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QUEST MEANS BUSINESS
Fitch Downgrades Spain; Merkel Ready to Act; OECD Secretary-General Calls for Action; German Chancellor Calls for Greater Integration; China Cuts Rates; US Fed Chair Urges Politicians to Act; Euro and Pound Strengthen; Greek Unemployment Climbs; Spain's Job Crisis; Spaniards Leaving Country to Find Work; Former UK Foreign Secretary Calls for EU Membership Vote
Aired June 7, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: It's not every day you hear this in the world of economics.
(BEGIN VIDEO CLIP)
ANGEL GURRIA, SECRETARY-GENERAL, OECD: Our backside is on fire, and we should go and sit on the nearest pond.
(END VIDEO CLIP)
QUEST: A blunt message from the secretary-general of the OECD. Europe, you are out of time.
Fitch today takes Spain down a peg or three.
I'm Richard Quest. And yes, I mean business.
Good evening. It may seem like Groundhog Day, but once again, I'm afraid to say, it is the eurozone and its trials and more tribulations. Let's lead our program tonight. The various developments that prove that the zone is getting every closer to its next crisis. These are the developments you need to know about today, and they come to us on the super screen.
In Spain, there has been a rating cut by Fitch, which has downgraded the Spanish sovereign debt by three notches to -- now it's to Triple-B. Even so, Spain did manage a $2.5 billion auction of bonds. The average rate for the ten-year -- they're only selling 600 million of ten-year -- was 6.4 -- 6.04 percent. But that was still higher than in April.
The good news for the Spanish auction, the cover was times three, three times over subscribed. But where Spain starts, now, of course, we have to go to Germany, where the chancellor, Angela Merkel, insists she is prepared to act, to use all the instruments to maintain the stability of the eurozone.
But returning to an old favorite theme of Mrs. Merkel, she said financial union isn't enough, there needs to be political union, too, with states giving more power to Brussels. A red rag if ever there was one to those countries that still believe in national states and sovereignty.
In Spain, in Germany, but in the United States, the Fed Reserve chief, Ben Bernanke, has told Congress that the central bank is prepared to act, but he made no hint of stimulus or specific requirements or specific measures. In other words, QE3, not today, here.
In China, there was an interest rate cut for the first time since 2008, giving the banks flexibility to offer higher rates to savers and lower rates to borrowers, which is ironic when you think that what was happening in China, they were raising rates just a few years and months ago to try and slow down an overheating economy. Now, the talk in China is whether it will be the soft landing, consequently, the rate cut.
The Secretary-General of the OECD, Angel Gurria, has some extraordinary and blunt words tonight on the global economic scheme, seen particularly in the EU. Europe's backside is on fire, he says, and it needs to jump into the nearest pond. I spoke to the SG earlier, and he made it clear, Europe has the tools, it now needs the will and the courage to use them.
GURRIA: My understanding is that Europe has the capacity to come up with the goods to help capitalize the banks in Spain.
Spain itself has a lot of muscle that it can use, and that what we have here is a problem of governance of the process and of using the European institutions to the hilt, to its fullest rather than constantly being -- putting out why we can't do this, why we can't do that. There is -- this is a very unique situation where the problem can be solved, can be addressed.
QUEST: OK. But it will only be addressed if somebody gets off their backside and actually starts addressing it. You had Mario Draghi saying it's up to governments, you've got the Spanish saying they're not going to go for a bailout yet. At some point, someone somewhere is going to have to do something.
GURRIA: Yes, and basically, now we have to stop passing the buck elsewhere, because it is no longer a question of moral hazard, it is no longer a question of whether there's an allocation of duties. Now, really, our backside is on fire, and we should go and sit on the nearest pond. And that means get the banking issue solved, in particular, the most urgent one, which is the Spanish one.
GURRIA: And also put out enough firepower that the markets will know that Spain and Italy are going to be supported --
QUEST: OK --
GURRIA: -- by Europe as a whole and that Europe has a bazooka ready to be used if necessary.
QUEST: Whose responsibility is it to lead, and please, sir, don't say everybody is involved. Somebody has to -- to start this thing off. Whose responsibility is it?
GURRIA: The countries in Europe own the institutions. They have to be served by the institutions, not serve the institutions themselves. The institutions that they own and that they created cannot tell them what they should do.
They basically -- they should tell the institutions what to do. And here, I'm talking about the ECB, which should be told, please address the question of the bonds, address the question of the capitalization. Let's use the ESFS, let's use the ESM, in order to deal with these issues.
