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QUEST MEANS BUSINESS

BAE-EADS Merger Doubts; Huawei, ZTE Red-Flagged by US; Trouble for Huawei in Australia; Wall Street Nerves; ESM Launched; Euro Group Finance Ministers Meet; European Markets Down; Merkel's Greek Odyssey; Euro, Pound Slip; Outlook Taiwan

Aired October 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: Two days to save a titanic defense deal. Tonight, we hear from the UK's former defense secretary.

Under suspicion. Two Chinese telecom makers working inside the US are labeled a security threat.

And it's a new world order. Qatar Airways prepares to redraw the map for frequent fliers.

I'm Richard Quest. The start of a new week and, of course, I mean business.

Good evening. The talks over the EADS and BAE Systems merger have now turned into a three-way tug of war. The countries involved -- Britain, France, and Germany -- each wrestling for influence and, in some cases, potential control over what would be a defense and aerospace behemoth, bigger than Boeing.

The three governments are running out of time to settle their differences before an extension will be needed to be sought. We're hearing a chorus of objections to this deal from both the private and public sector, and you'll hear about that if you come and join me over in the map room once again.

Now, the top BAE shareholder, let's start with the UK. The top BAE shareholder says deal makes no strategic sense. Invesco says there's too much state involvement and the UK defense secretary says the government may block the deal. Philip Hammond says the French and German states must not influence excessive and it -- it not -- must exceed 10 percent.

Reuters is reporting that France wants the chance to expand the involvement. According to France -- Reuters, France is looking to buy the Lagardere stake. And of course, we know what the Lagardere CEO says. He doesn't think it's the right deal, either.

So to Germany, and there, Germany is worried at being marginalized. It wants the same stake as France. It also wants -- and this is crucial -- the headquarters to be in Germany, perhaps in Munich.

So, looking at the map overall, the deadline is on Wednesday. They're likely to seek an extension for the takeover rules. But if all of these is worrying, the big concern, of course, is 3,000 miles that way -- the United States, which has serious reservations of its own about European involvement of government in this takeover.

Let's talk about this further. Joining me now to talk about this is the former British defense secretary, Lord John Reid. He joins me from Westminster. Lord Reid, fundamentally, before we get to the nitty-gritty, all things being equal, are you in favor or against this transaction?

JOHN REID, FORMER BRITISH DEFENSE SECRETARY: On balance, I'm in favor of it, Richard. I'm not one of the doomsday merchants. I believe it's a crucial decision for the future of European aerospace and defense.

I believe that the two companies together are obviously a huge entity, which is necessary at a time when you not only have Boeing and Lockheed- Martin, but you have the -- Basel and Russia and Air China developing their --

QUEST: Right.

REID: -- civilian aerospace fleets. So, I certainly hope that they find enough common ground, despite all of the complexities and difficulties, to carry on the discussions beyond this Wednesday.

QUEST: The sticking point from you, as I understand it, of course, is government involvement and the potential jeopardizing of the relationship for BAE with the United States.

REID: Well, there are three levels. One is the commercial-industrial level. And to me, it makes sense there. British -- BAE Systems have a big, big defense portfolio, but that's a declining market, even in the United States and the United Kingdom, where a lot of their contracts are running to an end.

On the commercial side, however, the EADS have an amazing range on civilian airliners, including six years forward order book for the Airbus. So, it makes sense there.

Politically, however, there are difficulties, because I think everyone wants to see the company operate as far as it can in the market itself under the market management, and that would mean a reduction in the stakes held by the French and the German government.

And then, the third level is the series of bartering that's going on about where the headquarters will be --

QUEST: Right.

REID: -- for this section or that section of the merged enterprise.

QUEST: You have long experience, Lord Reid, of dealing with these political issues. Do you fear, or do you believe that the French and/or the Germans will not give the required commitment to reduce stake, to reduce interference or involvement and influence?

REID: Well, I hope that they'll realize that in a game like this, if you just try to capture the minutes, the short term, you may lose the hours. You may lose the long-term future. So, I hope that they would both be willing to reduce the stake to, say, less than 10 percent. Then there's the question of whether they will give a guarantee as not to increase it in the future.

The other aspects, which are basing the headquarters of the defense section in the United Kingdom, as we would like to see, a center of excellence for EADS and around the building and reception development for the wing, I think these can be sorted out.

But it would be a pity if an argument over issues at that level was to impeded what is, to me, an essential step forward, if you were going to have a European aerospace and defense entity --

QUEST: OK.

REID: -- that is capable of competing with the best in the modern world.

