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QUEST MEANS BUSINESS

US President Obama Begins Second Term; Obama's Economic Challenges; Davos 2013: Resilient Dynamism; Watching the Risks; Algerian Gas Field Attack; French President in Berlin; Finance Summit; European Markets Gain; Europe Travel Delays

Aired January 21, 2013 - 14:00   ET

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


RICHARD QUEST, HOST: President Obama says life, liberty, and a stable deficit.

Here in Davos, the head of the World Economic Forum says its' time for optimism.

(BEGIN VIDEO CLIP)

QUEST: Your glass is half full?

KLAUS SCHWAB, FOUNDER AND EXECUTIVE DIRECTOR, WORLD ECONOMIC FORUM: No, it's more than half full.

(END VIDEO CLIP)

QUEST: And we introduce you to our brand-new riskometer, showing where the balance of risk is in 2013.

I'm Richard Quest, in Davos, where I mean business.

Good evening. We take you from the crowds and celebrations in Washington, where Barack Obama has just been inaugurated for his second term, to the snowy slopes here in Davos in Switzerland. It is the even of the World Economic Forum 2013. And the agenda in both locations looking unnervingly similar.

The challenges facing President Obama will be at the forefront of discussions here this week. In particular, the debt ceiling and the ongoing fallout from the fiscal cliff. And of course, we'll be live all this week from Davos, keeping you up to date as the world's top political and business leaders attempt to pave a way forward.

And of course, throughout, we'll continue to remind you how you can get in touch with us. There will be a hash tag, #Quest, and of course you can tweet and Twitter us to your heart's content, and that will be @RichardQuest.

It's all designed to make sure that the dialogue at Davos is not just one way, but that we're talking to each other throughout. And we're going to need your help with @RichardQuest when we get to the riskometer. I'll explain more about that in a moment or three.

So, Barack Obama says tough choices must be made on the deficit, as he marks his inauguration in Washington, having formally begun his second term on Sunday. Today it was time to publicly take the oath of office.

(BEGIN VIDEO CLIP)

JOHN ROBERTS, CHIEF JUSTICE OF THE UNITED STATES: I, Barack Hussein Obama, do solemnly swear --

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I, Barack Hussein Obama, do solemnly swear --

ROBERTS: -- that I will faithfully execute --

(END VIDEO CLIP)

QUEST: Just as it was in his first four years, the economy remains the number one challenge for President Obama. He says the United States must invest in its future.

(BEGIN VIDEO CLIP)

OBAMA: We, the people, still believe that every citizen deserves a basic measure of security and dignity. We must make the hard choices to reduce the cost of health care and the size of our deficit.

(APPLAUSE)

OBAMA: But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future.

(APPLAUSE)

(END VIDEO CLIP)

QUEST: If the last inauguration in 2009 feels like a while ago, remember, that's the last time the United States even passed a budget. They've been operating, of course, on continuing resolutions. And that's going to be a major factor in the debt ceiling talks.

Maggie Lake is in New York for us tonight. Maggie, as I read the president's inaugural speech, yes, though it was -- I mean, we always expect lofty oratory, but on the economy, there wasn't much there.

MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: Yes, probably because they're so divided over it, Richard, and this was meant to inspire as opposed to remind everyone about the bitter battle that he's locked in with Congress.

But you know, this issue of the debt ceiling really kind of incorporates the major challenges that are facing Obama, and there are major ones. And that is getting control over the ballooning debt. And even Obama in his inauguration speech said, "decisions are upon us, we cannot afford delay."

They've got to do something on those long-term issues, entitlements, which his politically dangerous. He's got to find a way to work with Congress and compromise and restore the confidence of the American people. A lot of people are feeling like Congress isn't just divided, it is dysfunctional and unable to govern.

He's got to get that back on track, renew that confidence, and they've got to figure out a way to do -- deal with the deficit in a way that doesn't kill the economy, that allows them to continue to create jobs, which is going to be difficult.

