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QUEST MEANS BUSINESS

HP Takes $8.8 Billion Hit on "Accounting Improprieties"; Future of Greece; Yen Sliding, Euro, Pound Stronger; A Miner's Life

Aired November 20, 2012 - 14:13   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


NINA DOS SANTOS, HOST: Hewlett-Packard accuses the technology firm it bought last year of fraud.

Charged with bribery. A new scandal engulfs two former News Corporation bosses.

And Slovenia's finance minister tells me we won't need a bailout.

Hello, I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.

Good evening. Hewlett-Packard says a software firm it bought last year was fiddling the books and isn't worth anything like the $10 billion price tag. HP accuses the UK firm called Autonomy of, quote, "serious accounting improprieties and outright misrepresentations," as well.

Well, the PC maker has now written down Autonomy's value by $8.8 billion. It's also asked the US and UK authorities to investigate.

The charge wiped out HP's own profit for the whole of the last quarter, pushing it into a loss of nearly $7 billion here. CNN's Maggie Lake joins us now, live from New York with the latest on what this means for the company.

So, Maggie, I suppose Autonomy came as a bit of a shock to the investment community, probably to HP itself. How's it being viewed by the Street?

MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: There absolutely stunned by this revelation, Nina, and not very happy about it. HP came out today, we were expecting an earnings report. What we found were the results of a seven-month investigation that Autonomy was worth -- basically cooked the books and inflated their value by $5 billion.

HP only paid $10 billion for it, so immediately, investors started asking, this is not a small mistake. How can something like this have happened? Where was the due diligence?

Now, remember, the deal took place when Leo Apotheker, the former CEO, was in place. But current CEO Meg Whitman was a board member at the time. She was asked about this today. This is what she had to say to CNBC.

(BEGIN VIDEO CLIP)

MEG WHITMAN, CEO, HEWLETT-PACKARD: With 20/20 hindsight, we're disappointed by this news. What I will tell you is our due diligence was thorough. We relied on audited financials by Deloitte. Not exactly Brand X accounting firm. And that's what you do when you are on a board, you rely on the recommendations of management and the financials audited by a legitimate financial accounting firm.

(END VIDEO CLIP)

LAKE: So, pointing the finger of blame right at the auditors. This is going to be very interesting as we see this develop. She said that obviously they overpaid, it wasn't worth what they thought, although she still supports the deal in general, which is interesting. The case, obviously, Nina, referred to both the Securities and Exchange Commission as well as the UK's Serious Fraud Office.

Also, a spokesperson for Mike Lynch, who was the CEO of Autonomy at the time of the deal, has flatly rejected HP's allegations. So, we're going to continue to try -- sort of track that investigation part.

But you know Nina, this is a tough environment for technology right now. Investors really getting sick of these self-inflicted wounds coming from HP, part of the reason that the stock traded near 12-year lows today.

DOS SANTOS: Yes, that's a very concise way of putting it, I've got to say, Maggie. Autonomy aside, it doesn't detract from the fact that obviously HP, like other companies we've been talking about this week, such as, for instance, Intel in the news, all suffering from a market that is changing rapidly. People just aren't buying as many PCs anymore.

LAKE: That's right, Nina, and this is hugely disruptive to what were these powerhouses of technology. The shift has been rapid. Next year, PC sales are going to decline for the first time in over a decade, and these companies are sort of scrambling to adjust.

Look at the actual earnings that came out from HP today. On the top line, earnings per share, that wasn't quite the disaster people were fearing, frankly. It was actually a little bit above expectation. Granted, they're lower.

But when you look at revenue, it fell and it was down across almost every one of their business sectors, and they lowered their outlook for the first quarter.

Now, Meg Whitman has been very clear that this is a five-year turnaround plan, 2013 is going to be one of transition. A lot of it is going to be about cost-cutting as they reposition. But she insists that HP does have the right strategy moving forward. Have a listen once again.