The problem, if we gave -- we give the impression that we're out of ammunition. We're not out of ammunition in Europe. We can do it. And basically, yes, there is a political issue here, there's a governance issue. But the stakes are very high.
The awareness of the risk that we're running is absolutely critical so that people will get off their principled positions -- this is no longer about moral issues, it's about --
QUEST: But are there -- OK, but --
GURRIA: -- the systemic impact.
QUEST: But hang on. We've got Cameron and Merkel today in Berlin. You had Draghi yesterday, you've got Van Rompuy and Barroso speaking almost every day. But frankly, we are no further getting better from an immediate crisis, the ticking time bomb that threatens to explode.
GURRIA: What we are saying is there is no longer any time left to be making speeches or to be telling the others to do something. Now, it's the time to take decisions to make the institutions work for the Europeans and obviously that requires that the largest countries, i.e. Germany, but also France and also Italy and then everybody else in the group, get together and understand what is at stake.
QUEST: Angel Gurria talking to me in very blunt terms. At the heart of it, of course, is the level of integration that the various eurozone countries are prepared to accept to make the euro work as a proper currency.
Today, the German chancellor held talks with her British counterpart, David Cameron, in Berlin. Angela Merkel warned Mr. Cameron, those that don't want deeper integration could be cast out from Europe's inner circle. Our correspondent in Berlin tonight is Diana Magnay.
DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Two words, really, coming out of Berlin and that meeting between the German chancellor and the British prime minister this Thursday. Those words are "more Europe," both leaders agreeing that the fiscal pact is a starting point, but it is not enough, that the single currency needs greater integration.
Chancellor Merkel said in an interview she gave to German television earlier that she was OK with there being a two-tier Europe, that those members that weren't part of the eurozone, such as Britain, could not hold the eurozone back on its path towards greater integration, and that she believed that really, the only end game for Europe out of this crisis is greater political union, a greater transfer of power to Brussels.
She also said that she felt that Europe already had the instruments at its disposal needed to fight this crisis. Let's take a listen.
ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): In view of the current difficulties, it's important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary, and that this is an expression of our firm desire to keep the euro area stable.
MAGNAY: So, what does that mean? Does it mean that Angela Merkel is saying no to introducing euro bonds? No to talk of a banking union, and no also to increasing the European rescue fund, the firewall.
These are all points on which she is becoming increasingly isolated throughout Europe as leaders like Francois Hollande in France, David Cameron, start to call for Germany to start pooling its debts.
She says that that is all much further down the line and that this will be a long process, don't expect any quick fixes from the European summit at the end of the month, she said.
Diana Magnay, CNN, Berlin.
QUEST: And so, the drama goes on. Coming up next, danger, precipice ahead. The Fed chairman Ben Bernanke's warning Congress the economy's headed for a cliff. Be careful, don't let it go over the edge.
QUEST: China's central bank cut interest rates today. It's the first time in four years and the highest-profile move we've seen to prop up the economy as the pace of growth is weakening. It's not long since the bank was raising rates to clamp down on rising inflation. Just 25 basis points, but the symbolism is not lost on the markets.
And now, the head of the US central bank has been speaking and said there was no hint he was about to follow China's lead and deliver a new economic stimulus, at least that appeared to those who were listening.
Ben Bernanke's message was more like the one we heard earlier this week from Mario Draghi at the ECB. Both told politicians it was up to them to make the key decisions. The Fed chairman was speaking before the joint economic committee on Capitol Hill.
Maggie Lake is with me, and -- from New York. All right. QE3. Ben Bernanke is never going to come out and say, "Oh, I'm going to do QE3 a week next Thursday."
QUEST: But he can give an indication of the severity of his thinking.
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: That's right, Richard. And I think that he sort of was a little bit maybe more balanced or keeping his cards a little bit closer to his chest than investors had perhaps hoped he would.
But given the fact that there's sort of not a lot else they can do, you do want to deploy whatever you have with sort of stealth and when you need to and only when you need to, is what I would say, and I think Bernanke knows that.
Listen, this is a -- you know, in an election year, when you were testifying in front of Congress that in a -- with an economy in the US here that's still sub par, with job growth that seems to be sort of decelerating, you would think this would all be about domestic politics, and they certainly did spend some time talking about the so-called fiscal cliff we face here.
