has played out really badly for this company over the stock market. As you can see, Game Group's shares lost two thirds of their value just in today's session in London alone.
So far, over the last year, they've lost 98 percent of their value. And today, this firm, Game, warned shareholders that their equity could now be worthless as a result.
And that's it for this edition of QUEST MEANS BUSINESS.
Thanks ever so much for joining us.
I'm Nina dos Santos at CNN London.
And the news continues here on CNN.