(BEGIN VIDEO CLIP)

WHITMAN: The PC business is a slow-growth to declining growth business, but we call that business our personal systems group. We don't call it the PC business, and we're introducing tablets for the consumer as well as the Enterprise. We're very excited about our Elite Pad 900, which is the first tablet we've designed for Enterprise. But that's only a portion of our business.

(END VIDEO CLIP)

LAKE: So, this is what investors -- do they believe that that's the way forward? They're out with a tablet now, that's a pretty crowded market with some very clear leaders so far. So, investors, they like Meg Whitman, but definitely they are not convinced about this story.

And Nina, just to get back to that stock price, because ultimately, this really shows where investor sentiment is, it's trading below $12 today. That was a stock that was once at $70. So, you -- if you were an early owner of that, you are not a happy camper right now.

DOS SANTOS: Yes, that -- puts it into context, doesn't it? And it's also affecting the broader market as well. Maggie Lake, thanks so much for that at CNN New York.

Up next, as the eurogroup meets in Brussels this evening, we'll take a look at how likely it is that they'll actually give Greece the extra time it needs.

(COMMERCIAL BREAK)

DOS SANTOS: In Brussels tonight, eurozone finance ministers are working on a deal to change the rules of Greece's bailout. Greece has asked for two more years to reach its debt target of less than 110 percent of GDP. Earlier, Slovenia's finance minister told me that he's confident that the 2020 deadline for Greece will be extended.

(BEGIN VIDEOTAPE)

JANEZ SUSTERSIC, SLOVENIAN FINANCE MINISTER: I think it will be a hard debate, because a lot of countries are quite unhappy with the way things have evolved in the past in Greece, but we now all recognize the efforts that were made by the Greek government.

So I think finally there will be an agreement on the extension of the targets in which they have to reach their debt target. And then, of course, there will be a lot of debate how to finance this extension.

DOS SANTOS: Now, there've also been a whole series of reports suggesting that perhaps at this point, Greece could actually get a couple of bailout chunks of cash in one go, up to about 56 billion euros.

SUSTERSIC: Well, I think what will be quite certainly agreed is that there would be another tranche paid out of the original disbursement paid out through ESFS in order to finance their debt service that they have to make.

And as this -- that was conditional on troika, on a positive report by the troika, and I think such report will be provided to us today. But I don't think we'll go further than that.

DOS SANTOS: There's been a notable difficult relationship with the International Monetary Fund during your last meeting. There was disagreements about exactly how to rearrange Greece's debt targets and whether or not they are sustainable or credible. How confident are you that these kind of issues can be resolved?

SUSTERSIC: Well, on the one hand, IMF is quite positive as regards the efforts made by the Greek government, so as members of troika, they were very positive about what was done in Athens in last week. On the other hand, they want to have firm measures of how to finance this extension.

DOS SANTOS: Are you confident that you're going to be able to manage to stave off a bailout to Slovenia?

SUSTERSIC: Yes, I'm quite confident. What we are doing now is actually we are putting together pieces of legislation regarding the bank bailout or the bankers' solution. Then, of course, the law facilitating -- the law Slovenians are holding facilitating privatization.

We're also debating the pension reform and labor market reform and a new budget for the next two years. Of course there is some political deadlock, some political maneuvering. We also have some referenda announced. But regardless of that, I think we can find ways to implement the measures that are necessary.

DOS SANTOS: Do you regret becoming part of the single currency?

SUSTERSIC: No, not really. We have seen in the beginning of the financial crisis what happened in countries outside the eurozone, like Hungary or Iceland, who faced serious currency crises. We didn't have any currency crisis.

Of course, we were hit by the financial crisis very strongly, but it was mainly do to our own uncompetitiveness and the eco structure accommodation in Slovenia. It was not due to the euro.

(END VIDEOTAPE)

DOS SANTOS: Getting caught up on the performance of some of the world's major currencies. Now, the yen is sliding on the back of expectations of more aggressive policy action taken by the Bank of Japan. In fact, that currency's currently trading at a seven-month low against the US dollar.

