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ECB Growth Warning; No Fresh Stimulus from Bank of England; European, US Markets Rise; Outlook Dichotomy; Adidas Writes Down Reebok; German CEO Outlook; China's German Expansion; Euro, Pound Higher; US President to Sign Expansion of Violence Against Woman Act; The Code: Travel Industry Initiative to Combat Child Sex Tourism

Aired March 7, 2013 - 14:00   ET


RICHARD QUEST, HOST: Growth forecast cut, interest rates on hold. The ECB says recovery will be gradual.

Tonight on the program, a number of German chief execs say Europe continues to be troublesome. You're going to hear from the CEOs from Adidas, Bayer, SAP, and Daimler.

Also, travel and human trafficking. We tell you what you need to know and how to prevent it.

I'm Richard Quest, live tonight from CNN Berlin, where I mean business.

Good evening from the German capital. Just up the road in Frankfurt, the ECB cut the growth forecast for the eurozone for this year and next. It wasn't a major cut, just a couple of tenths of percent, but a cut nonetheless.

The ECB now says the best-case scenario for the year ahead is minus 0.1 percent growth, at worst, the economy could shrink almost 1 percent. Zero growth a possibility in 2014. The bank kept interest rates at 0.75. According to the bank's president, Mario Draghi, a rate cut was discussed.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Yes, we have discussed the possibility of doing it, so there was discussion. The prevailing consensus was to leave the rates unchanged.

We are actually seeing a dichotomy between the hard data, which as you said a moment ago are on average disappointing, and a broad indicator of soft data, of survey data, of sentiment data, which almost uniformly are positive.


QUEST: We'll talk about that dichotomy of data in a moment. The Bank of England also kept interest rates on hold, deciding not to increase the amount of QE. Some had expected more bond-buying because there's a real risk of Britain slipping into a triple-dip recession. The bank's deputy governor also raised the possibility of negative interest rates last week.

So, how did the markets take all this? Pretty much in their stride, but there was a tailing off after it became clear there was going to be no more stimulus or no more help, at least no direct help from central banks.

They finish in the black, the DAX and the SMI are at fresh four-and-a- half-year highs. The FTSE was weighed down by the insurer Aviva, which fell 12.5 percent. That's what happens if you cut your dividend in this market, a market where, of course, dividend play is so important.

To New York, you'd think -- you'd have thought it was a different world. Well, it is, if you look at the markets. It's a record-breaking day for the Dow, another intra-day is gone, and with about two hours to go, the Dow is around 14,350.

There was first-time jobless claims, which fell unexpectedly, and this time tomorrow -- this time tomorrow -- you and I will be talking about the full jobs report from the US government.

Now, though, Quentin Peel is with me, the "Financial Times" chief correspondent, here in Germany. Good to see you, Quentin, as always. Lots to catch -- lots to talk about. Let us, though, begin.

The dichotomy of data that we just heard from the ECB head. Soft data is showing things going well, hard data showing this bad.

QUENTIN PEEL, CHIEF CORRESPONDENT GERMANY, "FINANCIAL TIMES": It is very peculiar, because most of the stuff we're getting on expectations of business, certainly in Germany, which of course is the most important economy in Europe, have been rather good. People are expecting things to get better.

But then, each time we get the figures in for the month, orders and so on, they're a bit disappointing, so the expectation --

QUEST: So, why do you think that is? Because you're in touch with the business community here. You hear what CEOs are saying.

PEEL: I think that they are confident things are going to pick up, but each time, maybe the drag factor of an economy like Italy or Spain or the ones that are actually seriously in recession, the drag factor's bigger than they thought.

Germany's living in a slightly -- I think a slightly dream-filled world where it's better than everywhere else, so it's not felt.

QUEST: And you see that so clearly in the unemployment numbers. A fivefold difference between basic unemployment -- never mind youth unemployment -- between here and, say, Spain, Italy.

PEEL: Yes, that's really the strain on the eurozone, that you've got two economies. You've got a German economy and a northern economy that's really not doing too badly.