QUEST: But let's look at it from the other side of the Atlantic. The Pentagon and BAE Systems, the DOD and BAE have an extremely close relationship. It's well -- it's well-ring fenced. They knew each other well, and it's been highly successful. Even in a declining defense market, the DOD is suspicious of French and German involvement.

REID: That's true. I wouldn't dismiss the EADS incident, or the credulity of this higher classification security in the United States, says BAE Systems. They are classified. And after all, not that long ago, they won the contract initially for the air-to-air refueling for the United States. After a great deal of logging, of course, they lost it.

However, you're right that there's a particular relationship on that side, which is why the BAE Systems if complementary to the European site of EADS. They make a good market together, a good market enterprise.

However, it shouldn't be beyond the wit of man to ring in some of these elements in a similar way to the satisfaction of the US government.

And finally, remember, the US government will then get the benefit of real competition in the aerospace and defense market. Because at the moment, with the size of Boeing and Lockheed-Martin, there isn't really that competition. This would provide it.

QUEST: Finally -- this is always the tough question -- whether one -- do you think this deal will get done? Is it your gut feeling? You've seen these before, you've seen these complexities. Lord Reid, is it your gut feeling this happens?

REID: Well, I hope it will get done. Certainly at the moment, it looks very difficult, but I hope so. And remember, the status quo for BAE Systems is not the brightest of futures, either. Declining defense markets, the contracts in the UK coming to an end. Yes, they've had a good dividend yield recently, but that may not necessarily continue.

And they may even, if this doesn't go ahead, fall prey to one of the companies that I've already mentioned in the United States, Boeing or Lockheed-Martin. So, for those who think that if this is stopped that somehow BAE Systems can just go on the way it's going on, I don't think that's an option.

QUEST: Right.

REID: And particularly when in this deal, remember most commentators would think that a true value would have a share of about 70 percent to EADS and 30 percent to BAE Systems. Actually, what they've been offered is 60-40, so it looks to me like quite a good deal for BAE Systems.

QUEST: Lord Reid, thank you for coming in and talking about it, putting --

(CROSSTALK)

REID: Thank you, Richard.

QUEST: -- giving us your expertise. Much appreciated. Lord Reid joining me from Westminster.

The shares in both companies fell in Monday's session, EADS off almost one percent, BAE Systems fell around half of one percent.

Coming up in a second after the break, a huge security operation in Athens. Angela Merkel is preparing to visit Greece. She hasn't been there for five years.

And spying, cell phones, and scandals. The US accuses Chinese telecom firms of foul play this is QUEST MEANS BUSINESS on a Monday.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: Two telecom giants stand accused of being agents of the Chinese state in a cyber war against America. A committee of US lawmakers says Huawei and ZTE should be viewed with suspicion. Maggie Lake's in New York. "Viewed with suspicion," Ms. Lake. Why?

MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: That's right. A great deal of suspicion, if you listen to the congressman, Richard. The House Intelligence Committee investigation, they held a press conference today, the chairman found that these Chinese telecom companies were basically not to be trusted, and they laid out their case in rather great detail during a press conference.

They said basically between interviews with the Australian and British governments, with former and current employees of both of these companies, as well as classified intelligence information, they came to the conclusion that national security was at risk. Have a listen.

(BEGIN VIDEO CLIP)

REP. MIKE ROGERS (R), CHAIRMAN, US HOUSE INTELLIGENCE COMMITTEE: As a result of our investigation, we do not have the confidence that these two companies, with their ties to the Chinese government, can be entrusted with infrastructure of such critical importance.

Again, our advice to the private sector is this: your obligation is to consider larger data protection and national security implications of your business decisions, and we would not advise doing business with these two companies.

(END VIDEO CLIP)

LAKE: Richard, more specifically, the congressman said executives of the company were very uncooperative when they gave them a lot of specific instances that were questionable in their mind and in others'.

They talked about equipment acting strangely, beaconing back unauthorized data to China, back door access into systems, all of these types of things, and they said they could not or would not explain any of these instances.

Now, as you can imagine, the companies are strongly refuting these allegations. Both of them issued statements today, we want to run through, quickly, both of them.

Huawei, for its part, said that the committee had a predetermined outcome before it even started, and I quote, "We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the US market."

ZTE, the smaller of the two, says its products are safe and that it set, quote, "an unprecedented standard for cooperation by any Chinese company with a congressional investigation." So, obviously a difference of opinion.

I do want to point out, this is related to telecom equipment, the sort of router, that internet gear. It does not cover the handset market, which is where these two companies have more of a small but growing foothold. But some are worried that it is going to extend there at some point, as well.

The FBI has been given this investigation, and the congressman predicts there will be criminal investigations as a result.

QUEST: One word, Maggie Lake, just one word: politics.