When it comes to the single currency, in light of the events in Brussels and that eurogroup meeting this evening, that is going in the other direction, bouncing back from a brief dip after Moody's stripped France of its coveted Triple A credit rating. The British pound is also stronger against the US dollar.

(COMMERCIAL BREAK)

DOS SANTOS: In South Africa, the Marikana Inquiry is hearing evidence about what led to the deaths of 34 miners in one single day of protests. Well, all this week, we're examining how tensions in the country's mining sector managed to build up to such a deadly boiling point.

In the second of our special reports from the country, Nkepile Mabuse investigates the high personal cost of actually working in these mines.

(BEGIN VIDEOTAPE)

(ROOSTER CROWS)

NKEPILE MABUSE, CNN INTERNATIONAL CORRESPONDENT (voice-over): The tranquil Eastern Cape, some 800 kilometers from Johannesburg, is the birthplace of Nelson Mandela. It is also where a majority of South Africa's mine workers hail from.

There's little economic activity here, so thousands of men leave their families behind in search of work in the gold and platinum mines near Johannesburg.

After years of service, they come home to retire, often weak and sickly, like this 64-year-old who contracted silicosis after a lifetime of inhaling mine dust as a drill operator.

MANKAZANA MADULWINI, MINER (through translator): I have spent months in hospital with an aching chest. I have never worked anyplace else. Mining is all that I have ever known.

MABUSE: Traveling back and forth is seen as costly by many, so they send remittances every month, returning to their loved ones once a year for Christmas. Near the mines and far from home, they start a new life and new families, accumulating additional responsibilities in the process.

A lot has changed in South Africa since democracy in 1994, but this pattern of a miner's life has remained the same for more than a century.

MABUSE (on camera): During apartheid, the migrant labor system restricted the movement of black people. Today, miners are free to settle wherever they want, but it's simply unaffordable for them to uproot their large families in the rural areas to nearer the cities where the cost of living is much higher.

MABUSE (voice-over): Instead, most end up living a double life, with one big family in the rural areas, and a smaller one in town. A life unaffordable on their salaries. Hence the demands for hefty pay raises.

Thirty-two year old Cingisile Makhamba left the Eastern Cape seven years ago to find work at Lonmin Platinum Mine near Johannesburg. He narrowly escaped death in August when police gunned down 34 of his colleagues protesting for higher pay. Most of those who died that day were from the Eastern Cape.

The incident shocked the world and triggered copycat strikes across the sector.

CINGISILE MAKHAMBA, MINER (through translator): We earn very little. Look at where we live. Lonmin doesn't pay us enough.

MABUSE: After the deadly protests, the company increased wages by up to 22 percent. It's still not enough to cover his massive expenses.

After months of berating company bosses for failing to improve the living conditions of their workers, mining minister Susan Shabangu now admits government needs to do more.

SUSAN SHABANGU, SOUTH AFRICAN MINING MINISTER: It's not a matter of labor or the mining sector only. It's an issue of the conscience of the country as a whole.

(MEN CHANTING)

MABUSE: A wakeup call for South Africa's leaders that increased wages alone won't be enough to address unfulfilled expectations of a better life post-apartheid.

(MEN SINGING)

MABUSE: Nkepile Mabuse, CNN, Johannesburg.

NINA DOS SANTOS, CNN HOST: Fifteen seconds -- that may be all some Israelis have to run to bomb shelters once sirens have sounded. After the break, we'll show you the technology that's (inaudible).

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(COMMERCIAL BREAK)

DOS SANTOS: Hello, welcome back, I'm Nina dos Santos. Let's get you an update now on the breaking news that's coming out of Israel and Gaza this hour.

A significant update effort to end the Israeli and Hamas conflict has come. Egypt's government has just said that it has no plans to make any announcement on Tuesday involving efforts to try and halt the violence in the region.

Well, earlier, Hamas had said that it expected to announce a so-called calming down period to pause the violence in Gaza, but that would not be likely, of course, without Egypt's participation. And in the meantime, cross-border attacks appear to be continuing there.