And remember, although jobs are better, that middle class is still feeling very squeezed. There are a lot of people who do not have the kind of job that they want. So, those are three really big challenges for Obama.

QUEST: OK. Those challenges, those serious challenges. But at the time, Maggie, when the US economy is picking up speed -- 2, 2.5 percent growth, unemployment on a downward trajectory -- the risks, and we'll be talking a lot about that here in Davos, the risks remain where?

LAKE: The risks remain in figuring out a way to deal with this long- term budget deficit while not choking off what is a recovery. If Washington -- you hear this all the time -- would get out of the way, resolve these issues, then maybe the economy would be allowed to take off.

But when you're talking about deficit, you're talking about cutting spending, raising taxes, probably a combination. Those dampen growth. But you're right, Richard, it is at least coming against the backdrop of a greatly improved economy.

Take a look at a couple of these charts that our colleagues did at CNN Money. First of all, jobs. The unemployment rate almost soon after Obama took office peaked at 10 percent. It has been moving down. Yes, it is still high for a president to win a second term, at 7.8 percent, but it is much lower than where it was. That's sort of feeding into confidence. People are feeling better.

And this next chart is really striking. Look at housing, the epicenter of the financial crisis. That is a chart of housing prices. Cannot -- cannot -- stress enough how important that is to consumer sentiment. It's one of the biggest things on consumers' balance sheets.

So, you have some positive momentum. Can the politicians -- can Obama and Congress -- figure out a way to deal with the deficit, which is going to be tough, in a way that tackles the problem long-term, but short-term keeps the economy on track? It's very tough, they're really going to have to figure out a way to have a dialogue if they're going to get it done, Richard.

QUEST: Maggie Lake, who is in New York for us this evening. We've got years to get to grips with this crisis. And we will be taking you back to -- live to Washington in just under an hour, about half an hour, for live coverage of the inaugural parade.

The preparations are getting underway for that, and we will take you to all the pomp and ceremony of a parade. It'll be interesting to see just how far the president walks up Pennsylvania Avenue.

In the speech, the president said, and I quote, "this generation of Americans has been tested by crises that proved our resilience." "Resilience" is a word you're going to hear a great deal about, because "Resilient Dynamism" is the theme of this year's World Economic Forum in Davos.

The man who helps decide that theme is the forum's founder and executive chairman, Klaus Schwab. I asked him if it was disappointing to have such low expectations for the president's second term.

(BEGIN VIDEOTAPE)

SCHWAB: I would say President Obama has now a clear mandate. Of course, he has an opposition in the Congress, but he has a clear mandate to act. He doesn't have to worry anymore about polls and so on. So, I'm convinced he will do the right things.

QUEST: Your book on Europe, one of the things you talk about is the credibility gap in the way leaders and the way European institutions are responding to Europe. Do you -- are you disappointed that the Europe that we have, with its institutions, has basically failed the people?

SCHWAB: It hasn't failed --

(CROSSTALK)

QUEST: Eleven percent --

SCHWAB: No!

QUEST: -- plus unemployment!

SCHWAB: Yes, but look at the US employment and look how the statistics are. How the US unemployment is measured and so on. We are not the outcast of everything. And that was, by the way, exactly the reason why I wrote the book. Because I traveled around the world, and everybody blamed Europe for all the negative things.

QUEST: the fact is, though, European citizens do not seem to want the Europe that the Commission and that the eurocrats want to create. European citizens do not want a federal or United States of Europe.

SCHWAB: We are living in the times of social communities, which means people want to feel ownership, and we definitely have a democratic gap in Europe. So, I hope that this is now at rigor not only to take the necessary economic measures, but to make progress in the democratization process of Europe.

QUEST: What on Earth does "Resilient Dynamism" actually mean?

SCHWAB: I can explain to you. So, last year, we were all caught in a crisis mood. Now, I think it's time to look at the future in a much more constructive way again. We have certain signs of economic recovery. So, let's see what -- we have to do to structure our future in a more positive way. To be more dynamic.

