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QUEST MEANS BUSINESS

Rescue Fund Ruling; Bailout Terms; Banking Union Plan; Virgin CEO Takes Off; Dollar Down; Mixed Close for European Markets; Burberry's Profit Warning; China On Track for 7.5 Percent Growth Target; China Losing Steam; Protests in Cairo at US Embassy

Aired September 11, 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: Awaiting judgment. The future of Europe hangs on the word of the German Constitutional Court.

A checkered future. Burberry shares fall after the company warns on profits.

And a new way for Ridgway. Virgin Atlantic's chief exec, tonight, live on the program on why he's leaving the job.

I'm Richard Quest, and I mean business.

Good evening. This time tomorrow, we will know the direction of the future of Europe. The continent is awaiting the judgment of Germany's Constitutional Court. Now, Wednesday's crucial decisions could nurture economic recovery or it could stifle it.

Tonight, as we continue our look at the Future of Europe, the ramifications, the decisions that have to be made, and the players and the countries involved.

(RINGS BELL)

QUEST: Join me over in the library. And we see these are the key pillars that could shore the whole thing up or bring it crashing down. Banking union, bailouts, and we start with rescue funds.

The ruling on the legality of the European Stability Mechanism, the ESM, will go ahead tomorrow in Germany. The court dismissed a last-minute attempt to delay it and now expects to approve the ESM. It may attach conditions, but if approved -- if approved, the ESM is likely to be set up in October.

Fred Pleitgen joins me now, live from the German capital. Fred, I never ever ask this question about a court case, at least a criminal court case, but I have no hesitation in asking it this time: how are they going to vote, the court?

FRED PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: That's a very simple question, Richard. Thank you, Richard, for putting me on the spot. I'll tell you something in return. We have a saying here in Germany, and that is both in courts and on the high seas, you are in God's hands. So it really could go either way.

But you're absolutely right in what you said before. Most people do expect that the court is going to allow the ESM to go forward, but there might be certain caveats.

Now, one of the things that's very important in that is that the court will want the German parliament to have a budgetary veto right, because it's very important for the German constitution that that right is not given to a supranational body as, of course, the ESM would be.

So, not many people actually believe that the court is going to vote this down. And if you look at -- we want to say -- if you look at the decision-making history of the court, they've never voted against a measure to deepen European integration, Richard.

QUEST: And that's a point. I mean, courts will look at the constitution, but they do not exist in the vacuum. They will be aware, the learned judges, of the damage if they don't -- if they go against it.

PLEITGEN: Certainly. Certainly. The Constitutional Court here in Germany is, of course, a body that, as you said, will look at the constitution, will look at the law, will look at precedent cases that have been out here, for instance, on votes on other European treaties in the past.

But of course they don't exist in a political vacuum. Of course they're going to see what's going on on a European level, what's going on on a German level as well.

And unless the -- unless the problems with this law are so big and so blatant that they can't vote in favor of it, it almost certainly seems that they're going to see -- that they are going to say yes, let this thing pass. But maybe make a few changes to the law that you're -- that you've just passed, Richard.

QUEST: Now, that saying that you just mentioned about seas and courts and judges and on the high seas and all that. What would that be in German.

PLEITGEN: Very un-German saying, isn't it? It's --

QUEST: But what is it in German?

PLEITGEN: Vor Gericht und auf hoher -- Vor Gericht und auf hoher See ist man in Gottes Hand. That's pretty good, huh?

QUEST: I couldn't have put it better myself. Fred Pleitgen, I'll see you tomorrow night --

PLEITGEN: Thank you.

QUEST: -- in Berlin, when QUEST MEANS BUSINESS -- Fred, there -- QUEST MEANS BUSINESS, tomorrow night, we'll have full coverage. I will be in Berlin, along with Fred, to discuss the rescue fund, the impact of the German decision, and the Future of Europe. We'll be live in Berlin with reactions from the country's politicians and the economic voices.

The second pillar that we are looking at: the bailout. The troika has eased Portugal's bailout terms. It's said in the latest troika report from Portugal that the country was making progress against headwinds. It's now given Portugal an extra year to meet its target.

Meanwhile, Samaras of Greece, Draghi of the ECB, meeting in Frankfurt, the usual platitudes, "significant steps," "major challenges," "commitments must be kept," it all goes according to plan.

And the Spanish prime minister and the Finnish prime minister are in Madrid and Mariano Rajoy is determined to avoid a bailout.

(BEGIN VIDEO CLIP)

MARIANO RAJOY, PRIME MINISTER OF SPAIN (through translator): Until now, the only thing that exists is an availability, which is a very important step forward shown by the European Central Bank to buy bonds in the secondary market.

If the countries which deems it a good and convenient opportunity establish a procedure for how it should be done. As everyone knows, we haven't taken any decision up until now, and beyond that, it makes little sense to talk about what might happen in the future.

(END VIDEO CLIP)

QUEST: The ESM, the bailouts, they're all leading up towards banking union, and the president of the Commission, Jose Manuel Barroso, is to unveil a time table for banking union tomorrow while we are in Berlin.