(LAUGHTER)

LAKE: Politics. It's the US election here. They were asked that very pointedly about the timing of this press conference, and both of the men pointed out that this was a bipartisan commission, members from both sides of the aisle, so they didn't think that you could argue, really, given that, that it was going to benefit one candidate or another.

But remember, Richard, there are also congressional elections going on, and being tough on China is a very popular campaign stump.

QUEST: Maggie Lake in New York for us tonight. We'll follow this one closely. Let's see if it all continues after the election.

Huawei has already run into trouble in Australia. Our correspondent in Beijing, Stan Grant, tells us more.

(BEGIN VIDEOTAPE)

STAN GRANT, CNN SENIOR INTERNATIONAL CORRESPONDENT: Australia blocked Huawei bidding to set up the national broadband network that Australia is looking at at the moment, and they -- that was directly because of security concerns.

There's always been a concern about Chinese companies and their close links to the government here. We know the Communist Party is the be-all and end-all in China. It is the ultimate power in China, and there are concerns about espionage, about spy -- cyber espionage.

And certainly in Australia, the concern was that Huawei was not seen as a company that could be trusted, a company that may pose a security threat, and that's why it was not able to bid for the national broadband network in Australia.

So, there is a precedent to this here. But of course, we must point out that Huawei does operate globally. It is a massive company, a company that, along with Ericsson, is the biggest manufacturer of telecommunications parts in the world, and a very profitable company. But there are certainly a lot of questions to be asked.

(END VIDEOTAPE)

QUEST: One of those odd days in the US at the moment, because it is Columbus Day. Now, that means there's quiet trading. The equity markets are open, down 26 points, just off a fifth of a percent. The bond market, it being a federal holiday, the bond market is closed.

And there are worries about the investors keeping on the sidelines of the slowing economy, and they're looking forward to the earning season, which kicks off tomorrow. Alcoa -- Alcoa always starts off the earning season, seemingly, and the worry is that the third quarter earning season is going to be in trouble, or at least certainly won't be encouraging.

European leaders have a brand-new bailout fund to play with. Join me in the library and you'll see what I'm talking about. That's the markets, by the way, we'll get to them in just a moment. As you can see, they were quite heavily off in Germany and Paris. Talk more about that in a moment.

This is what I want to focus on: the ESM, the European Stability Mechanism. It is the successor to the ESFS, the stability facility, and it has now been officially launched.

You'll bear in mind, once the German constitutional court, 12 members, wanted all -- up and running. $650 billion worth of bailout. It is, according to President Barroso, like building lifeboats in a storm putting this together. But an indication -- because obviously, the ESM is going to be leveraging up the capital, the paid-in capital, Fitch has already given it a Triple-A rating.

The euro group ministers, the E17, meet in Luxembourg tonight. There'll be an ECOFIN tomorrow, that's the whole 27 ministers. According to Minister Schauble of Germany, Spain doesn't need an assistance program, and that would follow on, of course, and follow through with what the economics minister, de Guindos, said in London last week.

So, into the maelstrom of misery. All four markets were sharply down, the DAX off 1.4 percent, Paris down 1.5 percent. And the reason for German numbers off sharply was the industrial production figures, unsurprisingly dropped half a tenth of one percent -- sorry, a half of one percent in the month.

All of this is grist for the mill. The chancellor of Germany, Angela Merkel, is due to arrive in Greece on Tuesday. She's having talks with her counterpart, Antonis Samaras, and the chancellor's likely to face hostile reception not from the prime minister, but from the people, worn down by years of austerity.

Matthew Chance looks ahead to the mood in Greece, where many see Mrs. Merkel as the mistress of austerity.

(BEGIN VIDEOTAPE)

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): This the anger and violence austerity in Greece provokes, and with the German chancellor set to arrive in Athens, the Greek authorities are bracing for unrest. Officials say at least 6,000 riot police have been placed on alert. To many Greeks, Angela Merkel is not welcome.

UNIDENTIFIED FEMALE (through translator): To come and do what? Why should she come? They should just get rid of her and all the rest of them with her.

CHANCE: And this is why so many are so furious. Critics say painful austerity cuts, backed by Berlin, have left vast numbers of Greeks unemployed and destitute, many dependent on soup kitchens like this one in Athens for a hot meal.

If Greece was to receive the two bailouts it needed and stay in Europe, Chancellor Merkel made clear, difficult government spending cuts would have to be made.

CHANCE (on camera): It may be economically right to make Greece and other fringe countries institutes these economic reforms, but do you believe it's moral? Is it right to make people go through this kind of pain?

ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): It's very bitter, obviously. Sacrifices have to be made. But I think these are necessary measures that have to be taken. I think it was not easy for anyone to impose those measures on them, but these, I think, have been made on the background of the great experience that the IMF has.