(BEGIN VIDEO CLIP)

DOS SANTOS (voice-over): We heard that large explosion in Gaza City just a few minutes ago, a few minutes after the so-called calming-down period was announced this explosion happened. Well, Israel says that while it wants the truth, it has not yet agreed to a cease-fire or any cessation of the attacks.

The calm period that Hamas had promised would not be quite the same thing as a full truce and an Israeli source told CNN that the country wants a full 24-hour period of calm before agreeing to any kind of deal. So at the moment, talks appear to be ongoing but it's not clear as yet when any announcement will be made or, indeed, whether it'll come on Tuesday.

Meanwhile, within the couple of hours to come, the U.S. Secretary of State Hillary Clinton is expected to arrive in the region. She's actually cut short her trip to Asia and should land in Israel soon, where she plans to meet with the Israeli Prime Minister Benjamin Netanyahu. Clinton's plans call for her to travel to Ramallah and then onto Cairo after Jerusalem.

(END VIDEO CLIP)

DOS SANTOS: We'll of course keep you updated on the information that comes to us here on CNN vis a vis the situation in Israel and also in Gaza. But for now, we want to take a closer look at the ways that Palestinians and Israelis are able to try and prepare for incoming rocket attacks.

And there's a big technological gap here. Israel, of course, has its Iron Dome defense system as well as alarm sirens to try and warn civilians to get out of the way when an attack is imminent. And the latest development comes from a 13-year-old developer. He's managed to invent a smartphone app. Here's Frederik Pleitgen with more.

(BEGIN VIDEO CLIP)

FREDERIK PLEITGEN, CNN CORRESPONDENT (voice-over): When rockets from Gaza come flying towards Israeli towns, time is of the essence. People have to run for cover. But this new app can buy them a few additional seconds. It's called Color Red and sends out an alert when a rocket alarm goes off.

Believe it or not, the idea for the Color Red app comes from a 13-year old. Liron Be'er lives in Beersheba, a town near the Gaza border that is often targeted by rockets.

"There are people that need to know what is happening, and the regular services don't help them enough. So I wanted to be the one who gave them the right information," he tells me. And just then, another alarm goes off.

Israel has a sophisticated warning system for impending rocket strikes, with sirens alerting citizens to take cover. But people inside their homes or in office buildings don't always hear the sirens. We got caught up in several rocket alerts while shooting this story.

PLEITGEN: We have to get under shelter right now, because there's another air siren alarm here in Beersheba. But thanks to this new app, some people at least have a little bit more time to get to shelter because they get the alerts really quickly.

Let's go.

PLEITGEN (voice-over): The app created by an application developer is free. (Inaudible) works so well, it's been downloaded more than 130,000 times since the conflict began.

PLEITGEN: How many of your friends have this as well?

MARK SHABATAYEV, COLOR RED APP USER: To all. To all. The soldiers, too, and the police, too. To all.

PLEITGEN (voice-over): Israel's government even sent out a notice urging newspeople to download the Color Red app. The army says any application that warns people of rocket strikes helps in the effort to keep citizens safe.

COL. AVITAL LEIBOVICH, IDF SPOKESWOMAN: The time the people have here to run to shelters is between 15 and 60 seconds. So any mobile device that can help, I think it's a good solution.

PLEITGEN (voice-over): And Liron Be'er says he thought up the application in his little room at his parents' home in Beersheba.

"I'm very proud of myself," he says, "a very small thing that I did is doing a great thing for the people in the south of this country."

Liron Be'er spends a lot of time updating the Color Red Facebook page these days. He's got plenty of time; his school is closed because of the ongoing rocket attacks -- Fred Pleitgen, CNN, Beersheba, Israel.

(END VIDEO CLIP)

DOS SANTOS: Well, on the other side of the border, while the conflict rages around them, the people of Gaza are trying to get on with life as best they can. Senior international correspondent Arwa Damon meets the residents who are just trying to survive and also to cope.