Ultimately, the ECB will take responsibility for all eurozone banks by 2014. Member states will hold a veto. Most vocal concerns, of course, do come from Germany in this regard.

Put all this picture together and you start to see the jigsaw being formed. Michel Barnier is the European commissioner responsible for financial regulation. CNN's Nina Dos Santos asked him just how significant banking union has now become.

(BEGIN VIDEOTAPE)

MICHEL BARNIER, EU FINANCIAL SERVICES COMISSIONER (through translator): It's a piece of the puzzle. What's important is that, for the first time, in June the European leaders presented a global agenda in the face of a global crisis with global solutions, and now we must deliver piece by piece every part of this agenda.

So, it is part of the global agenda, it is also the state of trust. If there must be more solidarity inside the eurozone, including supporting banks that need it for the economy, there has to be a joint and integrated supervision. We're going to suggest in the general context of the banking union this first part regarding that supervision.

NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: But here's the catch. There will be some banks that, in the course of this regulation, one might realize aren't worth saving. What does one do about that? Because individual countries might not necessarily agree, say, on a bank in Spain being told it has to close.

BARNIER (through translator): There will always be banks that will be in great difficulty. There will always be, in some cases, the need to restructure the banks, sometimes to close them or fix them, which is also why I suggested for the 27 countries of the European Union a system of national resolution so that the banks pay for the banks.

They need to save money to pay the damage caused sometimes by bad management, and I want that proposal for the 27 countries to be voted in as soon as possible, just like the one I submitted a year and a half ago for the deposit guarantees.

Regarding supervision, we are talking about the supervision, not of regulation. The regulation is still for the 27 countries in a European framework. I am building the single rulebook. Only one single rulebook.

(END VIDEOTAPE)

QUEST: Michel Barnier, the European Economics Commissioner. Coming up next, Steve Ridgway, Virgin Atlantic's chief executive, he's flying off to do something new, and he'll join us to tell me why he's leaving, who he thinks should be his replacement, and the state of Virgin.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: So, this week, Virgin Atlantic is looking for a new chief executive. The departing boss, Steve Ridgway, will lead the search for a successor. Whoever takes over will need to grapple with higher fuel prices, growing competition from a larger and emboldened British Airways and, of course, deal with the alliances.

Steve Ridgway, the chief executive -- the outgoing chief executive -- joins me now in London. Steve, why are you going?

STEVE RIDGWAY, DEPARTING CEO, VIRGIN ATLANTIC: Well, Richard, I've been there pretty much from the beginning, and I've been, in effect, chief executive since 1998.

So, I've been there from literally one plane through to where we are today, and there's lots of new stuff coming, and I think -- I talked to Richard about it at the beginning of the year and thought that time for a change, time to bring in some new blood and move on.

QUEST: So, rumors that you felt underpaid --

(LAUGHTER)

QUEST: -- as you quoted in the national newspapers in Britain --

RIDGWAY: I don't think I really did that, Richard.

QUEST: But they are not true.

RIDGWAY: No, I've had a fantastic time at Virgin, and I think some of the things that have gone on in Virgin all the time I've been there have been legendary in terms of the things that we've done to build the company the size it is today.

QUEST: We'll talk about the future in a moment. Let's stick with the past just for a second. While you've been there, though, there has been -- there was the cartel. There was the cartel incident, of course, the anti- trust actions. But you also saw Virgin through the dirty tricks times and all these different times that you were there.

RIDGWAY: Yes, I think the whole thing about Virgin Atlantic is it's the only international net carrier that's built up the presence it has underneath a large network carrier. You won't find a Virgin Atlantic anywhere else, in Hong Kong, in Frankfurt, in Paris. And that's been a legendary battle, and we've been fighting BA for 28 years, now, and it continues.

QUEST: There's no question the battles got more difficult in the last two years, effectively. BA now has its very strong alliance with American Airlines, One World, and it's just bought BMI. Whoever takes over, is going to -- and I'm not -- is gong to have some very tough choices to make.

RIDGWAY: Yes, I think it's the same in the airline industry all the time. And it has been. We've got some great things happening, though. We've just completed a big investment program that's coming out with a lot of new aircraft.

You talk about BA and American coming together. We've actually taken a share off them on the New York market despite that strength they have. And we've got an additional service coming into JFK in a few weeks' time. So, I would still maintain that Virgin Atlantic is very -- if you're going to New York, for example, Virgin Atlantic is still very much number one.

QUEST: OK, but let's -- we can't deny the fact, BA's got bigger and BA's got stronger.

RIDGWAY: I think all the network carriers have got bigger and got stronger. But equally, Virgin Atlantic's continued to grow, as well. And we have a fantastic presence at Heathrow. Heathrow is full, as we know. I'm sure we're not going to talk about Heathrow.

But we have a position at Heathrow now that you couldn't replicate, and I think for the UK to have these two long-haul carriers, the strength they have and the way they've battled and fought has been great for the UK.