QUEST: Why are you so optimistic on the dynamic side when most people are focusing far more on the risk side.

SCHWAB: I know and the media of course emphasize always what's negative. But look what has been achieved last year since we met last year in Davos. Everybody spoke at the time, except Mrs. Merkel and Mr. Draghi, spoke about the collapse of the euro, the end of Europe and so on. It hasn't happened. So, let's be more optimistic.

QUEST: We have talked a great deal about the issue of risk. Risk. So, Professor, this year we have the riskometer. Last year it was about either before or behind the curve. We have the US with its budgetary problems, fiscal cliff, negotiations. The EU, eurozone.

Where would you be if you look at economic risk in 2013. Where -- as our host, where would you like to start off the risk in this year, more towards Europe or the US?

SCHWAB: I would say slightly towards Europe because you have in the US now a clear situation after the elections, and I think there is a need for bipartisan action. In Europe, the question mark is related to the elections which you still have in Europe, mainly in Italy and in Germany.

QUEST: So, you think the risk is more Europe than the US?

SCHWAB: Slightly more Europe than the US.

(END VIDEOTAPE)

QUEST: So, that is Klaus Schwab's mark on the riskometer, and over the course of the whole week, we will be showing you where everybody else falls onto the risk, and it'll all fill up. And the question, of course, is whether the risk this time, this year, is more towards the US, with its fiscal problems, or the eurozone, with its issues of the -- of sovereign debt, banking union, and political stability.

Now, we were -- each day, we will allow you to also have your say, where you think that balance of risk is. You can either hash tag #Quest or @RichardQuest, and we will toss up the numbers on a daily basis, and each day we will put where the viewers believe it is, the riskometer, and we'll see how that changes. All week, the riskometer. Is it the US or the EU?

QUEST MEANS BUSINESS. We're live in Davos. We're back in a moment, good evening.

(COMMERCIAL BREAK)

QUEST: Welcome back, QUEST MEANS BUSINESS, we are live in Davos in Switzerland, where we will be, indeed, all week.

Algeria's prime minister says the hostage death toll from last week's gas plant attack now stands at 37. Abdelmalek Sellal says five hostages are still missing. Now, following those comments, the British prime minister David Cameron issued a new call to arms against international terrorism.

CNN's senior international correspondent Dan Rivers has been following this story closely. He joins us now live from London. Dan, the interesting thing here is, of course, the politicians -- they don't want to be seen to be criticizing Algeria for having to take those tough decisions. But at the same time, there is still so much uncertainty about what happened.

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, and there's been a distinct change in emphasis from the British government. To start with, they were highlighting the fact that they weren't told about this raid until it was underway.

Now, the briefings we're getting very much are, well, it was a difficult situation, the terrorists forced the Algerians' hand, they tried to make a run for it, they didn't have any choice. And in fact, the Algerians should be commended for what they did.

David Cameron spoke again about this in the House of Parliament today, highlighting not only the fact that this is a generational struggle against al Qaeda, and clearly they're going to have to look at resources in North Africa, but also emphasizing how much work they did to get not only British hostages home, but people from lots of other countries as well.

(BEGIN VIDEO CLIP)

DAVID CAMERON, PRIME MINISTER OF BRITAIN: Our immediate priorities have been the safety of the British nationals involved, the evacuation of the wounded and freed hostages, and the repatriation of those who've tragically been killed.

Working closely with BP and side-by-side with our US, Japanese, and Norwegian partners, a swift international evacuation effort has been completed.

This attack underlines the threat that terrorist groups pose to the countries and the peoples of that region and to our citizens, our companies, and our interests, too.

(END VIDEO CLIP)

RIVERS: Now, they're not talking about putting British boots on the ground. Far from it. But the National Security Council, Britain's National Security Council, is meeting tomorrow, and among the things they'll be discussing will be looking at what they can do in North Africa.