(BEGIN VIDEO CLIP)

ARWA DAMON, CNN CORRESPONDENT (voice-over): This is one of the few markets open in Gaza. Most do their shopping in the morning, not so much for the fresher produce, but because it's safer. Mansoud al-Aribi (ph), one of the grocers here, says that when the strikes began, prices immediately skyrocketed. People were expecting a repeat of Israel's 2008- 2009 invasion.

"People are buying out of fear. It lasted for two days," al-Aribi (ph) tells us, "and then the market stabilized and prices went back down."

Gazans only too accustomed to war have mastered the art of adjusting their daily lives. Iftifan Razan (ph) lives in an area close to the Israeli border.

"There are no cars around," she tells us, saying that residents were warned not to leave their homes. So she hitched a ride with an ambulance to come here and shop for her 11 children.

DAMON: On the one hand, Gaza feels like just about any other area at war. The streets are largely deserted, the shops mostly closed. One would assume that the residents here had fled for safer ground, only they haven't. The 1.5 million-plus people who call this home are simply hiding indoors. The vast majority of them are literally not allowed to leave.

DAMON (voice-over): They can't cross into Israel. And getting into Egypt requires a hard-to-obtain permit. Once darkness falls, the streets are even more eerily silent, but overhead drones buzz incessantly.

UNIDENTIFIED MALE: (Speaking foreign language).

DAMON (voice-over): In an almost surreal contrast, a nursery rhyme, and 10-year- old Abid (ph)leads the children in a game they invented. As in many other homes, the power is out. And there was no diesel at the pump for fuel for the generator. Normally, seven members of the Ashia (ph) family live here. Now, their numbers have swelled to over 30.

Abid (ph) tells us the roof of her house is a sheet of metal, not concrete. "We're afraid it would collapse on us," she says. And even here, there is no guarantee of safety.

Sadika (ph), the family matriarch, tells us, "One of the explosions was so close, the building trembled.

"I grabbed all of the kids that were sleeping in my bed. I grabbed them all like this and pulled them close," she says.

Seven-year-old Roa (ph) has started wetting her bed.

"We're in a prison, a big prison," Sadika (ph) sighs. It's all she knows. All she wants for the sake of the children is something better -- Arwa Damon, CNN, Gaza City.

(END VIDEO CLIP)

DOS SANTOS: (Inaudible), former superintendent and Britain are facing bribery charges. The allegations could mean News Corporation could face prosecution in the United States. We'll investigate why after this.

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(COMMERCIAL BREAK)

DOS SANTOS: Let's get an update on the outlook for the weather forecast for all you business travelers out there, and we go over to Jenny Harrison, who's standing by at the CNN International Weather Center.

So, Jenny, I gather there's a few storms heading my way, towards Europe?

JENNY HARRISON, CNN METEOROLOGIST: Yes, you know what, Nina, definitely an umbrella couple of days ahead, although I have to warn you, the winds are going to be pretty strong. So you might actually need to take the mack instead and put the umbrella away.

There are two main storm systems really across in Europe. The next one already on its way across the northwest and then this other system which is really impacting much of the central Med and eventually across towards the southeast.

Now this has kind of been the run of things over the last couple of weeks, because high pressure has been pretty dominant across central Europe so stop at all these systems making more of a central path across the region. But this is the next system, very heavy rain at times, and in particular some pretty strong winds in the forecast as well.

And then across the southeast, again, some heavy rain with this storm system. It's going to push slowly southwards and eventually eastwards and at the same time, the rain should ease just a little bit. But look at some of the totals we've had already, 44 millimeters, 35, 38. Fairly widespread, this storm system. So managing to encompass Croatia, Greece and Italy there, all coming from that same system.

But before it does really ease and push to the south, we have got some warnings in place, just sort of a moderate risk of some heavy rain and always that chance that we could see some tornadoes developing. But the rain has already been developing across the northwest, some heavy spells at times. That's the red and the yellow that you can see popping up there.

