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QUEST MEANS BUSINESS
US President Urges Europe Clean Up Debt Crisis; Earth Institute Director Says Banks Must Be Stabilized First; Aid for Spain; Bailout "Lite"; US Stocks Push Higher; Euro and Pound Slide; Euro 2012; Politics on the Pitch; European Weather Outlook
Aired June 8, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: You know what to do, now do it. The US president's warning to Europe today.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: And what we can do is to prod, advise, suggest. But ultimately, they're going to have to make these decisions.
(END VIDEO CLIP)
QUEST: First decision: Spain, and reports of an aid request. Could it come this weekend?
And Euro 2012, the group of debt. Financial estimates from the football field.
It may be Friday. I'm Richard Quest, and I still mean business.
Good evening. When the US president calls a press conference on a Friday in June, the situation must be serious. With rumors swirling that Spain will call for a bailout within days, President Obama said it was now time for European leaders to show political will and do something about the debt mess. And for good measure, he gave them a to-do list.
(BEGIN VIDEO CLIP)
OBAMA: In the short term, they've got to stabilize their financial system, and part of that is taking clear action as soon as possible to inject capital into weak banks. Just as important, leaders can lay out a framework and a vision for a stronger eurozone, including deeper collaboration on budgets and banking policy.
What we try to do is to be constructive, to not frame this as us -- scolding them or telling them what to do, but to give them advice in part based on our experiences here in having stabilized the financial situation effectively.
And -- ultimately, though, they're going to have to make a lot of these decisions, and so, what we can do is to prod, advise, suggest. But ultimately, they're going to have to make these decisions.
(END VIDEO CLIP)
QUEST: Now, the much-respected economist Jeffrey Sachs is also in favor of Spanish bank bailouts and saying the fiscal crisis can only be addressed after the region's banking sector issues have been resolved. Jeffrey joins me now from Columbia University in New York.
Prod, advise, consult. It reminds me of the old -- words that they used to say about the queen, the right to advise, warn, and be consulted. But the fact that President Obama is saying this today has a -- I mean, yes, his jobs problem was also discussed, but this was a press conference about Europe. It's pretty dramatic stuff.
JEFFREY SACHS, DIRECTOR, EARTH INSTITUTE: It is indeed dramatic, and when we have one of China's leading financiers saying that they are withdrawing money from Europe as well, you know that we're right at the cliff. We're right at the edge.
The eurozone could collapse, actually, within days or weeks. It's not just Spain, as the drama is today, but of course, Greece. And when Greece votes a week from Sunday on June 17, this could lead to yet another terrible confrontation, a frightening one --
SACHS: -- between Greece and Germany. And if this isn't worked out collegially with the determination of German leaders and all of Europe's leaders to hold the eurozone intact, what's happening is a run on the banks in Southern Europe, depositors leaving, a closing down of inter-bank lines. It's a very frightening moment. And the Europeans --
SACHS: -- have to get together for their good and for the world's good --
SACHS: -- to salvage the situation.
QUEST: And the immediate thing -- obviously, Greece will decide what will Greece will decide on the 17th. The immediate issue is the Spanish banks, whether it's 40 or 70 billion, the recap that needs to take place.
The Spanish government says it's waiting for the IMF and the independent assessment. Do you think they are foolish to wait? Should they be asking now?
In effect, in recent days, they've already asked. They've said prepare plans, we need help. We can't do this on our own. The markets have basically turned their back on Spain in recent days. Interest rates for refunding a government have soared. The Spanish banks don't have access to market credit on a buyable basis right now.
So Spain, for all intents and purposes has asked for some kind of bailout, and I think that authorities are working around the clock. What's not clear to this moment, at least not to me, is the German view of all of this.
Europe has been having a slow bank run. From Southern Europe, depositors and other sources of funding for banks, leaving, closing down, moving to northern European banks. And Germany so far has folded its hands and put all of this as a fiscal matter to be handled by national authorities. This won't do.
QUEST: OK --
SACHS: And events are absolutely overtaking that.
QUEST: If that is the case, we heard President Draghi of the ECB saying it's up to the politicians, he isn't going to necessarily ride to the rescue, even though most people believe he will eventually have to do exactly that.
But what I need to know from you tonight is what does need to happen? We can't surely just have another euro summit with another plan, which falls apart. The pie crust promise, pick it up and it collapses. What does, in concrete terms, need to happen?
SACHS: The eurozone leaders, starting with Germany, have to decide whether they're going to save the euro. If they are, the European Central Bank has to play the role of lender of last resort first and foremost.