But I have to tell you, the beginning of the hearing was dominated by questions about Europe. There was a huge amount of concern about what that could do to the US economy. Ben Bernanke not giving that explicit guarantee that the Fed is going to do anything or any sort of time frame, but he did make it clear there are a lot of downside risks, and he did talk about Europe. Have a listen.
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BEN BERNANKE, CHAIRMAN, US FEDERAL RESERVE: The situation in Europe poses significant risks to the US financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the US financial system and economy in the event that financial stresses escalate.
(END VIDEO CLIP)
LAKE: And that is a line you're likely to hear from the Fed over and over again. When pressed, Bernanke did say, listen, we've worked really hard to get the US banks, the big banks, in better shape, well-capitalized, to try to weather any kind of contagion, and he feels that they are.
But Bernanke and everyone else knows that if Europe starts to hit some serious, serious problems, that that is going to spread right around the globe.
Interesting, Richard, in a week where you have all the central bankers talking, China's cutting rates --
QUEST: All right.
LAKE: -- the Fed is saying it stands by ready to move, and yet nothing from the Bank of England and from the ECB.
QUEST: An interesting point. I hadn't really thought about it that way. Many thanks, Maggie Lake. Well, wait until we -- let's wait until we get the minutes from the Bank of England. Maggie Lake is -- she's gone.
All right, the Currency Conundrum tonight. On many US coins, you'll find the letter P. What does it stand for? Is it purity of the metal, the presidential seal, or Philadelphia, 1776 and all that? The answer on P later in the program.
Those are the Ps, now the rates. The euro strengthened against the dollar, Spain's bond auction helped. So did China's interest rate cut. The pound climbed to its highest level in a week after the BOE decided against QE. The Japanese yen fell. Those are the rates --
QUEST: This is the break.
QUEST: There are 10 days to go until the rerun general election in Greece, and new figures are showing a crumbling economy that's now throwing seriously more people out of work.
Look at the results of five years of recession, and as you can see, the unemployment rate -- whoa. That is quite horrific. The unemployment rate continues to rise. March 2012, it is now at 21 -- let's call it 22 percent, more than one in five of the work force.
And of course, that doesn't really tell the whole story because, as in the rest of Europe, among young people, it's much worse, 52 percent are out of work in the 15 to 24 age bracket. That is a serious situation.
And it is a similar situation in Spain, but because it's a bigger country, we're talking about a far greater number of unemployed. Many young people have simply given up hope of finding work and are getting out. Our Madrid correspondent and bureau chief Al Goodman is with me.
Before we talk about the unemployed, or you tell us about the unemployed, Al, clarify once and for all, when it comes to the banks, is -- has Spain said it does need a bailout, it doesn't need a bailout, or it's still thinking about asking for external support?
AL GOODMAN, CNN MADRID BUREAU CHIEF: Hi, Richard. It's still thinking about asking for external support, and the Spanish prime minister at a press conference in Madrid a few hours ago said he couldn't put a figure on it.
And he want to know what the IMF has to say in terms of how bad it is for the Spanish banks and what the two independent auditors that Spain has hired, what figure they come in. He insisted he couldn't give a figure, then he gave some figures, 40 billion to 80 billion euros is what might be needed.
But he said that far from your guest a few minutes ago that the house is on fire, he painted a picture of calm, which is what he's done in the past. Let's listen to how he put what Spain needs to do.
(BEGIN VIDEO CLIP)
MARIANO RAJOY, PRIME MINISTER OF SPAIN (through translator): We need two things so that we can grow and create jobs. First, we need public administrations that don't spend what they don't have, because you can't live like that anymore. You can't live above your means. And two, we need financial institutions that have been cleaned up and are solid.
(END VIDEO CLIP)
GOODMAN: Well, the financial institutions aren't cleaned up, and that's at the high level. But down on the street, as you were just referring to, Richard, the economic crisis here is forcing an increasing number of Spaniards to pack up their bags and leave the country. We caught up with one young man. Here's his story.
GOODMAN (voice-over): David Rios is one of the 5 million Spaniards out of work. He won't be buying eggs much longer at this shop in Madrid. "I'm going to Norway," he tells them, where he's finally found a job.
We first met Rios last month at protests in Madrid against Spain's austerity measures in the economic crisis and its 24 percent unemployment rate.
RIOS: I think in Spain, we need to change. Me, for example, I have several studies. I'm a nurse, I'm an x-ray technician, and I need to go to Norway to find a job. And I think this is not normal. I did everything the system is supposed I should do.