QUEST: Can this system survive that dichotomy at the moment? Can it continue before something has to give one way or the other?

PEEL: Well, I think we're going through the process of something giving at the moment. But what it is is those southern economies being put through a hell of a tough program of getting their competitiveness back.

QUEST: We have the parliament behind us, we have the chancellery over there. How aware -- they're aware of what's happening, and this animus that now exists. But are they prepared to respond to it?

PEEL: I think they're absolutely convinced that it's a question of competitiveness and that those who are in trouble now have got to become more competitive. That means squeezing wages. It means being very tough on the economy.

QUEST: Which is exactly what we see in the UK over the last 24 hours, isn't it?

PEEL: Yes.

QUEST: A sort of a true deflation, but not from currency, but from wage and labor conditions.

PEEL: And a very difficult balance to get right between are you being too tough and going to kill any incipient growth, or are you being tough with the right reasons and getting confidence back?

QUEST: Finally, will Germany be worried by its own forecast from the ECB for growth next year?

PEEL: I don't think so. I think Germany's going to hit pretty close to 1 percent this coming year, so they'll feel that, compared with everybody else, is good enough.

QUEST: Good to see you.

PEEL: Cheers, Richard.

QUEST: Really good to see you, Quentin Peel, joining me from -- well, joining me here in Berlin, I was about to say.

As we continue, as the central banks stay put, chief execs in Germany are preparing for the rocky road ahead. Coming up next, the CEO of Adidas on his concerns for Europe. You're also going to hear from the chief of Bayer, Daimler, and SAP. A smorgasbord of German CEOs in a moment.


QUEST: Welcome back to QUEST MEANS BUSINESS in the German capital. Let's take the pulse from the view of business. The German company Adidas says weakness in its Reebok brand pushed the company into the red in Q4. It was impairment charges, it was worries about growth, and it was a considerable concern that things may not be looking too much better too fast.

CNN's Charles Hodson spoke to the chief executive and asked him to describe why we have a difficult set of results, but how are things going to get better?


HERBERT HAINER, CEO, ADIDAS: First and foremost, I am not frustrated at all, because when you look to the share price, we have just achieved an all-time high, 74-something euros on our share prices, we have never had before.

But this clearly shows that the investors appreciate what we are doing. We have increased our revenues, we have increased our profit, we have increased our net cash position. The company has never been in better financial health as it is today, and this makes me really happy.

Yes, we definitely have some work to do with the Reebok brand, there is no doubt, but when you look to Adidas and TaylorMade-Adidas Golf, then overall as a company, we are doing extremely well.

CHARLES HODSON, CNN INTERNATIONAL CORRESPONDENT: When you increased the dividend from 1 euro to 1.35 euros, clearly that's attractive in terms of the stock, but aren't you really bribing investors with their own money and actually the outlook isn't that rosy?

HAINER: Once again, I fully disagree with what you are saying. The outlook is rosy. We will first grow our top line, we increase much heavily our bottom line by 12 to 16 percent. Why are you saying this is not a rosy outlook?

HODSON: Well, what I'm saying is that you still have problems with Reebok, as you've been willing to admit in this interview, and clearly you've paid a lot of money --


HAINER: Yes, but once again --

HODSON: -- for that, actually.

HAINER: But once again -- yes, but once again, when you say we don't have a rosy outlook, Reebok is 10 percent of our revenues, and 90 percent are doing well, so this is what I'm questioning.

HODSON: But you should be making more money out of Reebok, in all honesty, shouldn't you? Having paid, what, $3.5 billion?

HAINER: This is a different question, but we will make more money next year, as we have just said, that we have given guidance that we will increase our net profit by 12 to 16 percent next year.

HODSON: Regionally, is Europe a bit of a busted flush as far as you're concerned? The United States a mature market? How aggressively can you milk profits out of developing countries?