QUEST: As you leave, are you in favor of Virgin joining an alliance? Assuming one would happen or you would want them.

RIDGWAY: It's something that we look at all the time. We have lots and lots of agreements with carriers. It may well happen one day. The sands are shifting all the time, but we've certainly benefited from the independence that we have had and we've still got today.

QUEST: I suppose this is the problem, isn't it? The independence. One analyst's paper described it as, you are that middle tier of airlines that threatens to get well and truly nutcrackered by the giants on one hand and the low-costs on the other, and the middle tiers in the middle.

RIDGWAY: We're talking about almost a squeezed middle, are we?

QUEST: A squeezed -- you've seen the squeezed middle. How many times have you been asked about the squeezed middle today?

RIDGWAY: Well, I haven't, actually, but I think if you think about it, we were completely squeezed at the beginning, and so maybe we've gone from being completely squeezed to being squeezed middle, but it's something that makes us flourish.

I think that keeps us on our toes, it's meant that we continue to grow. And above all, we continue to innovate. And I think everyone recognizes that the staff and the team and the people at Virgin Atlantic have made what it is and why we have the following we do today.

QUEST: OK. This is the question that you probably don't want to answer. Who'd going to be your replacement? I know there's an internal candidate, the chief -- Rob Fyfe's name's mentioned from ANZ.

RIDGWAY: Well, I don't know. It's too early to say. We are starting -- we started a process, and that will run now through the rest of the year. I will be around until March or April next year.

We've got this big flight on now to bring competition to short-haul and start flying the routes that BA now has a monopoly on, and I'm really determined to start that.

Look at Moscow, as we've already put our application in to fly to Moscow. I was up in Scotland last week looking at the routes like Aberdeen and Edinburgh, where I think the Scots are very worried. They've only got one carrier. So, there's still some great stuff to come in the next six months.

QUEST: We'll talk to your successor. Steve, it's always been wonderful to have you. And we'll have you on -- we'll speak to you again before --

RIDGWAY: Yes, I hope so.

QUEST: I hope so.

RIDGWAY: I'll have some news to tell you. Thank you.

QUEST: Certainly. Many thanks, indeed. Now, the Currency Conundrum. In 2008, China issued the first bank notes in nearly a decade that didn't show the face of Mao Zedong. Our question is, what replaced Mao? Was it a former leader, Deng Xiaoping? The Beijing National Stadium? Or a memorial to the victims of the 2008 Sichuan earthquake?

These are the rates. The dollar's lower against the major currencies and sterling at $1.28. The euro's a fifth of a percent off, down around a fifth against sterling and the yen. Those are the rates --

(RINGS BELL)

QUEST: -- this is the break.

(COMMERCIAL BREAK)

QUEST: Europe's stock markets ended the session pointing in different directions. Take a look. Now you'll see, you've got the FTSE and the Zurich SMI, they are both down. This despite the fact that banking shares were some of the gainers.

Deutsche Bank was up 4 percent. It's raising its cost-cutting target to $5.7 billion, so that led the Xetra DAX up quite sharply. The FTSE was dragged down by mining shares. Anglo-American, amongst others, each lost more than two percent.

Now, if you're talking about the euro bosses, particularly the FTSE, Burberry was by far the worst performer of the FTSE. Its shares fell nearly 21 percent after the company issues a profit warning. A pretty dramatic profit warning. In a statement today, Burberry said it expects full-year profits to be at the low end of expectations.

Burberry is down -- we'll leave that there so you can remember just why the share price fell so dreadfully -- but let's look at the reasons why. And if you go between the lines, you'll see exactly why Burberry fell.

The same -- sales are flatlining. Burberry's same-store sales were stagnant. The 6 percent sales growth came from new stores only, and as you will know, when you talk about retailing, you're only concerned with same- store sales, because that shows you how it's performing.

Still between the lines, that one. The -- if we take a look, the chief financial officer, Stacey Cartwright said to "Bloomberg" that Burberry isn't alone. Shares in other luxury brands, LVMH and Richemont, also fell. Richemont -- LVMH down nearly 4 percent, Richemont off 5 percent.

Still, in the luxury market -- let's try that one. The CFO also said there was a revenue decline from China. It slowed ahead of the leadership change, and this, of course, as you'll know, China is a vitally important market for Burberry.

So, now, China's premier, Wen Jiabao says that the country is on track to meet its 7.5 growth target this year, notwithstanding what Burberry's saying. He was speaking at the World Economic Forum in Tianjin and said China's economy is sailing steadily forward.

(BEGIN VIDEO CLIP)

WEN JIABAO, PREMIER OF CHINA (through translator): China is still in an important period of strategic opportunities for development. We are the advance of internationalization, urbanization, information, technology, and agriculture modernization will continue to unleash huge development potential.

And the giant ship of the Chinese economy will sail ahead, fast yet steadily, and reach the shore of a brighter future.