The briefings we're getting from Number 10 are really about sort of backing up the French in terms of surveillance, intelligence, transport. But absolutely they are not and do not want to have boots on the ground in another conflict zone.

QUEST: The British prime minister, who actually will be here in Davos later in the week, has postponed a very important speech on Britain's relationship with the European Union. We now believe that speech is going to be -- I think it's going to be this week, Dan. If so, when he arrives in Davos, will he have set out the new parameters?

RIVERS: This is this much-anticipated speech on Britain's relationship with Europe. We're told today, in fact, the speech will be on Wednesday morning. He will travel to Davos on Thursday. So you hopefully will have a chance to ask him about exactly what this new position is.

Of course, he was supposed to deliver it in the Netherlands last week, but that was all scrapped because of the ongoing hostage crisis in Algeria.

QUEST: Right.

RIVERS: It's going to be a very difficult one. He's playing to several different audiences that -- the audience within Europe, the other European nations, skeptical right-wing conservatives, euro-skeptic conservatives at home within his own party who want a referendum on whether Britain should stay in, and the country at large as well. So, it's going to be a difficult speech, but one certainly that is eagerly anticipated.

QUEST: And you'll be watching and you will interpret it for us on Wednesday evening on QUEST MEANS BUSINESS, I have no doubt, and we will of course be trying to speak to the prime minister before the week is out. Dan Rivers in London.

Staying with the European theme, if we will for a moment, 50 years after the signing of the Elysee Treaty, the leaders of France and Germany are meeting in Berlin. It was in 1963, it was the treaty that formed the basis of that post-war relationship between the two countries.

Two days of celebrations in the German capital are to mark the event. As Fred Pleitgen reports, behind the festivities, Angela Merkel and Francois Hollande have very pressing issues to address.

(BEGIN VIDEOTAPE)

FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Angela Merkel has several meetings with Francois Hollande, the prime minister of France. One of the main topics that they are going to be covering is, of course, Mali, with that large French operation going on there.

And one of the things they're going to be talking about is whether or not the Germans are due to participate more than they have been up until now. Right now, the Germans only have two transport planes in the area to ferry troops back and forth, and there is some talk of African nations and France as well wanting the Germans to do more.

The other big thing on the agenda is, of course, the eurozone crisis, where the two leaders are looking to get their positions in sync. There has been some issues between Merkel and Hollande. Merkel, of course, wanting more austerity, Hollande wanting less austerity. So certainly, that has been a point of contention.

Officially, the meeting is because of the 50th anniversary of the signing of the Elysee Contract, which is a treaty between Germany and France that was established some 50 years ago between Konrad Adenauer and Charles de Gaulle and is basically the basis of German and French friendship after World War II, and also, of course, of European cooperation as well. So that, of course, is something that is a very big celebration that is going to be happening here in the city of Berlin.

Now, Angela Merkel for her part, however, is coming off a big defeat in a regional election that could seriously undermine her capability to lead in the eurozone crisis. Her governing Christian Democratic Union lost its majority in the state of Lower Saxony, and that has some big implications.

First of all, in the upper house of German parliament, which is something like the German Senate, called the Bundestag, she has now lost the majority, and therefore the opposition can veto a lot of laws that she tries to pass.

But also, of course, it is also a momentum-killer for Angela Merkel in the year of a general election, and people day it could seriously give her problems in trying to lead in the eurozone crisis and push through big decisions on a European level.

Fred Pleitgen, CNN, Berlin.

(END VIDEOTAPE)

QUEST: Now, in Brussels tonight, Europe's finance ministers are holding their first meeting of the year. On the agenda is who will replace Jean-Claude Junker as chairman of the group. The Dutch finance minister Jeroen Dijsselbloem is expected to take on the role.

The ministers are also expected to fine-tune details of how Europe's permanent bailout fund, the ESM, will be able to directly inject money into banks.