It can't be an unwilling participant dragged into it. It has to be instructed, save the financial system, that means lend freely if a panic leads to a withdrawal from Greece or from Spain.
SACHS: Prevent a bank holiday and stand as a firewall. That's number one. Second, there will have to be European-wide banking response that can be a eurozone-wide deposit insurance scheme.
SACHS: A eurozone-wide recapitalization of the weak banks. This is now in the politicians' laps, and they have to decide.
And you're absolutely right, you can't have another failed summit. Time's run out, because we're already in the midst of a rolling panic, a rolling withdrawal of credits.
QUEST: Jeffrey, we'll talk again after next week. I'll be in Athens, and you and I will talk after the Greek elections when you will make common sense and make sense of it for us on what's happening. Good to see you, have a lovely weekend.
SACHS: Let's hope everybody's talking sense. Thank you very much.
QUEST: Well you -- you will be, that much I know. Jeffrey Sachs, always good to hear his views on the program.
Spain, now, is it going to ask for a bailout within days? Reports, rumors say the country is to make the request during conference calls between eurozone officials, and that could happen on Saturday, tomorrow. The Spanish government, as you heard us say a moment ago, playing down those rumors, saying it won't make a decision until it receives the evaluation from the IMF on Monday.
(BEGIN VIDEO CLIP)
SORAYA SAENZ DE SANTAMARIA, SPANISH DEPUTY PRIME MINISTER (through translator): In these moments, the IMF and the independent auditors are working on how much is needed for a complete cleanup of our financial system. The government has to respect these procedures before looking at any decision about the exact numbers.
Because of this, once we know the exact amount of how much our financial system needs, then the government will announce its decision. I tell you, there have been no decisions taken about anything. We have to respect the process to first wait for the figures that will come from the different evaluators.
(END VIDEO CLIP)
QUEST: One of those evaluators, the IMF and the report is expected to show Spanish banks could need up to 40 billion euros across a worst-case scenario. CNN's Christiane Amanpour spoke to the IMF managing director, Christine Lagarde on Spain. She talked to her a few moments ago.
CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: So, do you foresee coming to the rescue of the banking sector in Spain?
CHRISTINE LAGARDE, DIRECTOR, INTERNATIONAL MONETARY FUND: They need to do several things. Number one, they need to really have a good third-party assessment of the bank's assets and liabilities. And the prime minister has indicated that that would be done.
The two teams of independent experts that have been appointed to do the job, they are under pressure to deliver quickly, but that will be done in the course of June and complemented by additional analysis, as we're understanding, in the course of July.
So, independent assessment is one thing. Second thing is clearly the decision to put more capital in some of the banks, and that has been announced for one, Bankia. There are probably a few others that need to be recapitalized rapidly.
What's really important and probably lacking at the moment is the backstop. Backstop meaning a strong sense that there will be enough always if more funds, more capital is needed to strengthen the system.
QUEST: And that's Christine Lagarde talking to Christiane Amanpour.
Now, Spain had hoped to avoid a humiliating bailout like those that were provided to the fellow members -- excuse me -- such as Greece, Ireland, and Portugal. And it still could have such an outcome, because it seems when it comes to bailing out countries, all bailouts are not equal.
Think of the Greek, the Irish, and the Portuguese. There we might call it a full bailout, while Spain is going for a "bailout lite." Let's look at the bailout, the full-throttle bailout.
First of all, the lending has to be to a sovereign government, it cannot be to an individual bank or other organization. There are strict conditions on what you have to do. You have to have major reforms, labor laws, pension systems, and all sorts of things.
RBS estimates it could cost up to 455 billion euros, and you do end up having to have troika monitoring from the EU, the ECB, and the IMF. So, that is the full-throttle bailout.
But what they're thinking of doing for Spain -- come in and join me -- is "bailout lite." It would have a very defined purpose, just for the banks. It will be over a shorter term. There wouldn't be the necessity of long- term monitoring. A smaller amount would be involved, considerably smaller amount, specifically to beef up the banks up to, say, 100 billion euros.
And EU and German officials say even though there will be conditions, the EU's unlikely to demand more than Mariano Rajoy is already doing. So, the "bailout lite," which is what people are now calling the Spanish potential bailout, is the way forward.
European markets gave credit to rumors of an imminent bailout. Spain was the only market to finish in the black, and that was despite a downgrade from Fitch of three notches.
US stocks are having one of their strongest weeks of the year, up 61 points at the moment. Alison Kosik will explain to us whether actually all this is justified, or is it just hot air and volatility? It's QUEST MEANS BUSINESS, good evening to you.