(END VIDEO CLIP)

QUEST: Now, Fred Neumann is the co-head of Asian Economic Research at HSBC and joins me now. OK. Burberry's warning, and we know that it's because they say that Asia, perhaps China, is slowing down. And yet, we have Premier Wen saying that it won't be as bad. What do you believe is happening in the Chinese economy at the moment?

FRED NEUMANN, CO-HEAD OF ASIAN ECONOMIC RESEARCH, HSBC: It's taking a breather. The Chinese are very reluctant to over stimulate at this point in time. They're targeting 7.5 percent growth for this year, which is below investors' expectation, even though it's still a respectable growth rate. So, they're not going to roll out massive stimulus packages, like we saw in 2008 or 09.

QUEST: The fear is that that "take a breather" that you talk about is something worse in the offing. We're starting to see it in the manufacturing numbers, of course because Europe and the US aren't buying things. We're seeing it in the loan numbers. We're seeing it throughout the data that maybe there's a real fracture. You don't buy that?

NEUMANN: We don't quite buy that, because there is other data, actually, suggesting that it's not all that bad. If you look at cement production, it's near an all-time high. Steel production near an all-time high.

And in the inland region, consumer sales is still strong. Not in the luxury good den, but on the mass market.

QUEST: The fear, of course, is that inland, those banks that are stuffed to the gills with bad debt are only being kept alive -- they're not quite zombies but not far off -- and that there is something waiting and smelly in the books.

NEUMANN: Something smelly, I think, people worry about is in the real estate market.

QUEST: Right.

NEUMANN: But here, if you look at it across the country, it'd really in some pockets where we have problems. Overall in the country, 32 million people moved from the rural areas to urban areas last year alone, and that's creating demand for housing.

QUEST: Are you saying, then, that China and being in that market still has to be one of the only games in town?

NEUMANN: Well, some of the markets have been quite disappointing for investors for quite some time.

QUEST: If you look at the performance of the Chinese market as against, say, the DAX, which of course is -- I've chosen the best of the bunch. Even the FTSE or, indeed, the Dow. You'd have been better off putting your money under the bed.

NEUMANN: Well, there are a lot of headwinds for the market. It's not about just growth, it's also about profits, and profits are still being squeezed in China because wages are rising, rents are rising, margins are being squeezed. So, the stock market doesn't always follow the economy necessarily.

QUEST: There's going to be political change. People are already questioning where's the new leader, he hasn't been seen for some time, the leader elect, or the leader promulgate. Do you think there's something going on?

NEUMANN: I think he's taking a breather, as well.

QUEST: Do you think there's something going on?

NEUMANN: I don't think there's something going on. Apparently, he has a back injury, he needs to rest a little bit.

QUEST: Is this a diplomatic back injury?

NEUMANN: It may well be, but back injuries are pretty painful affairs.

QUEST: That's very wise.

NEUMANN: Thank you. He's taking a break.

QUEST: Let's move across to the rest of the region. Wherever we look, the potential is huge and the risks seem to be also enlarging. India -- bordering on basket case in terms of what's going to happen there in the short to medium-term. Even the more developed economies, like Singapore, are starting to have strain in their economic growth.

NEUMANN: Asia has reached a very critical point, because it's maxed out its old growth model: exports to the West no longer working, just growing by debt doesn't work as well. We really need to have fundamental reforms in Asia, and a change to growth model. And that hasn't happened quite yet.

QUEST: When do you think it does?

NEUMANN: I think with slowing growth, that will force some of these policy changes over the coming year, and hopefully the next two or three years will reaccelerate and get some of the old growth rates back. But it will take time.

QUEST: And what do you -- and I'm writing this number down -- what do you consider a satisfactory growth rate?

NEUMANN: For?

QUEST: Four percent for what? Pan?

NEUMANN: For which country? For China?

QUEST: No, pan. Pan-Asia.

NEUMANN: Pan-Asia, 7 percent.

QUEST: Seven percent? Who's four percent?

NEUMANN: Four percent is probably more in Southeast Asia.

QUEST: And up towards 8 to 9 percent for northern Asia?

NEUMANN: Eight for China -- yes. Yes.

QUEST: Just sign there. We'll hold it against you. Many thanks, good to have you on the program tonight. Thank you very much for coming. Many thanks, indeed.

Coming up after the break -- look, we joke about these numbers, but the truth is, would 4, 6, 7 percent be in the markets for the eurozone or the United States? Even more so after Moody's warned the United States move or be downgraded.

(RINGS BELL)

QUEST: QUEST MEANS BUSINESS, good evening to you tonight.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.

And now, to update you on the story we are following from Cairo, where protesters have climbed the walls of the US embassy there. They tore down the American flag. Ian Lee joins me on the line. Ian, has calm been restored?

IAN LEE, CNN INTERNATIONAL CORRESPONDENT (via telephone): Well, Richard, the government hasn't restored calm, although the protesters are calmer now. The air is still tense, but we're not seeing anyone really trying to go enter the embassy as we saw earlier, when we had protesters breach the perimeter, take down the American flag, and burn it.