Most of Europe's major stock indices started the week in the black. Mining and banking shares were some of the biggest gainers. Luxury goods maker Richemont dragged down Zurich's SMI. Shares fell more than 5.5 percent as sales growth missed expectations. Look at the numbers.

European shares are trading around multiyear highs, and if you take a thought at the FTSE over the past five years -- look at that. It's almost worthy of a ski lift in its own right since November. It's now at the highest point since May 2008.

So, lots of heavy snow grounded planes in Europe, particularly in London. We have a little light smattering of snow here in Davos. With the World Economic forums underway, we will consider matters meteorological after the break.

(COMMERCIAL BREAK)

QUEST: And a warm welcome back to a cold Davos, QUEST MEANS BUSINESS, we're live all this week at the World Economic Forum. There'll be world leaders, there'll be business leaders. And I know what you want to know.

Yes. Jeff, the Global Economic Forum, Jeff the Snowman is here and we'll also be ready for important discussions as the week moves on and, indeed, as more hot air gets blown down Davos, so you could expect Jeff to grow even bigger.

There's enough snow is Davos to build a big snowman, but not enough to deter delegates. Elsewhere in Europe, there's -- heavy spores are causing widespread travel delays, hundreds of flights have been grounded in the region's busiest airports, Heathrow. CNN's Erin McLaughlin is there now.

Erin, we don't expect as much snow at Heathrow as I've got in Davos, but are they starting to get things back to normal?

ERIN MCLAUGHLIN, CNN INTERNATIONAL CORRESPONDENT: Answer to that question, Richard, is yes. However, over 200 flights canceled at Heathrow airport today.

Of those flights, 130 of them were preemptive cancellations due to forecasts of poor visibility in the area, officials here taking the decision to cancel flights in advance in order to try and prevent some of that travel chaos we saw here a few days ago when this weather system came to London.

That decision appearing to pay off here at Heathrow today as officials saying that things went according to plan. And some good news for passengers. Tomorrow, officials say, they do not have any plans to cancel any sort of flights based on the current weather forecast.

Now, as for the rest of Europe, Frankfurt Airport having a particularly tough time today, some 500 flights canceled out of a board of 200 there. Officials there dealing with a backlog of flights from yesterday, when they had to actually shut down the airport for several hours to de-ice some of the planes.

France, Paris, 40 percent of flights canceled out of Charles de Gaulle and Orly Airport. Schiphol also reporting some flight cancellations in Amsterdam. Airport officials I speak to tell me -- they emphasize the fact that anytime an airport cancels flights, that has a knock-off effect and repercussions elsewhere, Richard.

QUEST: OK, but Erin, when we look at the weather in the UK and we look at how this has been handled, the strength of criticism that is now coming, that Heathrow -- Gatwick did OK, others have done OK. It's that strength of criticism about Heathrow that people are focusing on.

MCLAUGHLIN: That's right, Richard. However, officials here will say -- they point to Heathrow's flight schedule. It's a very congested flight schedule, some 1300 airplanes take off and land here on any given day. It's the busiest two-runway airport in the world.

So, anytime you have something like poor visibility, that means that officials need to increase the spacing in between the flights, that means that there's simply not enough room for airlines to be rescheduled. And therefore --

QUEST: All right.

MCLAUGHLIN: -- that sort of congestion means that flights need to be canceled, Richard.

QUEST: Erin McLaughlin at Heathrow Airport. You can keep up to date with our comings and goings in Davos through social media. It's facebook.com/quest, that much you know. It's Twitter @RichardQuest, and you can use the hash tag #Quest. If you can't find us, we're not worth finding.

And that's it for this shorter QUEST MEANS BUSINESS. I'm Richard Quest in Davos. Whatever you're up to in the hours ahead --

(RINGS BELL)

QUEST: I hope it's profitable. Now, we join our sister network, CNN in the United States, for continuing coverage of the presidential inauguration.

END