QUEST: A week and a half it's been, what a week it has been on Wall Street. Not easy to say. And if you're long in the market, you have lingering disappointment over a lack of immediate action from the Fed, you've seen the door open lower, but now poised for its biggest gain since December.
Alison Kosik, look at the market. Alison, this volatility, I'm getting indigestion, and I'm being --
ALISON KOSIK, CNN CORRESPONDENT: I know. You --
QUEST: Bilious. Bilious.
KOSIK: You and me both. You and me both. You know what? Some of this today, what you're seeing, is a little bit of what you said. It's a little hot air.
Some of it actually has to do -- when you talk to some traders, they say, you know what? President Obama came out and tried to put his influence on the situation in Europe. And some say by him coming out and urging Europe to get decisive, to get on the stick, to handle the economic crisis, that that's helping stock.
Other traders are telling me, wait a minute. The president's playing the blame game, he's using Europe's troubles to deflect from what's going on here in the US, all the problems and the criticisms he's under.
And they say what's really helping stocks today is Spain, what you just talked about, getting read to ask for "bailout lite" at this point. So -- even with strings attached, by the way. But in this trading right now that you're seeing, Richard, there's a lot of caution, and you can see that caution --
QUEST: Right. Are we --
KOSIK: -- in the choppiness of the trade today. Also, volume, I have to tell you, volume is extremely thin today, Richard.
QUEST: You -- you've just anticipated -- you've stolen my close, Kosik. I was just about to say --
QUEST: -- how is volatility or volume today? I should imagine it's light as we go into the summer. Also, our dear beloved -- or not-so-beloved -- friend Facebook. How's that been? I don't know whether you've got the Facebook price close to hand.
KOSIK: I do. I am watching it closely, and it is hovering right at $27. It is up today 2.5 percent. But a lot of investors are trying to figure out where is the bottom for this stock? Where can we go ahead and buy in. That's what these investors are thinking. Where is the bottom? You've seen it kind of hover around $26, $27. It's anyone's guess what the bottom is for this stock.
QUEST: You're not the sort of person, Alison Kosik, who has many single dollar bills in your wallet. You're more a sort of a twenties and a fifties woman, I suspect.
KOSIK: Exactly, hundreds. Hundreds. Several hundred.
QUEST: Ah, well, then you won't be able to answer our Currency Conundrum. Alison, thank you very much.
QUEST: The Currency Conundrum for you. Why is there a pyramid on the back of the $1 bill? Now, is the answer A, it's part of the official seal of the US? B, the pyramid is an ascetically pleasing shape? Or it has spiritual significance at the time? I've got the dollar bill. I've no idea about the answer. The answer later in the program.
So to the rates. The euro has slumped, Spain's credit rating was slashed. The pound has fallen from a week-long high. Besides that, everything else is going swimmingly. Those are the rates --
QUEST: -- this is the break.
QUEST: The first game in football's European Championships has just ended. The co-host Poland drew one-all with Greece, and that took place in Warsaw. The tournament, of course, is being held against the backdrop -- we've got the racist allegations of chanting, which is something else that others will be talking about.
But also, we've got economic turmoil. So, we are going to blend football with the state of Europe's finances, the fight for position and survival. And no end of commentary for the likes of us watching from the sidelines. To the super screen.
Our commentator this evening is none other -- (whispering) the man in the commentary box is --
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Should I have a little microphone?
QUEST (whispering): -- is Jim Boulden.
BOULDEN: Well, we thought, of course, you can't think of a better time, really, where you have the big powerhouses of Europe fighting with each other on the football pitch. It's an extraordinary time to be doing this in the middle of the economic crisis.
So, as Richard said, of course, we've had the first match, Poland versus Greece. They did come and clash heads, there were two red cards. But it did end up one-all. But let's look at some of the economic areas here, of course.
Poland very much in the driver's seat. What I mean by that is Poland's the only economy that did not go into recession in 2009 in Europe during the economic crisis. And of course, as the home nation co-host of this, Poland really needed to get off onto a good start.
Greece, of course, frankly, wanted to not embarrass themselves. Greece, of course, has been the sick man of Europe for many, many years. But of course, it does very well on the pitch. And Greece, I think, did not embarrass themselves today with the one-all draw.
Let's look at the match on Saturday. This is -- this is the big one. Everyone's going to be watching what Germany's going to be doing, because Germany's one of the favorites. And of course, Mrs. Merkel and the Portuguese have had some issues in the past, Portugal of course having the bailout earlier. But let's look at some of the --
QUEST: I have no --
BOULDEN: -- economic ones here. Come on.