Right now, though, things are calmer, but we're still seeing hundreds of people outside, and the military and the police have still yet to do anything. Richard?

QUEST: So, is the situation under control? The guts of the question is really, is the US embassy safe or is it still under threat?

LEE: Well, the US embassy is a very secure compound. I've been in it many times. I don't see the protesters have the means to actually penetrate the building itself. It also has one of the largest detachments of Marines guarding an embassy around the world. So it is still, right now, seems pretty secure.

The police and the military are on site, and if the protesters were to try to actually breach and enter the embassy building, then you probably would see the protesters go.

But right now, what we're hearing from an embassy official is that they're showing restraint, and they want to show restraint saying that --

QUEST: Right.

LEE: -- they don't want anything to escalate, Richard.

QUEST: What was this all about? Is it -- what caused it? Why? Is it just, I suppose, for want of a better phrase, day rigor anti-American noise? Or is there something actually behind this one?

LEE: There is actually something behind this one. There's been a video that's been released, and this video, the protesters are blaming the United States for, obviously they're blaming the country for. But this is a video they say insults Islam. So, they're going to -- they're coming out here to voice their anger against this video in particular.

And I want to point something out to you, Richard. This is the third time an embassy has been breached since the revolution. So, this is definitely another black eye on Egypt and a black eye for President Mohamed Morsi that he wasn't able to restrain this protest.

QUEST: Ian Lee, who's on the scene. In the moment there's more to report, I insist you come back immediately, and we'll take you live into the program. Ian Lee in Cairo for us tonight.

(MUSIC PLAYING)

QUEST: A sober warning from Moody's for the U.S. Congress: start cutting your debt or you'll be stripped of your triple-A credit rating. In an email statement, Moody's said if those negotiations fail, Moody's would expect to lower the rating probably to double-A1.

Now serious stuff, but perhaps you'll remember July of last year, S&P was the first agency to lower the U.S.' top credit rating over the debt ceiling standoff. Moody's didn't follow then, now suggesting that it might do so now.

Today, the U.S. House Speaker John Boehner told reporters he's not confident a divided Washington can avoid a looming fiscal cliff, and that could push the U.S. into a recession.

(BEGIN VIDEO CLIP)

JOHN BOEHNER, SPEAKER OF THE HOUSE: Well, I'm not confident at all. Listen, the House has done its job on both the sequester and on the looming tax hikes that'll cost our economy some 700,000 jobs. The Senate, at some point, has to act. And on both of these, where's the president? Where's the leadership? Absent without leave.

(END VIDEO CLIP)

QUEST: John Boehner.

Now Wall Street shrugged off Moody's warnings. Investors are waiting the key decision. What a busy week it's going to be. We're in Berlin tomorrow night for the German decision, and on Thursday, back here, of course. It's the Fed and the question, of course, whether there will be QE3 or at least we'll move from the Fed. Up 88 points, nearly (inaudible) half a percent for the Dow Jones industrials.

In this environment, we need to have some good old-fashioned plain talking about the United States. The fiscal cliff and the debt crisis, good old-fashioned plain talking. And that's exactly what I got from the personal finance expert, Suze Orman, when I asked her if Americans are worried about the looming fiscal cliff.

(BEGIN VIDEO CLIP)

SUZE ORMAN, CNBC HOST: They fell off the fiscal cliff here in the United States already, and now they're almost clawing their way halfway back. So that is an upward movement rather than a (inaudible) downward movement, which is where we were just a few years ago.

QUEST: Do you not worry -- and this is not a political point, it's a -- it's a financial, it's a -- it's a personal finance point, but do you not worry that those people that you're talking about, who are just got their head above water, are not about to be clobbered again if Europe doesn't get its act together? We could take you down.

ORMAN: You could take us down, but I got news for people here that I speak to are already as down as down could go. What more could happen to them? Not a lot, believe it or not. Many of them are living in their cars. They've already lost their homes. They still don't have jobs. But somehow they have learned to find hope in a seemingly hopeless situation, and they're feeling a little bit better.

So that's why I'm feeling better than not so good. Now, am I worried about Europe? Oh, you betcha I am. Do I feel like they could cause a worldwide crisis? Of course, I do. But again, just speaking here in the United States for those who don't have anything, they're learning how to cope with that situation better than they did before this.

QUEST: Now you and I, Suze, are men and women of a certain age, and we've seen a few crises in our financial lives, in our looking at these things. But you've got to admit neither of us ever imagined for a minute having lived through the `80s and the dotcom boom and bust, that we were going to see anything like we've seen in the last four or five years.

ORMAN: No, you know, it was interesting; in 2008, I wrote a book called "The 2009 Action Plan." Obviously, for the United States. And on page 6 of that book, I put it in writing, because sometimes people say, "When did you say that, Suze Orman?"

I said it's going to be until 2015 until we see a turnaround, where people even begin to have even a little bit of hope. And that prediction is going to come true. Nobody could have imagined this ever happened. I personally, Richard, couldn't imagine that this was allowed to happen.