HAINER: As we said already at the beginning of our root 2015 plan, the three key attack markets where we will grow the fastest is US, China, and Russia. Europe is definitely a more difficult place in the moment because of all the economic uncertainties, but we also intend to grow further in Europe. But there is no doubt that America, China, and Russia will be the key growth markets.


QUEST: Now, the -- Adidas is not the only German company to be telling us of worries in the Europe economy. This week, the head of Bayer, Daimler, and SAP have all been on QUEST MEANS BUSINESS and giving us their opinion and their views on why things are so difficult.


JIM HAGEMANN SNABE, CO-CEO, SAP: We are seeing a situation where there is a modest but clear shift from a relatively pessimistic tone in Europe last year -- a lot of euro and debt crisis discussion in particular countries and in general. There were a lot of political decisions made to stabilize that, and I begin to see a tone of conversation around roles of innovation.

DIETER ZETSCHE, CHAIRMAN, DAIMLER: There's no way around the continuation of the austerity policy, or otherwise we would have to pay the price just one year later again. On the other hand, of course we need growth, and therefore, we have to look for all kinds of growth-supporting measures, which could help the markets to start some dynamics again.

MARTIJN DEKKERS, CEO, BAYER: I think China is in better shape now for more growth than it was a year ago. The US for us and also for some of our peers has done quite well. We complain a lot in the US, but it is actually quite positive in terms of its economic development in the last six months or so.

The area that is troublesome and continues to be troublesome for us is Europe, where we are not really seeing much growth at the moment, and we don't really see it getting better anytime soon, either.


QUEST: That's a pretty depressing thought. Not seeing much growth, and not expecting it to get much better anytime soon. A very different story in China, of course, outpacing Europe in leaps and bounds. Which it's not surprising, then, Chinese companies are looking to buy up German and other European firms right in the heartland of Europe manufacturing, as Fred Pleitgen now reports.


FRED PLEITGEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): German precision engineering increasingly the target of Chinese investors. German and Chinese flags now fly outside the headquarters of Putzmeister, a leading producer for concrete pumping equipment purchased last year by Sany Heavy Industries of China.

"I've admired Putzmeister's development for 20 years now," Sany's CEO said, "and I've come here to tell you that the real Putzmeister is even better than I imagined."

More and more Chinese firms are acquiring especially small and medium- sized German industrial companies. 158 business from China launched investment projects in Germany in 2011, according to Germany Trade and Invest. That's more than in the United States.

At Putzmeister, fears of a Chinese takeover quickly vanished, the CEO says.

"Of course there were fears in the beginning, but I think now employees are happy," he says, "because we can now see they want to move forward and that Sany really appreciates Putzmeister and that we will remain an independent company with Putzmeister executives in the Sany company."

Another example is Kion, a world leader in forklift production, where Chinese competitor Shandong Heavy Industries recently acquired a large stake.

Experts say like almost no other partnership, German-Chinese trade relations are mutually beneficial, with Chinese firms gaining technological knowledge and access to the European market, while injecting German companies with much-needed cash for investments and growth.

ILJA NOTHNAGEL, GERMAN CHAMBER OF INDUSTRY AND COMMERCE: There is no fear anymore about foreign direct investments in Germany because we have seen in the crisis last year that foreign investors do keep investments and also employment in Germany, so investments are here to strengthen the German country and the German economy.

PLEITGEN: German investment in China is still much larger than the other way around, but both are growing fast as two of the most economically dynamic countries in the world look to benefit from each other's momentum.

Fred Pleitgen, CNN, Berlin.


QUEST: One of the problems, of course, of the European economy that we've been talking about tonight was the arrival of the euro. The euro replaced the German Deutsche mark, an example of which you can see here, a rare example, indeed.

But the question is, even though this went out in 2002, where can you still use a Deutsche mark coin? Is it A, at the post office? B, the phone booth? Or C, the parking meter? That's our Currency Conundrum tonight.

As for the dollar, the euro's stronger, the pound is higher, the yen is sharply down. Those are the rates, this is the break.