QUEST: No, no, go on. You finish.
BOULDEN: Well, no. Germany, the powerhouse of Europe, economically and football-wise. Germany has to do very well in this football because it needs to be seen to be the country leading the way. And Portugal is going to need assistance, some more assistance economically and to get out of the Euros.
QUEST: So, Portugal's going to be trying to get around Mrs. Merkel --
QUEST: -- while Mrs. Merkel is going to be aiming through --
BOULDEN: We were deciding, should she be the referee or should she be the goalkeeper? I think she's the goalkeeper for everything.
QUEST: I think she's the goalkeeper.
QUEST: And we're trying to sort of get what we can into the middle.
QUEST: Can we both -- can we move them both at the same time? No.
BOULDEN: Oh, there we go.
QUEST: Oh -- well --
BOULDEN: We won't go through that.
QUEST: No, we won't.
BOULDEN: Sunday, maybe the most interesting one, Richard.
QUEST: Ah, all right.
BOULDEN: Spain versus Italy. Two, of course, European powerhouses. Spain is, I would say -- I would say Monti's on defensive right now, Spain both with its banks and in Europe is very much on the offense. It's saying, "We're coming, and we need you."
QUEST: You are so -- you are so -- go on.
BOULDEN: But Spain is destined to make headlines this weekend because of its banks and because of how it performs on Sunday, but it's going to need European help to get out of anything to do with football and to get out of the mess with the banks.
Italy, frankly, is in danger, not only in football, but I think economically. It needs to have everybody else get out of the way so Italy can get itself through.
QUEST: You are so wrong on this.
BOULDEN: On which one?
QUEST: Spain is on the defensive. Monti has made then necessary changes necessary to get -- everybody loves Monti. Rajoy, on the other hand, annoyed them with his debt request, is now -- earlier on wanted to breach the deficit and is still -- I think he is well and truly on the back foot.
BOULDEN: I think Spain knows -- everybody knows Spain needs to get help, and Spain knows that. They know they're going to get a bank bailout -- don't call it a bailout. But with few strings attached. That means they're going to be on that side of the pitch.
QUEST: Good weekend. He's wrong. And then, what I know about football could be written on the super screen and you'd still have room for the entire markets of the week.
Weather forecast. Tom Sater is at the World Weather Center. All I know is, on the way to work this morning, I don't know where the wind was coming from, I know where it was going to.
TOM SATER, CNN METEOROLOGIST: Richard, everyone's on defense over there with the way the rain has been. And I'll show you a picture of the UK. We've got an area of low pressure that is parked right over you. So again, yes, the winds have been all over the place. It depends on what side of that area of low pressure you've been on.
Well, that's slowly going to move in and offshore, I would say, in the next 24 hours, but my concern is this little band. Now, this is the pinwheel effect, here. We've got an -- just an onshore flow, it continues to generate showers and storms, some of which have been severe.
So, let's get in a little bit closer. Already reports in Austria of hail four centimeters in diameter, a funnel cloud reported in Austria. But notice the spin, here. Back behind it, some cooler temperatures that'll be moving in for the French Open. Currently, a temperature of 19 in Paris, going to drop down for a high of about 17. But some clearing starting to take place in London.
We're going to watch this moisture and its instability slide a little bit more towards the east. Notice the winds, in Dublin, 43 kilometers per hour. Plymouth at 44. In Warsaw for the game, basically only 6 kilometers per hour. So, a big difference.
But this area of low pressure is the engine that is going to be driving eastward, it's going to throw a cold front right across Poland into the Ukraine for, of course, the Euro 2012. We're going to continue to monitor that.
For the next 48 hours, however, as this moves into the Black Sea, it's going to shove that cold front directly through central Europe. Along that front and to the south, notice the showers and storms. We've had many reports, even a funnel cloud in the Netherlands, we've had some gale winds, some damage.
But in Austria right now, a level one has been upgraded to a level two as far as severe weather. So again, with that report of a funnel cloud in Austria just a couple of hours ago, with hail four centimeters in diameter.
That's going to be a problem, because it's going to be moving into the Czech Republic. That'll be moving into Poland, of course, and that's where there the thousands really are trying to enjoy the rain. But a lot of dancing going on around these showers.
Here's the front as it shoves itself eastward. We'll watch the severe weather. Anywhere you see in red, this is about a level one for severe weather, as we get into Saturday.