Here's what's so sad about this, and I think we never can forget that this is the truth. This was almost manmade. This just didn't happen because it happened. This happened because of lack of oversight of the SEC, the last administration, the real estate brokers and you can just go on and on and on about it, this didn't have to happen. But it did happen.

So we've come out of it a little bit in terms of people are feeling more hopeful. And when they feel more hopeful, they spend a little bit more money. And when they spend a little bit more money, that starts to affect the entire economy. Could we get offset again and go right back to where we were? We can.

But here's the difference. People will be used to it, because they've already experienced it, at least here in the United States. So it's not going to be a new thing of what? They're already used to it, Richard.

(END VIDEO CLIP)

QUEST: You've got to admit, when Suze Orman speaks on finance, it makes good common sense.

Coming up next, well, we've got lemon verbena. We've got thyme, lavender, even some carrots. Mmm, the smell's quite rich and delicious. It's hand-picked produce and it's (inaudible) London and all tended by the green fingers of the Queen's banker. We'll take you to the (inaudible) next.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

QUEST: Some wonderful smelling lavender, lemon verbena, carrots and spinach and, of course, some thyme.

Breakfast, lunch and dinner, it's all courtesy of the Queen's bank, Coutts, which has turned the roof 350 meters of empty space at the top of the building into the heart of a garden in London of earthly delights. So not having an account at Coutts, well, I still went along to have a withdrawal from the garden of me own.

(BEGIN VIDEO CLIP)

(MUSIC PLAYING)

QUEST (voice-over): The economy may be wilting, bankers may be out of season. Don't worry. On this rooftop of London, Coutts is in full bloom. Whatever the economic climate may be doing, there's always something profitable in this banker's garden.

QUEST: How difficult was it to convince a boring bank to let you start growing tomatoes on the roof?

PETER FIORI, HEAD CHEF, COUTTS: Not difficult at all. They embraced it. This is great for London, great for carbon footprint. It's great for the bank in general. I mean, clients love coming up and walking around. It's encouraging them to actually grow their own vegetables at home. It's brilliant.

QUEST: What have we got here?

What are these? These look like sort of peppers.

FIORI: These are chili peppers that we're using.

Take the tips off. Have a taste. Tell me what you think.

QUEST: Mmm.

FIORI: Pretty sweet, isn't it?

QUEST: It's quite nice.

How can you make it meaningful, so it's not just maybe like a gimmick, in the sense -- to get enough produce out, because obviously you've got (inaudible).

FIORI: Well, I would say every single dish that we do for our menu has an element of this garden.

QUEST (voice-over): From the garden to the kitchen and Chef Peter gets down to bankers' business.

QUEST: Right. Luncheon is served from the garden.

Alan, when we look at what's the situation, how bad do you believe the situation is at the moment?

ALAN HIGGINS, CIO, COUTTS: Well, it's clearly been a lot worse when you had two-year Italian debt at 7 percent and when you think of basically the efficient transmission of monetary policy that is nowhere near it, that is true crisis levels, we are somewhat better today, thanks to mainly the genius, Super Mario. He hasn't spent a cent yet. So we're a slightly better place.

The way we look at it is we call this euro crisis number three. And we're awaiting euro crisis number four.

QUEST: What will euro crisis number four be?

HIGGINS: If only we knew, because it's --

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QUEST: Well, where will it come from? Where will it come from?

HIGGINS: It could come from anywhere. Obviously, Spain is a potential issue, where you have the regions. And we have trouble there. Doesn't look like it's going to be the Dutch election anymore. Certainly the Italian elections could be very, very interesting coming up. So you don't know exactly the nature of how complex this issue is.

QUEST: In this environment, we've been led to believe that you stay in bonds, you stay in cash and you give equities a wide berth. You believe that still?

JAMES BUTTERFILL, EQUITY STRATEGIST, COUTTS: It depends which actually (inaudible) regionally, say, let's start up with Europe, there's this common misconception that's European (inaudible) are cheap.

Onto some measures for (inaudible) price valuation metric, you see that it's roughly 13 times price earnings. But that's excluding negative earnings. And why when we're in the midst of descending into a recession would you exclude negative earnings from a valuation measure?

QUEST: So where do you look at? Where should you put the money?

BUTTERFILL: It's -- if you were going to invest in Europe, you have to look for companies that where the majority of their revenues are sourced from outside of Europe. That way, you're importing growth.

QUEST: DO you believe that the Fed or the ECB now has the reputation and the stature of the Fed when it comes to being -- to saying don't fight us?

HIGGINS: Not quite, because clearly, with the Fed, we have a single currency. We don't have fiscal transfers; we don't have one effective country, one fiscal policy. So it's not an optimum currency area. But we believe Draghi does have great personal authority and respect in the financial community.

QUEST: Good.

BUTTERFILL: And I say there's not conditions to Mario Draghi's stimulus. So it's on the condition that Spain and Italy behave themselves. And what happens if they don't behave themselves and we have to is when we're managing money here at Coutts, consider that option, too.