GOODMAN: Rios has been learning Norwegian. At home, he showed us messages to the firm that hired him in Norway. It's a two-year contract in a hospital that pays $3700 a month, twice what he would earn in Spain, he says.
Decades ago, tough economic times forced Rios's parents to pack their bags and move to France. Now, a family history repeats itself.
RIOS: And always my father said, "You are not first-class citizen in other countries. You're always going to be an immigrant." But I wasn't as worried as him. I'm not a first-class person in Spain also.
GOODMAN (on camera): In the first quarter of this year, 27,000 Spaniards packed their bags and left the country. That's twice as many as during the first quarter last year. According to the government, in the past three years, there's been a steady increase of Spaniards leaving.
GOODMAN (voice-over): This multinational employment agency says companies in Germany, Brazil, and China are recruiting well-trained but jobless Spaniards, like engineers.
CRISTINA MALLOL, RANDSTAD PROFESSIONALS (through translator): Those countries know that right now, with the Spanish economic crisis, people in the labor market could have the qualifications to work in their companies.
GOODMAN: Rios is part of what many call Spain's best-trained generation ever, now heading abroad with a traveling companion.
RIOS: I'm going to bring my cat with me. I think it's like a friend, a companion. I don't want to feel alone there when I arrive home.
GOODMAN: Rios says he tries to see the opportunity, not the sadness of leaving family and friends.
It's a long way to go to earn a living.
GOODMAN: David Rios will be safely up north in Norway working well before Spanish banks get cleaned up, you can bet on that, whether it's going to be a rescue or a bailout. Richard?
QUEST: Al Goodman, we will follow him to Norway and we will report when and if he finds employment. Al Goodman doing work for us tonight in Madrid.
One of Britain's political elder statesmen is now saying that there should be a referendum to let Brits decide whether to stay in the European Union. Lord Owen was Britain's foreign secretary in the 1970s. He says Europe needs to develop into a more close-knit political union along the lines that Chancellor Merkel has been talking about today.
Lord Owen joined me earlier when clearly the only question to be asked was fiscal and political integration were the way forward.
DAVID OWEN, FORMER UK FOREIGN SECRETARY: I think the British people have always been quite clear, they are prepared for a single market, but they are not prepared for a single government.
Once you have a single currency, you do need a single government. And that is the real flaw in the whole of the euro design ever since Maastricht. It's come home to roost, and I do think Angela Merkel understands that.
QUEST: How come they didn't? My understanding is that they did know there was this problem throughout with the EU.
OWEN: Yes, I mean --
QUEST: They weren't stupid people, they knew there was a problem of not having a single unitary authority.
OWEN: Chancellor Kohl was warned by the Finance Ministry inside Germany, and he still went ahead. He was warned not to take on countries like Greece and Italy, and still they went ahead.
We've had some visionary politicians. Kohl deserves great praise for what he did in unifying the two Germanys and persuading West Germany to pay the price of bringing East Germany into the fold.
Angela Merkel is well aware of what she needs to do and she is prepared to do it under some circumstances, which is namely she thinks a lot of this is due to indiscipline. She is ready to fund these countries which have gotten themselves in this mess as long as she can say to the German people, it won't happen again. And that is why she wants political union, she wants to have a hold on these countries.
Now, I think she should be given that, is that is what she wants and the eurozone countries want. But --
QUEST: If they don't have it, it won't work.
OWEN: I think it is true, yes. I've always believed that a single currency's almost impossible to run unless the countries merge or are en route to merging into one country, and I think that is what we are beginning to see in the eurozone.
Thank goodness Britain is not involved in it. Doesn't solve our economic problems. We've got to deal with those on our own. But the single market is in overall European interest to keep it together and also to widen it to Turkey and involve the EA countries, like Norway, Iceland, and even small Lichtenstein.
QUEST: The way in which this crisis has been handled, each time, another bit of the -- another bit explodes, like the proverbial balloon, squeeze it and a bit pops out somewhere else. But we are now at the point where it's getting really very serious.
OWEN: The banks have behaved in many countries totally irresponsibly. They will not fess up to the reality. They know they're in a very delicate situation, but they believe they'll always be bailed out. And history over the last few years sees to indicate that that is always going to happen.
With Lehman Brothers, there was an attempt to try and introduce some moral hazard. There were some limits. But the repercussion of effects of Lehman Brothers has frightened everybody out of their wits.