But of course, with our special Euro 2012 forecast, the temperatures have dropped. Warsaw has dropped two degrees. And around Wroclaw, they've dropped to about three degrees, so they're currently at 21. And even numbers, I think, will rebound a little bit better in the Ukraine.
So, as we watch the forecast -- this is an actual current reading of our satellite and radar moving across Austria, now, the showers, and toward the Czech Republic. There's a better chance for the fans in the Czech Republic for the game tonight to get one in their home country than they will for the game. But it's going to be sliding in.
So around -- maybe the end of the second half on the pitch, we could have some showers, definitely will have some rainfall on the way home.
Rainfall, Richard, should be on the light side as we continue to watch this rain. We'll continue to share these with you throughout the weekend, of course. Big tournament and a lot of weather. Unfortunately, Richard, a lot of it's unsettled.
QUEST: All right. Typical football for you.
QUEST: Tom Sater, many thanks, indeed.
QUEST MEANS BUSINESS. In a moment, the head of the OECD gives us the concrete lowdown on what needs to be done. The ECB must use its muscle to help the fight. More from Angel Gurria in a moment.
QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
A mass demonstration against the Assad government took place in Idlib in Syria. Activists reported more protests across the country, much as they have every Friday for more than a year. Demonstrators continue to defy the government despite the recent massacre in a west village of Hama. U.N. observers reach that site today.
Spain's deputy prime minister says the government is waiting for auditors to determine the severity of the country's banking crisis. Then she says officials will decide how to handle it. Spain's banks are facing tens of billions of dollars in losses, mainly from mortgage securities that went bad as the housing bubble burst.
President Obama is calling for decisive action from Europe and lawmakers at home to solve the global economic mess. Mr. Obama said quick action to stabilize banks in Europe was a necessary step and he urged Congress to reconsider and pass his 2011 jobs plan.
The coalition commander in Afghanistan has apologized for civilian deaths in a NATO airstrike. General John Allen went to the site in Logar province and apologized to relatives of the victims. An Afghan official says Wednesday's strike killed 18 people, including women and children.
The first match of Euro 2012 football tournament has now taken place. The co-host Poland fought to a one-off (ph) draw with Greece. Both sides were down 10 men by the end. Poland's substitute goalkeeper stopped a penalty kick after the starter was shown a red card. Russia and the Czech Republic get underway shortly.
QUEST: Spain isn't the only country with much to think about tonight. Three other member states are poring over disastrous economic figures that were released today.
Italy's national statistics office says industrial production plunged 1.9 percent in April. It surprised experts who'd forecast a much smaller 9.1 percent drop year-on-year for Italy.
As if it wasn't fragile enough, Greece's economy shrank 61/2 percent in Q1, a sign that hugely unpopular austerity measures are now truly starting to bite.
And Europe's second biggest economy, France, had a central bank forecast saying GDP will fall 0.1 of a percent, in other words, more recession, stagnation at best in Q1.
Use your muscle. That's the words from the head of the OECD leveled to the European Central Bank. For Germany and the E.U. reportedly braced themselves for a report (ph) from Spain. Angel Gurria says the ECB is well faced (ph) to help. I heard his views on how to fix the economic crisis, in particular what he wants Germany to do next.
(BEGIN VIDEO CLIP)
ANGEL GURRIA, SECRETARY-GENERAL, OECD: To say yes to a joint effort that can support the capitalization of those European banks that need the capital and whose countries cannot provide the capital right away, and second, to say yes so that the European institutions can support the bond markets of those countries that today are under pressure.
You have two issues that are different, but I would go first to capitalize the commercial banks, see what impact that will have that will probably bring rates or yields down per se. And then see what is left to be done in terms of the stabilization of these sovereigns.
QUEST: What would you like the ECB to do in hard, concrete terms?
GURRIA: Use its muscle. Use fully its balance sheet. You know, the day the ECB decided to use 1 trillion in order to fund the commercial banks of Europe, that stabilized the situation and we are still enjoying the stabilization that the ECB provided.
And we will be enjoying it for a long time to come. It has the power, it has the capacity. Let's use fully its balance sheet, which it can use to stabilize the bond markets and/or to capitalize the commercial banks.
QUEST: And would you tonight ask your member country, Spain, would you ask it tonight to please ask for help?
GURRIA: I think we have to know whether the Europeans are ready to capitalize and help capitalize the banks in Spain, because that may, you know, stop them from deteriorating in terms of the view of the markets.
If that capitalization of the commercial banks is done fast and is done thoroughly and the full amounts that are required are put on the table, that may not require then that they come and ask for support for the sovereign. So let's do the banks first.