And the winds, now these have also been fluctuating quite a bit. But we're at about 40 kph right now in Glasgow. And those are sustained winds. So when you factor in the gusting as well, then we could see gusts at around 50-55 kph. And look at that. That's right now; this is the forecast.

So, in fact, as we go into Wednesday, that is when the winds are likely to become even stronger. What we have got across pretty much all of Europe is some good temperatures. The green just indicating temperatures pretty much at the average for this time of year.

So the rain coming in, we will, of course, see some snow at those higher elevations, but rain to the west, rain to the southeast, quite a bit of cloud across central areas, but it will be feeling mild, double figures in London and Paris and also Rome, 19 degrees Celsius if, indeed, a little bit cloudy, there's some showers, Nina.

DOS SANTOS: There's always a silver lining to every cloud, isn't there? Thanks ever so much, Jenny Harrison at the CNN Weather Center. More QUEST MEANS BUSINESS after the break.

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(COMMERCIAL BREAK)

DOS SANTOS: Two (inaudible) News Corp bosses are facing misconduct charges in the U.K. Rebekah Brooks, a former CEO of News International and also Andy Coulson, a former newspaper editor of the now-defunct "News of the World" are accused of illegally paying British officials for information.

Well, this could actually be the most damaging development yet for the Murdoch empire, as Matthew Chance now explains.

(BEGIN VIDEO CLIP)

MATTHEW CHANCE, CNN SR. INTL. CORRESPONDENT: Well, Andy Coulson and Rebekah Brooks have already been charged in relation to phone hacking. Now British prosecutors are also charging them with making corrupt payments to officials in exchange for information that led to a series of stories in "The Sun" and the now-defunct "News of the World" newspapers.

One of the officials is an employee of the British Ministry of Defense and he's alleged to have been paid more than $150,000 by "The Sun," which was edited by Brooks until 2009, when she was promoted to chief executive of News International.

Coulson was the editor of the "News of the World" until 2007. He's also been charged with making corrupt payments, including for a Royal phone directory, the "Green Book," said to list the personal contact details of senior British Royals and members of the Royal household. Well, these are, of course, very serious charges here in Britain.

But they also raise the possibility that U.S. authorities may seek to prosecute the American parent company of the (inaudible) "News of the World," News Corp, of course controlled by Rupert Murdoch. Legal experts say a U.S. law, called the Foreign Corrupt Practices Act, allows prosecutors to go after U.S. firms alleged to have bribed foreign officials -- Matthew Chance, CNN, London.

(END VIDEO CLIP)

DOS SANTOS: As Matthew was just mentioning then, it is possible that this case here in Britain could trigger a prosecution of News Corporation in the United States, the parent company. I asked former U.S. prosecutor Martin MacDougall how likely that really was.

(BEGIN VIDEO CLIP)

MARTIN MACDOUGALL, FORMER U.S. PROSECUTOR: I think there's really two answers to that. One is that, you know, the Department of Justice has a full plate. And even though the Foreign Corrupt Practices Act could clearly be used to investigate and prosecute if necessary this case, it's being very vigorously prosecuted and investigated by the Crown Prosecution Service.

And at the end of the day, you're talking about British media, British reporters allegedly paying British officials in Britain. And so from that standpoint, I think it's less -- it's less likely.

On the other hand, what the Foreign Corrupt Practices Act is uniquely designed to do is to punish corporate wrongdoing. News Corp, as you know, is a company that has securities sold in the United States. That's part of the basis for the FCPA.

And what the FCPA and the Department of Justice have been particularly effective in doing is obtaining very large fines and other cash dispositions. So I don't think there's a clear path to be followed. And I think either one could be justified by the Department of Justice.

DOS SANTOS: Obviously, we have to remind our viewers that the individuals that have been charged in the U.K. have only been charged; they haven't been convicted. And many would say, well, it's way too early and premature to start talking about any type of pattern of behavior here.

But if we were to see a company like News International in this kind scenario, the act's -- the Foreign Corrupt Practices Act hasn't actually been ruled out for news organizations like this, has it?