QUEST: So, finally, no moral hazard. You wouldn't be prepared to do moral hazard now with the banks, or would you?
OWEN: If you get into a situation we're more or less in, now, that all these banks think they're always owed support, that they are never going -- face up to their responsibilities, because somebody will bail them out, then we're in a pretty serous situation.
QUEST: Lord Owen talking to me earlier.
In a moment, Spain's sellout bond auction shows investors still have an appetite for eating Spanish debt. How long that appetite will last before finally they say full up?
QUEST: After the break.
RICHARD QUEST, CNN HOST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and here, on this network, it's the news that always comes first.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The U.N. and Arab League's special envoy for Syria has been telling the U.N. General Assembly that the peace plan is not working. The Syrian regime is not cooperating.
Syria's ambassador said his government extends the hand of reconciliation to those whose hands are not tainted by blood. U.N. Security Council is set to meet in a short while.
The credit rating agency Fitch has cut its rating on Spanish government bonds by three grades. Spain sold fresh funds on more than bonds worth more than $2.5 billion, despite worries over its banking system. The costs rose and paid more than 6 percent to borrow money.
A television debate in Greece turned violent early today. Ilias Kasidiaris, a lawmaker for the far right Golden Dawn party threw a glass of water at a female politician of a rival party. Well, there you see the rest of it. The prosecutor's office has issued a warrant for the arrest of Kasidiaris after he launched into fisticuffs.
Spain's over (inaudible).
QUEST: So Spain managed to sell bonds. They were oversubscribed. The interest rate was a bit higher and one perhaps says it shows the door to the bond market hasn't yet closed. Mohamed el-Erian is the CEO of PIMCO, the world's biggest bond investment firm. He joins from PIMCO's headquarters in California.
Good to see you as always, . All right, the core question: how worried are you that Spain is the next ticking time bomb waiting to explode?
MOHAMED EL-ERIAN, CEO, PIMCO: I think like everybody else, we're worried. We're worried because Spain is fundamentally different from a Greece or a Portugal or an Ireland because of its size and its role within the Eurozone.
So we are worried. We are looking at different contingency plans. We are hoping for the best, but planning on different scenarios because it's very difficult to predict at this stage, Richard, what's going to happen.
QUEST: OK. So whose job is it to actually now take the lead here? I mean, the government says it's going to wait for the IMF report and it's going to wait for the independent analysis of the banking system. Mario Draghi says it's up to the politicians. All the politicians at the Brussels seem to do is come up with 171-page report about banking unions in years to come.
EL-ERIAN: And that is a fundamental problem, is that it's everybody's issues, it's everybody's challenge and yet they're not being coordinated. So what's happening right now is people are pushing the problem to somebody else.
Your image of a balloon for Europe is actually also an image for whenever it comes to who's leading. Fundamentally, who you need in the room are the Big Four: Germany, France, Spain and Italy. And if they can get core agreement, then you can get some others.
But fundamentally, this is no longer about a Eurozone of 17 members, Richard. This is about a smaller and less imperfect Eurozone and that decision has to be taken and has to be taken quickly.
QUEST: OK. (Inaudible) said exactly the same thing not half an hour in different words, but the fact is, Mohamed, so late into this crisis and having dropped the ball on so many occasions, why should we believe that they are going to get it right with Spain?
EL-ERIAN: Well, we can hope they're going to get it right. People are nervous and what you're getting, depending on where you look in Europe, is that the populations, the citizens are starting to retract economically, finally, politically and socially.
Now in Greece, it's all four; in Spain, it's still not there yet and if the policymakers don't get their act together quickly, then they're going to lose control of the situation. And that's the most important issue.
QUEST: Do you expect Mario Draghi ultimately, no matter what he said (inaudible) his press conference yesterday, he is going to be the one that is going to have to sit down to a smorgasbord of bonds.
EL-ERIAN: So whenever you look at Draghi or if you look at Bernanke today, think of three issues: willingness, ability and effectiveness. Will he, when push comes to shove, be willing to do something? Yes. Does he have the ability to do something? Mostly. He doesn't have really good instruments, but he can provide a bridge.
Is it going to be effective, and the answer is it will not be effective if it's a bridge to nowhere again. He needs the politicians to get their act together. So when Draghi speaks, he will be willing to do something at the end of the day, but it's not going to be necessarily effective.