QUEST: Final question, from this crisis that has seen inaction, incompetence, poor decision-making, lack of leadership -- my words, not yours, I will agree -- from this crisis that has seen all of these things so far, do you have any hope that they'll get it right this time?
GURRIA: Listen, we've lost so much in terms of stock markets, in terms of commodity markets, in terms of jobs, in terms of uncertainty and in terms of growth that, very frankly, I do hope, yes.
And I expect that we have learned a lesson and that you cannot procrastinate, that time takes its toll and that the invoices that you are presented when you take a month or two or two years, like we took in the case of Greece, then the invoice gets enormous.
And that contagion is a reality, the contagion is, as I have said before, like ebola and you have to avoid it at all costs, because by the time you discover that you've got it, you have to, you know, cut off a leg. So you have to avoid that by acting decisively.
And what is paradoxical here is the assets are there, the wealth is there, the resources are there, the institutions are there, the capacity is there. We just have to do it and now we're out of time.
(END VIDEO CLIP)
QUEST: You don't get much blunter than that, from somebody as eminent as the secretary-general of the OECD. We've just got to do it because we are out of time.
When we come back in just a moment, QUEST MEANS BUSINESS, no work permit, it's not a problem. We take a look at the floating office that's -- well, it plans to steer past U.S. immigration laws. That is in a moment.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The answer to the "Currency Conundrum" tonight, I asked why is there a pyramid on the back of the $1 bill? Now, the answer is A, it's the U.S. Seal. Charles Thompson, one of the designers of the U.S. bill said the pyramid represents strength and duration. I was sure that was something to do with spirituality of the times.
Anyway, that's the pyramid on the back of the $1 bill.
It is, perhaps, a step towards a real-life floating city, a ship anchored half an hour from Silicon Valley could soon become home to hundreds of immigrant entrepreneurs. Now the ship isn't ready; it's not built yet. Here are some of the concept designs.
But this is the clever bit: because it would be floating in contiguous international waters, there's already interest from startups who can't visas, either because they've -- or because of the shortage or because of other problems. Fascinating idea. Joining me now is Max Marty, the chief executive of Blueseed.
Max, first of all, when do you hope to actually have this ship sailing?
MAX MARTY, CEO, BLUESEED: Well, we're looking to have the ship moored out in the position where it's going to be in about the end of next year, so the end of 2013.
QUEST: At the end of next year, 2013, and as I look at it, who are you hoping is going to be on board? I know you talked about startup entrepreneurs and all that sort of thing. Give me an idea.
MARTY: So it's going to be mostly the young crowd that one would expect is going to be creating the next Facebooks and the next Googles. It's the kind of person you would expect to be walking around in Silicon Valley, creating a startup fresh out of Stanford.
QUEST: Why do you need to put them on a boat in the Pacific? Why can't they just be in Silicon Valley in the next whenever?
MARTY: Well, a lot of people don't realize that there is, in fact, no startup visa. If you want to come to the United States in order to create a -- to create a company and watch it grow and all the wonderful technologies and innovations and jobs that come from that, there simply is no legal option for a person to be able to do so.
QUEST: OK. So there's no option for them to do it, the law doesn't allow it. If we look at the map of where your ship is going to be, we can see that, yes, you are off the -- you're 30 minutes by ferry. You're not fully in international waters, are you? You're going to be in contiguous waters. Now, to some extent, U.S. immigration law sought (ph) off -- it's a gray area -- sought (ph) off might apply, couldn't it?
MARTY: So, yes, there are -- like you said, there are multiple different (inaudible). You have the territorial waters and the contiguous waters and then other waters. This particular play (ph) hasn't really been tested. It's really novel.
But we think that a big part of it coming down in our favor is the fact that we're going to be doing so much good for the United States' economy, really for the global economy, and we're creating a win-win situation. So I believe that the laws will be interpreted in our favor.
QUEST: Right. And these entrepreneurs will be on board. They will live there. They will play there. They will invent there. And they will pay you rent for being there. That's the gist of it, really, isn't it?
MARTY: Yes. So the rent is -- the rent is going to be only about $1,600 per person per month, and that will include office space and living space.
QUEST: Marty, I'm looking for that. I'm looking forward to going on board when you finally set sail. (Inaudible) ticket -- don't send me a ticket; I'll pay for the ticket, but invite me on board.
Many thanks for joining us, Max Marty, the chief executive of Blueseed, a fascinating -- every time I see one of these ideas or you hear one of these ideas, you think, this is a bit odd. Soon you realize that actually these are where the genius ideas come from. And (inaudible) as we come to the end of the work.