Whilst it's not our course (inaudible), we see Europe as breaking up, we have to consider that it potentially could, and therefore protect ourselves from that.

QUEST: Don't you just wish Draghi had done it sooner?

If he'd done this sooner, would we have had Europe crises two and three?

HIGGINS: Maybe that's true, but maybe we need it. We need structural change.

BUTTERFILL: For the political obstacles of (inaudible), we're much, much harder on it. I think the markets have to force issue first, and then the German electorate, the German politicians become more open to the idea of bailing out peripheral Europe.

QUEST: Are you -- finally, are you optimistic?

BUTTERFILL: I am optimistic.

QUEST: Oh, come on, you gave me a look as if to say I don't know what that word means.

BUTTERFILL: Yes. It's very touch and go, if I'm honest.

QUEST: Touch and go? What do you mean by touch and go?

BUTTERFILL: Well, for instance, the German court decision tomorrow, that could go either way. If you look at the decision they made for the EFSF, for instance, it was approved by the German courts on the understanding that it was temporary in nature.

Now the ESM, for instance, it's -- it will be permanent in nature. So will the German courts approve it? It's likely they would, given the consequences of them not approving it. But it's still -- it's very difficult. We can't stick politicians and lawmakers into a spreadsheet and do a calculation figure out if it's going to occur or not. We have to sort of weigh out probabilities.

QUEST: Are you optimistic?

HIGGINS: One team, one dream, of course, yes.

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QUEST: The food from the garden, the chef in the kitchen and the economists in the dining room, all in one go, tasting the food at the Coutts garden in London.

Now we ought to have a look at the weather forecast in just a moment, where apparently there's a tropical storm that's heading for the United Kingdom, the last time somebody forecast a hurricane, they were right. We'll have that, Jenny Harrison comes up now.

Jenny, Ms. Harrison, are you saying that the weather is about to get particularly unpleasant?

JENNY HARRISON, CNN METEOROLOGIST: What I'm saying, Richard, is in a couple of days' time, Scotland is going to start to feel the effects of what was Tropical Storm Leslie, and that's what I'm saying . Of course, it's not been (inaudible) the last couple of days, but let's just start with this, first of all.

So all this cloud you can see, in fact, that is the remnants of what was the tropical storm, and at the same time, a front came through, and it produced some torrential amounts of rain. Let me just show you some of these totals, first of all, 119 millimeters of rain across the Nova Scotia, Newfoundland and Cape Pine, 137 kilometers an hour, one of the wind gusts that was reported.

But have a look at the flooding that really did take place, because it just came down, of course, so very ferociously and to say there's a front combined with this tropical storm, which has very strong, it was very close to us, category 1 hurricane, but major flooding was obviously the result, people forced to leave their homes, roads, bridges were also closed because of the water levels.

And I can show you that there's actually going to be yet more rain in the forecast. But it's clearing out of the picture, but you can see across Newfoundland, still we're going to see probably about 5-8 centimeters of rain on top of that.

And then this is a track it's going to take now look at this. Once these systems push out into the Atlantic, you know they move quickly. But look at this, the next 24 hours, right now it's moving at 72 kilometers an hour. So it's changed its actual sort of makeup, this storm. It's now known as post-Tropical Storm Leslie. So it's not really any longer a tropical storm.

The winds are, you know, closely associated with the center of the storm, but we will see some very strong, gusty winds, which is why in 72 hours it will be making its way towards the U.K. In the meantime, it's pushing on towards Iceland. So some very heavy rain and sort of leading front of this system, it's like an area of low pressure now. And then of course some pretty strong winds as well.

So that eventually coming across the north of the U.K. It's been very unsettled. Look at this in the last 12 hours, Germany, some really ferocious thunderstorms. This was actually Germany a couple of days ago, those storms have been coming through for the last couple of days. And what it's doing of course it is cooling things off.

The warmth is just shifting east. It's kind of clinging on as best as it can, but those temperatures really are dipping below average. Tuesday was a very nice day across more eastern areas, 30 Celsius in Vienna, 10 degrees above average.

But once this storm system comes through, the cooler air behind temperatures really taking a dive. And then actually a day later it'll kind of come back up to average, though not bad for you really in London. I think tomorrow in London, well, today, Richard in London, tomorrow 19 Celsius, your temperature, so not too bad, the average.

QUEST: Yes, I'll be -- I'll be in Berlin tomorrow, looking at the --

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HARRISON: Oh, there you go.

QUEST: -- yes. (Inaudible) thank you. (Inaudible). Thank you. (Inaudible).

Jenny Harrison at the World Weather Center. Next, Francois Hollande delivers a stinging dose of austerity. Some say it's time to shut up shop and get out of the (inaudible).

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QUEST (voice-over): Today's "Conundrum" result, the who and what replaced Mao Zedong on China's banknotes, the answer the Beijing National Stadium, the Bird's Nest, of course, built for the Olympics in 2008, is on the note. The (inaudible) millions (inaudible) flip side features a discus thrower.