CHANCE (voice-over): But now, that hard line stance, which has seen the chancellor characterized by critics as a bullying Nazi, appears to have softened, and there are some Greeks who see Merkel's visit as a show of support, her intention: to keep Greece in the euro at all costs.

UNIDENTIFIED MALE (through translator): It is clearly positive, because as we know, Germany is the largest power in Europe at the moment, and one of the largest powers in the world. It is clear that the support of Mrs. Merkel is good for our country and is needed.

(CROWD CHANTING)

CHANCE: But not everyone in Greece feels the same. As a precaution, the authorities have banned all public protests in Athens while the German chancellor is in town. But that may not guarantee a warm and peaceful welcome.

Matthew Chance, CNN, London.

(END VIDEOTAPE)

QUEST: A Currency Conundrum for you today. Today, the US is celebrating Columbus Day, marking the anniversary of Christopher Columbus arriving to the Americas, 1492, Columbus sailed the ocean blue.

(RINGS BELL)

QUEST: My question to you: which country named its currency after the explorer, Columbus? El Salvador, the Bahamas, or Costa Rica? Oh, I do like this one. This is a great Conundrum.

The euro's retreating on concerns over Spain. The single currency's down nearly half a percent against he dollar, the pound faring even worse, down more than two thirds of a cent against the greenback. The yen's the other way, up half a percent. Those are the rates --

(RINGS BELL)

QUEST: -- this is the break.

(COMMERCIAL BREAK)

QUEST: Tonight, we are in Taiwan to focus on commerce, industry, and the consumer trends that fuel the island's economy. On CNN's Outlook series, we'll focus on what's driving growth. We'll look at Taiwan's position on the global stage, and we'll focus on its growing airline industry, expanding business of high-end bicycles, and how the government there is promoting the island's indigenous culture.

As we look at the opportunities, we'll also take time to examine some of the challenges, beginning with concerns over Taiwan's practice of long working hours and what steps are being taken to end it. Pauline Chiou reports.

(BEGIN VIDEOTAPE)

PAULINE CHIOU, CNN INTERNATIONAL CORRESPONDENT (voice-over): In just three decades, Taiwan has evolved from its agricultural roots to an export power house. Exports account for about 70 percent of its GDP. Consumer electronics and technology lead the way, with brands like HTC, ASUS, and Acer.

But fluctuating global demand makes Taiwan more vulnerable than its Asian peers, especially now. With the global slowdown, exports have declined for six months running.

Taiwan Semiconductor is the world's largest contract chip maker, making chips for customers like Qualcomm and Fujitsu. The company has had a profitable year so far, but the chairman and CEO is concerned about the global outlook, especially for the next two quarters.

MORRIS CHANG, TAIWAN SEMICONDUCTOR: If I were to have to rank US, China, Europe, and Japan, we are about middle end of this project. You are effected by the inventory situation.

CHIOU: Many Taiwanese companies provide components, so the global slowdown hits them hard. But while exports are down, the domestic economy is fairly stable.

DONNA KWOK, HSBC: Taiwan's saving grace has been the resilience of its job markets, because the job markets still staying relatively firm. Unemployment was still at a relatively low level. It's only hovering around 4 percent. That means that households have been able to spend.

Consumers -- or at least consumer confidence hasn't dropped off a cliff. Far from it.

CHIOU: The island has moved past its image of making cheap nicknacks. Its companies are among world leaders, not just in consumer electronics, but in in industries as diverse as bicycles and high-end saxophones.

(SAXAPHONE PLAYING "PINK PANTHER")

CHIOU: Lien Cheng Saxophone is a fourth-generation family business making handcrafted instruments. One of its biggest challenges is cheap competition from mainland China.

TSUNG-YAO CHANG, LIEN CHEN SAXOPHONE (through translator): You can buy a saxophone from mainland China for 1,000 RMB or $158. How do we compete? We have craftsmanship and use better materials.

CHIOU: China has long considered Taiwan a renegade province, but the current pro-unification government has paved the way for better relations with Beijing. Direct flights began in 2008, and both have agreed to trade using their own currencies, bypassing the US dollar.

Recent tensions between Japan and China over islands in the East China Sea may even benefit Taiwan if Chinese companies choose to do business with Taiwan over Japan.

SHARON LAM, MORGAN STANLEY: We have been seeing tensions every now and then, and by historical pattern, we haven't seen any of those tensions have affected economic ties between any of the countries in the region, especially between China and Taiwan.

CHIOU: Taiwan's service industry also has potential for growth. Coffee shop chain 85 Degrees has become very successful in China and recently opened a branch in California, a sign that exporting services may be one way to battle today's economic headwinds.