The Dow is up 80-odd points, a gain of nearly just over half a percent at 12,539. (Inaudible) president (inaudible) economic message today was that not only did Europe have to solve its problems, but there needed to be gridlock that crippled the economic recovery needed to be broken up. He said Congress needed to act on his jobs bill and that not doing so was keeping U.S. unemployment high.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The truth of the matter is that, as I said, we've created 4.3 million jobs over the last two -- 27 months, over 800,000 just this year alone. The private sector is doing fine. Where we're seeing weaknesses in our economy had to do with state and local government.
Oftentimes cuts initiated by governors or mayors who are not getting the kind of help that they have in the past from the federal government, and who don't have the same kind of flexibility as the federal government in dealing with fewer revenues coming in.
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QUEST: President Obama, talking (inaudible) today. And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead, I hope it's profitable.
ROBYN CURNOW, CNN HOST: You're watching MARKETPLACE AFRICA. I'm Robyn Curnow. Now insurance anywhere in the world acts as a kind of buffer against tough times, even in remote parts of northern Kenya. But one microinsurance theme is helping people to protect their livelihoods from the devastating effects of drought.
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ELBAGIR (voice-over): It destroyed livestock, ruined lives and decimated entire communities. Blistering heat spread across the Horn of Africa last year. It was the worst drought in 60 years. The northern Kenyan town of Marsabit was one of the worst affected areas.
Now the dark rain clouds are gathered. To some, they're an ominous sign. But here, they are celebrated. They offer respite. The scorched earth has turned green once more.
Still, farmers like Wacho Yayo and his wife, Dawa (ph), know that in the wet season, they must prepare for the next drought that will inevitably come.
WACHO YAYO, FARMER (through translator): The last drought was bad. During the drought time, there wasn't even any water to drink. There was no food. The animals had nothing to eat. There was only dust blowing. I felt very bad and I was very bitter. I wanted to run away, but there was nowhere to run.
ELBAGIR (voice-over): Fifty-nine-year-old Wacho Yayo lost 10 of his 15 cows. These are the survivors. He can't afford to replenish his herd, but thanks to livestock insurance that has been set up in this part of Kenya, he should afford to buy four new goats.
YAYO (through translator): This insurance is good, but the payout is not enough to compensate us for all the stock we have lost.
ELBAGIR (voice-over): Wacho Yayo is one of 650 herders who received compensation for the loss of thousands of animals. This initiative has been piloted by the Nairobi-based organization, the International Livestock Research Institute, and is backed by British and U.S. government development departments and the World Bank.
SIKO HIRDO, FARMER (through translator): During the last drought, this whole field was bare, and there was nothing for the animals to eat.
ELBAGIR (voice-over): Some farmers chose not to join the insurance initiative. Others couldn't afford it. Siko Hirdo has 11 children total, and he had school fees to pay.
HIRDO (through translator): We were faced with a severe drought and we had a lot of problems. We lost 11 cows. Now we know the importance and the value of insurance. I am now ready to insure my livestock.
ELBAGIR (voice-over): And now there are plans to expand this project across northern Kenya and southern Ethiopia. This is such a remote and vast area it would be impossible to count all the dead animals. Images from U.S. satellites are used to quantify the loss of foliage in each area. This determines who should be compensated and by how much.
The bank in Marsabit is the conduit between the farmers and the insurance companies. Here farmers pay their premiums and pick up their compensation.
Compensation is based on a formula that considers how many and what types of animals the farmer wants to insure. For example, one head of cattle is worth about $170 and those in high-risk areas pay more, equal to 5.5 percent of the value of their insured animals. In lower-risk areas, they pay 3.2 percent.
EDIN IBRAHIM, INSURANCE PROMOTER: Over 80 percent of our population (inaudible).
Insurance promoters like Edin Ibrahim are going into villages, recruiting new farmers to the initiative now that the rain has come.
IBRAHIM: The understanding of this insurance issue was (inaudible) back in the time and with the information with the language, they understand. (Inaudible). They are now (inaudible), catching up.
ELBAGIR (voice-over): As a farmer himself, Edin Ibrahim knows all about being ravaged by drought, so he works hard to educate villages about insurance.
SIMON CLAYTON, CEO, APA INSURANCE: The penetration of insurance in Kenya is only about 3 percent of the population. So the more we can grow and give access to insurance products for those uninsured people, the better it is for them. They can protect their assets, their families and their occupations for the future.