QUEST: And I don't mean in this interview, I'm talking about in the crisis, what I'm about to say. We're going in circles here, aren't we? And they're becoming ever decreasing and, frankly, we are seeing Greece redux, Ireland redux, you know, we don't need a bailout, we don't need -- oh, can we have a bailout, please? And until somebody takes the lead, this is going to be messy.
EL-ERIAN: It is. I'm often left with the image of rolling a snowball down a hill. Forget about kicking the can down the road. They're rolling a snowball down a hill. And two things happen when you do that. The snowball gets bigger, the problems get bigger, but importantly, you start losing control of the snowball. So, yes, they don't have much time. Spain is fundamentally different. Spain is very large. So if they don't get this one right, it will overwhelm the system.
QUEST: Mohamed el-Erian in California, good to have you on the program as -- lovely to see you as always. (Inaudible) talking such good common sense: willingness, ability and effectiveness, and they are the three criteria Mohamed mentioned, but we will certainly be following. The willingness to act, the ability to do so and the effectiveness of their actions.
The willingness to show you the big board -- (inaudible) -- the ability to understand what it means and the effectiveness if you're long in the market, up 109 points, nearly just about 1 percent. The euro markets, we need to update you.
European shares rose for a second straight day, although after Ben Bernanke's comments, they lost a tad of ground. On the plus side, China's interest rate cut Spain managing to raise the bond market. The best gains were on the banks and they were in London on financial stocks rallied, RBS put on more than 5 percent; Barclays, 2.6; Lloyd's closed up 31/2 percent. The weather forecast is next.
(BEGIN VIDEO CLIP)
QUEST (voice-over): Now the answer to our "Currency Conundrum," I asked, the letter P, what it stands for when it stands on U.S. coins (inaudible) purity, the presidential seal or the city of Philadelphia? (Inaudible) it is the letter C, Philadelphia, the home of the first U.S. Mint. Every coin it make except the penny is marked with a P. Other mints include D for Denver, S for San Francisco.
(END VIDEO CLIP)
QUEST: Now, before we check the weather, if you have a "Currency Conundrum" question that you think you could fox or beat anybody else on, do send it to us, email@example.com, the "Currency Conundrum" question or @richardquest is the Twitter address, which may or may not appear on the screen, where you can send it, and we'll obviously check your question.
But if you think you've got the right question, and you can outwit your fellow viewers, that's a good on. So it's @richardquest for the "Currency Conundrum" if you've got one, we want to hear about it.
Now yesterday we were talking a stormy start to the part of Europe for the weekend. Jennifer Delgado promises me, she says, it's going to be worse than what we've already seen. A lot of wind, I'm told, Jennifer.
JENNIFER DELGADO, AMS METEOROLOGIST: Yes. It -- you know what, how's the weather out there today?
QUEST: Well, it was very wet, which means I got rained on when I came into work, when I went out for lunch, when I came back to the office and I went out to get my latte.
DELGADO: And when you go home, it's going to be raining again. It's really going to be a wet couple of 24 hours --
QUEST: Why? Why?
QUEST: What's going on?
DELGADO: It's like you didn't listen to me yesterday. We have a strong system that's moving through and this low is bringing with it the gusty winds. Now as I step out of the way for you, Richard, this is why. You see that circulation, well, there's the low and that is going to continue to swoop in more rain, and it has been coming down through southern parts of England.
But look at the strong storms that have been moving through parts of southern France as well as moving into southern areas of Germany, very strong storms. They've been producing wind gusts in excess of 130 kilometers per hour. So definitely a wild weather pattern in place.
Now we do have a severe weather threat once again for today, as we go through Friday morning, anywhere in orange as well as this darker shade here, we're going to look at the potential for some of these storms, produce some tornadoes and some large hail. And I'm going to talk more about hail a little bit later on, other parts of the world.
But we're also talking about those winds. Once again, potentially being in excess of 100 kph. So how could this affect the French Open? Well, for tonight and as we go through the next couple hours, more rain is in the forecast. But even for Friday, shower chances stick around. By Saturday, we'll start to see some improvement.
But notice, it's going to be just a little bit cooler out there but still the chance of showers is going to be sticking around as we go into sort of Saturday, but a better chance for play certainly is going to be over the weekend. High temperatures generally in the 20s as well as just a few 30s for Athens, you're our warm spot today, 24 degrees in Kiev. And 16 degrees for the afternoon high for Friday for London.