Pauline Chiou, CNN, Taipei.

(END VIDEOTAPE)

QUEST: Now, for more information on Taiwan and our coverage this week, go to cnn.com/airline (sic). In a world of airline alliances, Qatar Airways is making it fly. Next, we'll look at the new playing field for frequent fliers.

(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.

(BEGIN VIDEO CLIP)

QUEST: The U.S. Republican presidential challenger Mitt Romney is attacking President Obama's leadership around the world in what was billed as a major foreign policy speech. Mr. Romney condemned Mr. Obama for, in his words, "leading from behind." Mr. Romney says it's time for America to change course in the Middle East.

Latin American leaders are congratulating Hugo Chavez. While the U.S. and Europe are offering more cautious sentiments. The Venezuelan president beat back a strong opposition challenge to win a fourth term. Mr. Chavez is promising to push ahead with more socialist reforms.

Two Chinese telecom companies stand accused of posing a threat to U.S. national security. Huawei and ZTE, in their words, "can't be trusted."

UNIDENTIFIED MALE: Well, good morning.

QUEST (voice-over): The U.S. House Intelligence Committee year-long investigation focused on the two companies' business practices. Both say their products are safe and strongly dispute the findings of the committee.

Online (inaudible) appears to show an explosion in Syria's Homs province. Opposition activists say regime forces dropped a barrel bomb on a residential district. They also say 76 people have been killed across the country on Monday.

Meanwhile, state media report that the army has killed dozens of, in their words, "terrorists" today in Aleppo.

The first of this year's Nobel prizes has been awarded. The Nobel prize for medicine goes to Britain's Sir John Gurdon and Shinya Yamanaka from Japan. In research 40 years apart, the scientists discovered mature cells can be reprogrammed. This could open the door for using stem cells not taken from embryos.

(MUSIC PLAYING)

QUEST: So there's the picture. It has just been released in the last hour or so. Today, tonight, Qatar Airways is creating a new one-world order.

Just moments ago in New York, it announced that it was joining the One World Airline Alliance (ph), and that includes American Airlines -- and you can see the CEO of American there, Tom Horton; and the sponsor of Qatar into oneworld, Willie Walsh of IAG, and that's the CEO of oneworld.

In doing so, Qatar has become the first Gulf carrier to fully infiltrate the three major alliances. Individually, of course, airlines have tie-ups, co-chairs, agreements with members of the alliance. But no Gulf carrier, Qatar Gulf emirates or (inaudible) has actually joined until now.

As for the Gulf carriers themselves, they are shaking up the airline industry as well as having financial clout. Their hubs are the main locations linking east and west. And now Qatar is in oneworld. SkyTeam and Star must be looking and wondering. But let me tell you, this is a complicated question.

This is the oneworld alliance. And what we see from oneworld today is that all three Gulf carriers, in some shape or form, are related to oneworld. Never mind SkyTeam and Star. Qatar has now announced it is joining oneworld.

But the difficulty is, as I will now show you, membership has entire (ph) equity and with etihat (ph). Meanwhile, just a couple of months ago, Qantas announced it was going to have a major strategic relationship with Emirates (ph), which begs the question for this alliance and for the others, exactly how will oneworld circle all of this? Whose relationships will they all have?

There are so many conflicts, who will send passengers to who (sic) and where does this leave Qatar Airways in the new alliance? Put this another way: Airberlin is turning into the sort of airline that creates the problems. is a full member (ph) of oneworld.

But now through its relationship in another announcement today, it's also tying up with SkyTeam members Air France, KLM. It begs the question: where does really belong? Put another way, the alliances that you see here are having to grapple with new members.

They are having to grapple with shifting memberships and most important of all, they're having to grapple with the three Gulf carriers. You can read about my blog in one of the new world order and how Gulf airlines are shaking up the status quo. Just click over to CNN.com/business.

Now coming up, after the break, on the ropes: that's where my next guest thinks the world's economic recovery is headed. Eswar Prasad, formerly of the IMF, is the top man in China. He'll be on the program after the break.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

(BEGIN VIDEO CLIP)

QUEST (voice-over): The answer to today's "Currency Conundrum," we asked you which country is named after -- its currency after Christopher Columbus. The answer is C, Costa Rica. Its currency is the colon. I'm told that Columbus first landed on the island (inaudible) Bahamas (inaudible) the Bahamian dollar. El Salvador officially switched from the colon to the U.S. dollar in 2001. (Inaudible).