CHALLISS MCDONOUGH, WORLD FOOD PROGRAMME: Microinsurance for agriculture is something that farmers in the rest of the world have had access to for some time, but African farmers, the poorest and smallest (inaudible) African farmers are only really beginning to have access to. And their ability to do that can really help the agricultural sector in Africa grow and become more productive.
What's important to know, however, though, is that insurance by itself isn't a magic bullet. It has to be combined with other forms of risk management, including access to credit, savings and other things that help the communities themselves become more resilient and more able to withstand a shock like a drought.
ELBAGIR (voice-over): Fifty-five-year-old Fatuma Galgallo has had enough of drought and trying to keep her herds alive.
She was compensated, but decided to build herself some shelter with the money rather than restock.
FATUMA GALGALLO, FARMER (through translator): I'm very bitter about the drought. I was about to die of hunger and I lost all my livestock. I had no shelter and no husband. I had a lot of animals, but I only bought insurance for two cows, and I had to borrow money to afford it. Now all our animals are dead.
ELBAGIR (voice-over): For the time being, thick clouds spread across the sky, carrying the water that allows these villages' remaining animals to feed. But they graze amongst the bones of their former companions, a constant reminder that insurance or not, drought will happen once again in this climate of extremes -- Nima Elbagir, CNN, Northern Kenya.
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CURNOW: From Kenya now to Sudan and South Sudan, where we examine the economic costs of the conflict there on their biggest investment.
CURNOW: (Inaudible) you might have seen one of our recent shows, where we highlighted China's role in the growing crisis between Sudan and South Sudan.
CURNOW (voice-over): The recent fighting between the two countries has caused significant damage to oil infrastructure. Peace talks have resumed between the two sides, but disagreements remain over the creation of a demilitarized border zone and how much landlocked South Sudan should pay to transport its oil through its neighbor.
CURNOW: Well, we recently sat down with China's special representative to Africa to talk about how China will play a key role in any solution in that crisis.
CURNOW: How critical, how urgent, how dangerous is the situation in Sudan, in South Sudan at the moment?
ZHONG JIANHUA, CHINA'S SPECIAL REP. TO AFRICA: It is very urgent, I shall say that. With this kind of conflict for precise potential crisis, it's very, I think, not far away. So we have to work quite urgently.
CURNOW: In terms of a solution, will China invest in an alternative pipeline?
ZHONG: I don't think that's -- that's not conceivable (ph) commercially and politically. You'll see that oil field for both sides, unfortunately, are all in the border area. All these oil fields are quite vulnerable for military attack from both sides.
You think anybody can unilaterally enjoy this oil without interference from the other side to under the way (ph)? I don't think so. So to help them to realize (inaudible) to understand these two countries are neighbors, so closely connected neighbors. Peace and peaceful solution is the only way to solve the problem.
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CURNOW: Well, China's growing political influence in Africa is, of course, based on its economic clout. Our "Face Time" guest was, until recently, Beijing's man in Pretoria and seems to have been involved in the controversy surrounding the proposed visit of the Dalai Lama to Desmond Tutu's 80th birthday party last year.
But if you remember, he never came. At the time, the South African authorities said that there had been delays in issuing the Dalai Lama a visa. Well, the former Chinese ambassador to South Africa now told a different story. I started off by asking if (inaudible) made a special request for the Dalai Lama not to be allowed into South Africa.
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ZHONG: Of course we make South African government and the leaders and their people, even including (ph) scholars and newspaper understand what our think about this matter. That's what -- the eventual situation (ph), the eventual decision was made by South African government. And we respect their decision. And I think that's the situation.
And it's quite understandable because the relationship between China and South Africa become so developing in the last few years, I don't have to push anybody. And I don't think to push anybody will bring any positive result for us.
CURNOW: Did you suggest to the foreign affairs department that China would be unhappy?
ZHONG: I can tell that what I said at the time is what is our feelings about this matter, how do we see this matter, that's all.
CURNOW: What were your feelings and how did you see the matter?
ZHONG: Now, Chinese people have different feelings probably from other people on this matter. We connect (ph) this matter with open war, with our humiliation. So American people understand why ordinary Chinese people feel so strongly about this development and it's my job, as an ambassador, we are bridge between two people.
Explain to Chinese people what happened in South Africa. Explain to South African people (inaudible) government what is happening in China, what was happened there, is my job.
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CURNOW: And there is a cost to crossing China. A 2010 study found that countries that have received the Dalai Lama suffered on average an 8 percent decline in exports to China in the years following his visits.
Well, that's it from us here at MARKETPLACE AFRICA. I'm Robyn Curnow. Thanks for watching.