MACDOUGALL: Well, no, it has not been ruled out at all. And, you know, when you look at the basic elements of the Foreign Corrupt Practices Act and the alleged conduct -- and you're quite right; there's only allegations right now; nothing's been demonstrated in court -- but when you look at these allegations, you have all the elements of the FCPA, of a company that sells its securities in the United States.

You've got individuals allegedly making payments to foreign officials to obtain business advantage. And that's -- those are the pieces you need to make an FCPA case. So I think it's clear that the elements are there. But as we all know, the elements of a crime don't necessarily mean that the government will pursue it.

DOS SANTOS: Even though all of this is highly hypothetical at this point, it does open up an interesting range of issues, doesn't it, particularly vis a vis the media, that just like companies that use international for instance, have various offshoots where their business activity isn't necessarily divorced, let's say, from the mother ship and what goes on in the United States, if that company is listed in America.

MACDOUGALL: Well, that's right. And the -- you know, the individuals that have been charged today have been arrested today, and they were previously charged, were very senior people in News Corp. These were not, you know, as is often said by defense lawyers, "rogue employees." These were people that were in very responsible positions.

So -- and they were people -- they were journalists by profession, you know, who have -- you know, who we all rely upon to expose corruption in government and elsewhere. So I think -- I think you make a very good point and I think it is a difficult decision for those charged with that decision about whether to proceed with an FCPA case or not.

(END VIDEO CLIP)

DOS SANTOS: Do stay with us, because after the break, we'll have an update from Paris on its credit rating downgrade.

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DOS SANTOS: A second major credit ratings agency has now stripped France of its prize triple-A status. Moody's has bumped France's long-term debt rating down about one notch to Aa1. That, in turn, that new rating, comes with a negative outlook, we should stress, which means that it's likely we could see further downgrades coming in the few months to come.

Well, Moody's actually follows a similar move taken by Standard and Poor's back in January. The downgrade is making political waves in Paris, as CNN's Jim Bittermann now reports, it's a major blow to the French president, Francois Hollande.

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JIM BITTERMANN, CNN CORRESPONDENT: The political bickering's been going on all day long here in the French National Assembly, as both sides of the political aisle blame each other for that ratings downgrade.

The Right says it's all the fault of the Socialist government of Francois Hollande, who, in the first six months of office, has not taken the kind of measures that economists wanted; whereas the Left, the supporters of Francois Hollande, say, look, this is (inaudible) problem that goes back decades.

And after a lot of conservative governments did not make the measures that they felt were necessary. And when you talk to French on the streets, they seem a little bit evenly divided and perhaps even a bit befuddled by what's going on.

UNIDENTIFIED FEMALE: I think it will change nothing, because it was already included in the financial markets.

UNIDENTIFIED MALE (through translator): Today, I think certain European countries have already taken austerity measures and I think it's our turn to follow.

UNIDENTIFIED MALE: Our president should understand it's important now to take the good decisions and to ensure markets that he is willing to reestablish good management of the debt.

UNIDENTIFIED FEMALE: I don't think here in France it's not that bad anyway. (Inaudible) quite easily.

BITTERMANN (voice-over): The ratings drop seemed to have very little immediate impact. The French are still able to borrow at extremely low rate, 2.1, 2.2 percent on the markets, which is very low compared to a lot of countries in Europe.

But long-term, the economists say it could have problems for the French down the line if they don't enact some real reforms right now, the kind of reforms that the economists would like to see and tighten belts a bit, and also raise tax revenues -- Jim Bittermann, CNN, Paris.

(END VIDEO CLIP)

DOS SANTOS: Well, I'm Nina dos Santos in London. Thanks so much for watching QUEST MEANS BUSINESS. "AMANPOUR" would normally be coming up next, but instead we want to join our sister network, CNN USA for continuing coverage of the conflict between Israel and Gaza. And let's join CNN's Anderson Cooper, who's live in Gaza City.

END