(END VIDEO CLIP)

QUEST: The IMF's now warning of an Asian economic slowdown. The institute has cut its 2012 growth forecast for the region for nearly half a percent, citing weaker demand for export. If that wasn't bad enough, there's also the U.S. fiscal cliff and the Eurozone crisis. The IMF says together they could wipe a further 3 percent of next year's GDP.

Eswar Prasad is the head -- or was the head of China's division at the IMF, and says the global economic recovery is on the ropes. He told me earlier that instability is hurting Asia.

(BEGIN VIDEO CLIP)

ESWAR PRASAD, SR. FELLOW, BROOKINGS INSTITUTION: It's largely the uncertainty that is coming from what is happening in the advanced economies, especially Europe, but also some degree what is happening in the U.S., because the fiscal cliff in January could knock a lot of U.S. growth.

That plus the fact that in many of these economies, especially China, there have been a lot of internal imbalances building up, plus there is a leadership transition coming up, which is leading to some degree of slow decision-making. So they're not really pulling all the policy levers they could.

QUEST: But all those reasons, especially with China, none of them are hard macroeconomic reasons. They're all confidence questions. Slowdown as a result of worries. If that is right, then it's difficult to see where the improvement comes from.

PRASAD: That's exactly right. Unless you can get more uncertainty in terms of policies and if you don't have the political environment being set up to tackle some of these difficult challenges, it's not easy to see how the private sector is going to be able to come back and do its bit to boost growth.

So this is why it's taken such a long time for the recovery. In fact, when I started my index two years ago, I thought I would have it retired by now. But these problems have continued to fester and I think political uncertainty which is feeding into policy uncertainty is really a crucial factor holding back the recovery.

QUEST: Where do you stand on the question -- straight up -- where you stand on the question of China and growth? Do you believe -- I mean, that China continues this slowdown and it gets worse? Or that the new government puts policies in place and they speed up again?

PRASAD: China has enough policy room in reserve to be able to stock (ph) growth. The big question is whether they can do it in a way without creating risks for the future. They can loosen the taps on monetary policy, which will immediately generate growth.

But it could worsen the problems of excess capacity in some industries. So they really need to get more done on fiscal policy. And for that, you need some political --

QUEST: That's -- that's -- now just a minute, that's a very good answer of on the one hand, on the other hand and on the third hand. Where do you stand on that? What do you think is going to happen?

PRASAD: I have no doubt that China will be able to hit its growth target of about 71/2 percent this year. If China can actually start putting in place some big reforms, once the new leadership is in place, I think they can hold to 7 to 8 percent of growth next year. But of course, the big wild card, again, is Europe.

If Europe starts to come apart and if the U.S. economy starts to weaken because the problems don't get fixed, then it's going to be much harder for China. But still, China has enough room to sustain growth in the range of about 7 percent a year this year and next.

(END VIDEO CLIP)

QUEST: Now have you ever fancied being the U.K. central banker? If so, and if you haven't got your application, then it's too late. The deadline's passed. We'll consider the applications to be the person they call Mr. Governor.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

QUEST: This morning, the deadline passed for applications to be the next governor of the Bank of England. Entries were due in by Monday morning. We don't know who has applied for the $480,000-a-year job. We do know two of the people that were highly ticked to put themselves out of the running.

The first, the former cabinet secretary, Lord Gus O'Donnell, and the Goldman Sachs economist, good friend of this program, Jim O'Neill.

Both say they're not interested, which leaves the deputy governor, Paul Tucker, and the Financial Services Regulatory Authority chairman Adair -- Lord Adair Turner, as possible front-runners. I took a look through the job description with the cartoonist, Andy Bunday, who helped me draw up quite literally the potential candidates.

(BEGIN VIDEO CLIP)

QUEST: Governor of the Bank of England, one of the great jobs in the British institutional system and one of the greatest jobs in international finance and economics. If you're going to be the governor of the bank, you'd better be prepared to represent at the G-7, G-20 and the like.

You will have major new reforms to have to take care of. You had better have experience of working with central banks and most important of all undisputed integrity and standing. Governor of the Bank of England: can any one person hold that job?

Andy's (ph) here.

Well, what have you come up with as the idea of the governor? Who have we got?

ANDY BUNDAY, CARTOONIST: Well, we've got Mervyn King. He's retired. We know that. He's off with his pot farm (ph) and his pension. He's happy. Leaves the famous portico, the Bank of England, with its depiction of mythic bankers on the front --

(CROSSTALK)

QUEST: Mythic?

BUNDAY: -- (inaudible) the question, what one person can do this job? I don't think there is one. I think they need a mythic -- I think they need a mythic banker, a chimera. So we've -- I've just called out some of the things that are in that job spec and just kind of deconstructed what they might really mean.