So all this week we are looking at the different Eurozone countries, the roles in the debt crisis and where those countries fit into it. Today we look at France and the future of the euro. Now we know France's goal is non-austerity growth. That's exactly what Francois Hollande wanted to introduce when he took office.

Not as much austerity as the other major European countries. He's had to admit certain amount of austerity growth -- austerity but not as much as others. Even so, the relationship of France to the E.U. is to push forward with growth policies at a time of course, when it's partner in Germany wants more austerity and more consolidation.

These are two crucial relationships in the way in which France relates to the future of Europe. Put this together and you're starting to see how different countries come together in the future of Europe. Francois Hollande's budget plans aren't doing him any favors with the French citizens. CNN's Jim Bittermann is in Paris.

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JIM BITTERMANN, CNN CORRESPONDENT (voice-over): At the Ervor air compressor plant in the suburbs of Paris, company director Laurent Vronski is proud of how he and his 50 employees have been able to keep a small part of the country's industrial base firmly rooted in France.

By specializing the company has avoided the kind of outsourcing that has taken place in other industries. Nonetheless, as the new government of Francois Hollande has taken its first measures to redirect the French economy, Vronski has seen more and more of his fellow business leaders think about and actually leave the country.

LAURENT VRONSKI, MANAGING DIRECTOR, ERVOR: It's not only the big CEOs with fat paychecks that are leaving the country, it's almost people with small businesses because they think it's easier and it probably is to do business and start a business around here, but not in France.

BITTERMANN (voice-over): Vronski says the government is making the unemployment situation worse with policies which raise the cost of labor by reimposing a tax on overtime work, for example. And the owner of another small business with about the same number of employees might agree.

Bernard Jomard makes specialized laundry equipment for hotels and hospitals, and his biggest problem, he says, is that there is no clear direction from the new government on fiscal and employment policies.

BERNARD JOMARD, CEO, DANUBE INTERNATIONAL: Despite (inaudible) other business owner (inaudible) but as a business (inaudible).

BITTERMANN (voice-over): According to a recent poll, nearly 60 percent of the French are unhappy with the new president's first steps. But it's not just criticism from the business community and the political right that is causing Mr. Hollande's approval ratings to plummet. He also faces criticism for the political left and those who supported him during his campaign for president.

Jean-Luc Melenchon, the far left presidential candidate who instructed followers to vote for Hollande has most recently been seen in bitter confrontation with Hollande's government because, in his view, it's not moving fast enough on a more socialist political agenda.

The national coordinating secretary for Melenchon's party, Helene de Clos, is now organizing street demonstrations against Hollande's austerity plans.

HELENE DE CLOS, NATIONAL COORDINATING SECRETARY, LEFT FRONT PARTY: We were hoping that there would be a certain turnaround at a certain consciousness of the urgency of the situation and the urgency of turning things around and making a few more concrete compositions in the right direction.

BITTERMANN: (Inaudible) president went on television on Sunday night to respond to his critics and to promise that he would straighten out the nation's economy within two years.

But given the constraints on his government, he said it will take a little belt tightening from everyone, a 30-billion euro austerity program that not many here wanted to hear about and which led some to suggest that his approach to curing the ailing economy is going to be no different than his predecessor -- Jim Bittermann, CNN, Paris.

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QUEST: Tonight's "Profitable Moment," in our nightly digest of economics and business, we've heard optimism from the euro, from the bankers at Coutts, realism from the finance guru, Suze Orman, and pessimism from Burberry.

It's tempting to say just another day in the crazy world of Euroland. But as we wait for the decision of the German court on the legality, if the court says no, expect a nasty, brutal reaction. That's why we expect the court will say yes with strings attached. And then we have the next round of banking union bailouts and more bluster.

From this misery, we seek solace in the gardens of Coutts. Now Coutts may be the bankers to the bluest of blood, but at least for this bank, a good idea has taken root and something is booming and blooming in the garden. And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead, I do hope it's profitable. I'll see you in Berlin tomorrow.

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QUEST: The headlines: Egyptian protesters have broken into the U.S. embassy in Cairo angry over a Dutch (ph) film produced in the U.S. which they say insult the Prophet Mohammed. They've dragged down the U.S. flag and hoisted black flags carrying Islamic emblems.

In Spain, it's Catalonia Day and thousands of demonstrators in Barcelona have called for independence. Catalans complain that they're not seeing the benefits of (inaudible) Madrid. They want to take control of their own economy.

Yemeni state media says the country's defense minister has survived an assassination attempt. A car bomb exploded in central Sanaa earlier today. It killed 12 people, including eight of his guards. The attack comes a day after Yemeni forces says they killed Al Qaeda in the Arabian Peninsula's number two man.

At the White House, the president and the first lady took part in a moment of silence marking the 11th anniversary of the 9/11 attacks. Nearly 3,000 people were killed in attacks in New York, Washington and Pennsylvania.

Those are the news stories that we're following for you today. You are up to date. Now live to New York and "AMANPOUR."

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