Now this is the best video I've seen in I don't know how long, Richard. Let's go to this video. And what do you think this is? You see this video coming out of Colorado Springs. This is out of the U.S. state of Colorado, Richard, maybe you've seen this. What do you think this is?
QUEST: Well, I'm tempted to say snow, but I think I know what it is.
DELGADO: What is it? It's hail.
QUEST: It's hail, yes.
DELGADO: It's hail.
QUEST: The size of golf balls.
DELGADO: It's pretty big. But look at how deep that hail is. I mean, covered up to the cars, people had to abandon their cars there. And of course, this looks big business for the auto dealers there. I thought this video was pretty incredible. I don't think you're as impressed by this, so maybe you have higher standards over there.
QUEST: No, quite (inaudible) I was amazed. I'm just trying to think what it must have been like when it --
DELGADO: Coming down.
QUEST: -- (inaudible) down.
DELGADO: Yes, they said that it came down for an hour and a half straight for some areas.
QUEST: (Inaudible). Jennifer Delgado, many thanks.
DELGADO: Have a good one.
QUEST: Jennifer, I -- she wonders why I'm not impressed, she's giving me a weather forecast that basically says it's going to be horrific for the next awful. All right, Jennifer, good to see you.
QUEST: And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Thank you for your time and your company. Whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE EUROPE up next.
QUEST: From Budapest in Hungary, this is MARKETPLACE EUROPE. I'm Richard Quest. Eight years after Hungary joined the European Union and the country is once again looking to the IMF and E.U. for financial help, teetering on the brink of recession, the economics minister tells me that Hungary's economy is not about to sink.
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GYORGY MATOLCSY, ECONOMY MINISTER, HUNGARY: It's nonsense. The Hungarian fairy tale or the Hungarian example will be a successful one in a year's time.
QUEST (voice-over): And coming up, could Daimler's new Hungarian car plant help steer the country clear of recession?
QUEST: Here in Hungary they know a thing or two about building a good motorcar and they do it at the right price, which is one reason why the German car maker Daimler decided to invest more than $1 billion in a new factory less than an hour from Budapest. Ayesha Durgahee has been to Kecskemet to find out more.
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AYESHA DURGAHEE, CNN CORRESPONDENT (voice-over): Just two minutes and not a second more to get each stage complete before Daimler's new range of compact cars moves on down a Hungarian assembly line. The workers here don't need to watch the clock (inaudible) for the number of cars assembled ticks towards their target. Today that's 174. The workforce here is part of Daimler's plan to rev up the competition with Audi and BMW.
UNIDENTIFIED MALE: This year we will be producing about 40,000 cars because we're in the middle of the ramp-up, but already next year, we will be able to meet the target of more than 100,000 cars. We had 15 different sites to select from. And at the end, there were a lot of different fears (ph) that made us come here to Hungary, not just because availability of qualified workers and so on.
And I'm glad we made the decision to come here to Hungary and to see other automotive companies expand. And Hungary shows us that we made the right decision.
DURGAHEE (voice-over): It's not just the skill of Hungary's workforce that makes the country attractive. Labor is much cheaper. In fact, their wages are a fifth of the cost of their German neighbors. The center of automotive research at the University of Duisburg estimates that the average wage for a German auto worker is $58 an hour, compared with just $11 here.
In all, Daimler says production costs are 30 percent less, making for a healthier profit margin.
MICHAEL TYNDALL, DIRECTOR OF RESEARCH, BARCLAYS CAPITAL: The main failing of the European industry is that it hasn't really adjusted its production footprint to the underlying financials or economics of the industry. So consumers are getting cars cheaper in real terms. They're getting cars with more content.
But at the same time labor costs, raw material costs are going up. So someone has to be squeezed. And at the moment, it's the bottom line for the car makers.
DURGAHEE (voice-over): The assembly process of a four-door coupe takes six hours. The car frames arrive fresh from the paint shop; the doors are removed and sent down a separate assembly line.
ISHTON BATCHTER (PH), ASSEMBLY MANAGER: Every station is two minutes, but this process is only one minute.
DURGAHEE: One minute.
Ishton Batchter (ph) worked for General Motors and Audi before becoming assembly manager for Daimler. With such an intricate yet regimented assembly process, Ishton (ph) shows me his favorite stage.
BATCHTER (PH): So we make the body with the engine, and this is the station of the mirrors (ph), the first placement of the mirrors (ph).