Well, you know, wings for flying to the G-8 and the G-20 and wherever else you want to go. Ability to inspire confidence, well, you need hypnotic eyes. You need a sort of Paul McKenna (ph) type character on this. Ability to say (inaudible) economic stability, well, that's about getting us out of the mess we're in, shutting the stable door after the horse has bolted.

QUEST: That's crucial. You've got to be able to say it couldn't have happened and it could happen again, shutting the stable door after the horse has bolted.

BUNDAY: Well, that's where the communication skills come in as well, covering your own behind. I think that's a clear, sure hand for that.

And able to work with the chancellor at H.M. Treasury. Well, George Osborne's never going to be off your back.

(CROSSTALK)

BUNDAY: Yes.

QUEST: So put it all together, Andy. And we look at the requirements in the spec. Can one person do it? And do it successfully?

BUNDAY: I wouldn't want the job. Would you?

(END VIDEO CLIP)

QUEST: Ah. The cartoons and the bank. We'll let you know, of course, who wins that.

In 2010, blurb.com was named the fastest growing media company in the United States. This year, the self-publishing house is expected growth of more than 25 percent, and it's just expanded into ebooks. "The Tale of Blurb," this, of course, is the story.

And behind it all, the chief executive and founder, Eileen Gittins, joined me recently while she was in London, to hear the story of how she started.

(BEGIN VIDEO CLIP)

EILEEN GITTINS, CEO, BLURB.COM: I personally started out wanting to make a book like this and then as a technologist, I realized how hard that was. And I thought, that was all wrong. The world needed a way to publish themselves.

QUEST: Who wants to do that? There's enough blogging and tweeting and Facebooking. Why would anybody want to start, other than family and friends, to start making their own book?

GITTINS: Everybody's living out loud now. Let me give you an example. This year, we will be doing approaching $100 million worth of revenue this year. So there are $100 million worth of people out there who are very keen to create their own books.

Whether that's for personal use, as you said, for families and friends; whether it's for business -- we see a lot of businesses making printed books as well as ebooks, now with video and audio. And we see authors who are doing books for sale -- all of them.

(END VIDEO CLIP)

QUEST: Oh, I do love a good book, a page-turner if ever there was one.

Chapter two: so now we know why she's doing it. Eileen says we're all living out loud, but she says social media's been the driving force. Social media, the driving force of the company.

(BEGIN VIDEO CLIP)

GITTINS: It is precisely because of social media that this has now taken off. Let me give you an example. When I first started the company back in 2006, I was asked, what is your best seller?

And with all due respect, my answer would be, I would rather have 30,000 people, each of whom create a title with one unit sold than one author with 30,000 copies sold, because if I have 30,000 people, 30,000 people who are publishing and they're telling all their friends, that is a fantastic business.

QUEST: All you're really doing is letting people put together their own homemade album, homemade book, whatever it might have been.

GITTINS: It's not true. We have professionals at all levels making books. Here's the deal: when I first started this whole idea of vanity press -- remember that term, vanity press?

QUEST: (Inaudible). That's what it is.

GITTINS: I knew you were going there.

QUEST: That's the world I was looking for.

GITTINS: I'm taking it right out of your mouth because it is no longer relevant. Truly, it's no longer relevant. There's a reason why there's a "Fifty Shades of Grey." There's a reason why --

QUEST: Smut.

GITTINS: Well, there's that.

There's a reason why that was self-published, and there's a reason why there are now breakout hits being self-published. And the reason is because self-publishing isn't even the word of the day anymore; it's just publishing.

(END VIDEO CLIP)

QUEST: My word, this has turned into a bodice-ripper, a good yarn. Can hardly wait to see how it ends.

Chapter three, for the future, Eileen and blurb says she's looking forward to a happy ending.

(BEGIN VIDEO CLIP)

GITTINS: We were growing over 25 percent year-on-year.

QUEST: When are you going to sell out, make a fortune and retire and raise begonias?

GITTINS: Actually, it would be a villa in the south of France or perhaps a winery. But --

QUEST: The point is the same. When are you --

(CROSSTALK)

QUEST: -- when are you going to sell out and do whatever you want to do?

GITTINS: We will either be bought or go out public, I would say a three-year time horizon seems about reasonable to me.

QUEST: And you're agnostic on which one it would be?

GITTINS: I am agnostic. And, by the way, we're building the company as if we are going public, because that's how you become more valuable to a prospective buyer anyway. So either path. I'm good to go.

(END VIDEO CLIP)

QUEST: Good to go. Interesting stuff on blurb.

Now the weather forecast, Tom Sater's at the World Weather Center. It is autumn, not surprisingly it's raining in London. I can tell you that much (inaudible).

(CROSSTALK)

TOM SATER, AMS METEOROLOGIST: Yes, beautiful time of the year over there in parts of the U.K. and Europe, leaves changing, leaves falling. Still warm in some areas, too, with some record highs. We'll talk about.

Want to show you the satellite picture first. And the brighter colors of purple here are the higher, colder cloud tops. So we've had some pretty good wind-driven rain in parts of France. We're going to find this jet stream. Notice the trough here.

Sometimes when you find a deep trough on that southwestern quadrant, you can find an area of low pressure develop in about 48 hours and one may start to develop, maybe bringing some much-needed rain to parts of the Mediterranean in toward Greece. But we've got a surge of some cold air that'll be making its way into Low Country. In fact, already some pretty good rain.

Here's one funnel system, cold air starts to move off eastward. Ahead of this front, some warm temperatures. Obviously it's been quite warm in parts of Portugal into Spain. But really around Paris, the average high is 19 -- excuse me -- 16 degrees.

And you've been right around 16 the last 24 hours; tomorrow as well. But southern France, towards Toulouse, your average is 19 degrees. And we've seen several communities and villages where it's been 26, 27, even 28 degrees. So big warm-up.

In some areas, obviously, it's a rain-cooled atmosphere, some pretty good thunderstorms developing into Belgium and the border of the Netherlands there. This is along that front, so again, associated with a front. But the blast of cold air moves up into Scandinavia. Notice the spin. When you see patchy cloud cover like this on a satellite, it's cold cumulus.

So there's some cold air that'll be pouring into parts, of course, Scandinavia. We're going to see it easily move into Finland as well. Now business travelers, this is a forecast for your travel on Tuesday. Call ahead. If we have problems right now, winds in Copenhagen around 22 kph, but maybe an hour to an hour and a half delay because of winds.

And you see that, slight delays, even in Berlin as well. Not so bad in most cases; Geneva, we're talking about maybe 30-45 minutes for you Tuesday. But again, if you have a flight, call ahead. This is mainly just for low clouds. Winds will be kicking up further up to the north.

Your temperatures look like this. There you go. For Tuesday, Stockholm 9 degrees; Moscow 9 as well; fall, ugh, full grip here. In fact, Berlin, 13; it looks like Paris right around your seasonal average as mentioned of 16 degrees. But Richard, as mentioned, it's a beautiful time. The leaves are falling.

We're getting more pictures in to the CNNireport.com and we ask everyone to go ahead and send them ahead. It's the beauty of autumn. Not so bad across much of your region.

QUEST: Lovely.

Tom, many thanks indeed.

The leaf peaking of the world.

And a "Profitable Moment" after the break.

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(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment," the deal between BAE Systems and EADS is a true blockbuster. And like any major merger, both companies have problems to negotiate. But the truth of the matter is it's got all the possibility of turning into a dog's breakfast, all kinds of national interests are at play.

Governments are jostling for position and the fact of the matter is, we are not as yet seeing a clear indication from France and Germany that they're prepared to give up some of their power. Shareholders are defending their positions, especially those that want to sell out. They want a better price and they're going to hold the deal ransom.

And during a jobs crisis in Europe, well, there are thousands of jobs at risk. Britain, France, Germany, all have a lot to lose and more to gain. There will be plenty of political posturing before Wednesday's deadline.

Remember, though, this doesn't have to be a zero-sum game. None of us can say with certainty whether it's going to happen. What I can tell you in the next 48 hours, promises will be made, fingers will be crossed. And an extension will probably be sought.

Well, that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable.

The news headlines are next.

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QUEST: The headlines: the U.S. Republican presidential candidate Mitt Romney is attacking President Obama's leadership around the world. In what was billed as a major foreign policy speech, Romney condemned Obama for, in his words, "leading from behind." Romney says it's time for America to change course in the Middle East.

Latin American leaders are congratulating Hugo Chavez while the U.S. and Europe are offering more cautious sentiments. The Venezuelan president beat back a strong opposition challenge to win a fourth term. Mr. Chavez is promising to push ahead with more socialist reforms.

Two Chinese telecom companies stand accused of posing a threat to national security. Huawei and ZTE, quote, "can't be trusted," according to the U.S. House Intelligence Committee. Its year-long investigation focused on the two companies' business practices. Both strongly dispute the findings.

And the first of this year's Nobel prizes has been awarded. The Nobel prize for medicine goes to Britain's John Gurdon and Shinya Yamanaka from Japan. In research 40 years apart, the scientists discovered mature cells can be reprogrammed, which could open the door for future research.

(END VIDEO CLIP)

QUEST: Those are the headlines. Now live to New York and "AMANPOUR."

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END