DURGAHEE: The mirrors (ph).
UNIDENTIFIED MALE: Before this point it was only a body and only an engine and now it's a car, a new car, bond (ph) a new car.
DURGAHEE: All they need now is some wheels.
DURGAHEE (voice-over): By the end of the year, Daimler will employ a total of 21/2 thousand workers with the hopes that in 2013, it can start making up to 100,000 cars each year.
With car sales continuing to decline across the continent for what looks like a fifth consecutive year, $1 billion investment into a plant with a highly skilled and cheaper workforce will only pay off if Daimler hands over the keys to a car that customers really want.
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QUEST: Coming up after the break, Hungary's finance minister describes his handling of the economy as orthodox and unconventional, but says the crisis is over. That's next. Drive on.
QUEST: Welcome back to MARKETPLACE EUROPE in Budapest. This is the Ministry for National Economy in Hungary. Here, they're grappling with the fact that Hungary's economy is on the rack. GDP in the first quarter fell by 1.3 percent, the worst in the European Union.
Hungary's seeking help from the International Monetary Fund, and the Fund is refusing to negotiate until the government guarantees the independence of the central bank.
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MATOLCSY: In order to bring the deficit down we used a good deal of unconventional economic measures (inaudible) the first countries in the European Union introducing a bank levy, there were the private (ph) statistic formerly, mandatory private financial scheme (ph) (inaudible) now. It was approved by the European Commission and by the (inaudible) that our fiscal condition is in order. So it's over, the crisis is over.
QUEST: But you grew. But your economy contracted more than 1 percent, Q on Q, in the first quarter. It's the worst of the union.
MATOLCSY: Of course, but when you have looked at the last year's last quarter, (inaudible), it was one of the best within the European Union. So it is a transitional period for the Hungary economy. We'll have, may I just say, robust economic growth figure for next year. This year is a little bit risky, you are right.
QUEST: Everything I read is roundly criticizing the stewardship of the economy at the moment for the unconventional, for all the things that you know. You know these criticisms. Why are they wrong, these people who are criticizing you?
MATOLCSY: You are absolutely right. (Inaudible) heavily criticized against the backdrop for the good deal of unconventional measures. But it is the future. We were forced to be innovative, creative.
QUEST: Too innovative? Too creative? The economists say the economy's on the wrong track.
MATOLCSY: To some extent, yes. But we managed to complete a successful fiscal consolidation (ph) scheme using, of course, you're right, unconventional, even unorthodox measures. But the whole European economy will go for growth and job and creativity. It's badly needed to have creativity within the European Union.
QUEST: So when people say Hungary is headed for disaster and the economy is headed for the rocks, you would say they are wrong and firmly wrong?
MATOLCSY: Absolutely. It's nonsense. It's nonsense. The Hungarian fairy tale or the Hungarian example will be a successful one in a year's time.
QUEST: Slow growth, high unemployment, a deficit that's being managed only by smoke and mirrors at the moment, increased tax -- a flat tax that's lowered the tax base.
MATOLCSY: Now, now, all coins have two sides. You've got a lowering, decreasing public debt level. You've got a sustainable budget deficit level. There will be lowest (ph) percent of the GDP, more new jobs in the economy and, of course, a transitional period for growth.
QUEST: But you are going to have to backtrack on the rules on the central bank. And the sooner you do it, the sooner everybody's going to get off your back.
MATOLCSY: Right. Richard, the Hungarian sentiment is 100 percent independent (ph).
QUEST: Others don't agree with you, Minister.
MATOLCSY: But you know, by definition, they are independent from the government and all the loans (ph) needed to make it absolutely (inaudible) for everyone will be in the parliament and it will -- and all these loans (ph) will be approved by the end of June.
QUEST: I ask you, Minister, where do you see the strengths of the Hungarian economy within the European Union in the future?
MATOLCSY: May I just say that I see the strengths of the whole central European region. We'll be the next. We'll be the next hub for the global business community. We'll replace the southern belt (ph) of the Eurozone with the central European region.
It will be a very strong region, because it will be a region between Europe and Asia, between the states and the European Union. So it is the next emerging region called central Europe (ph) and you can find Hungary at the very heart of this region.
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QUEST: Gyorgy Matolcsy, the economics minister. And that's MARKETPLACE EUROPE for this week. I'm Richard Quest in sunny Budapest. Whatever market you're in, I hope it's profitable. And I'll see you next week.
I do like a nice water feature.