QUEST: Welcome back, QUEST MEANS BUSINESS with the Freedom Project. We're in Berlin. At this hour in Washington, 20 past 2:00 in the afternoon, and President Barack Obama is due to sign an expansion of the Violence Against Women Act in the US capital.

These are pictures, live pictures, of the vice president of the United States, Joe Biden, speaking. He co-sponsored the original bill in 1994. Now, the new bill or the expansion extends protections for gay, bisexual, transgender victims of domestic violence, along with women who are attacked on tribal lands.

But here's the thing: the bill also includes reauthorization of the Trafficking Victim Protection Act, which of course helps against stamping out human trafficking, something here on CNN we are following closely and campaigning against human trafficking.

And with that in mind, I have two words: the Code. Now, when I say the Code, I'm talking about the travel industry initiative that combats child sex tourism. More than 1200 companies signed up so far, including Accor, Delta, and Thomas Cook.

In signing up to the Code, they establish an ethical policy against the sexual exploitation of children, train personnel and staff, and promise to introduce a Code-related clause in all contracts with their own suppliers.

The reason we're talking about the Code and child sex tourism tonight is ITB is taking place in this city at this moment. You heard about it last night. Joining me is Matthias Leisinger, he's the chairman of the Code's board of directors. Also head of corporate responsibility at Kuoni Travel. Good to see you. Thank you.


QUEST: The Code is designed to make the industry help stamp out sex tourism. Why wouldn't every company in tourism sign up to it?

LEISINGER: I think there are still a lot of issues when you think about the customers that the companies, they fear about talking to the customers, the destinations they have to talk to the customers and acknowledging that they are still part of the problem, and that's basically where the Code comes into play.

QUEST: Right, but you're wanting -- you're wanting companies to train their employees. Train them to do what? To notice, to be aware? What?

LEISINGER: Take the example of a tour operator. We, for example, train employees, the tour guides, for example, telling them what to do when they would see a suspicious case, how to report it, report it to the embassy, report it to the local police. There are some URLs, some hotlines you can call in.

So, it's about taking action. We do communicate to the customers. I think the customers play a key role in it, talking to the --

QUEST: What sort of things are they looking for? Are -- with people -- with holidaymakers, what sort of signs do they see?

LEISINGER: I think when you -- a lot of people are traveling. You go to the red light district, you see or you're sitting in the lobby in a hotel, you see somebody entering a hotel lobby, you think, there might be an issue with this, and a problem.

Then, it is important that, for example, the security guard acts and he knows how to act. That he's addressing the issue, for example, with the general manager in the hotel.

QUEST: And the core point here is not just to look the other way and let it go by. That's really what this is about.

LEISINGER: I think the Code is really here about raising awareness, awareness in the industry, within our own industry, with the staff of the industry, but also reaching out to the customers, because again, they are playing a key role.

QUEST: But you know as well as I do the industry -- the tourism industry pays lip service to this problem. They're not getting to grips with it. It may not be pleasant to say it, but so much more could be done.

LEISINGER: I fully agree. I think we have to reach out to further companies. The tourism industry is changing. We have a lot of tour operators signing up to the Code, we have hotel chains, as you mentioned.

But we have to reach out to the airline industry, because they have a lot of interference with the customer. We have to look into the business travel sector, the online travel agencies have to commit to the Code. So we have to do more work and we're more than welcome to more companies signing up to the Code.

QUEST: Thank you very much, indeed, for joining us.

LEISINGER: Thank you.

QUEST: I very much appreciate it. Thank you very much, indeed.

LEISINGER: Thank you.

QUEST: Matthias, there, with the Code, talking about this. And you're well aware, of course, as many of you know, CNN has signed up and joined up to the -- in the fight to end human slavery and human trafficking.

This is something you can find out more about by going to The latest reporting on the global concerns. It's the Freedom Project at

And on that same note, I just wanted to say, one of the reasons we did this tonight was because when I was at ITB, there was a sign in the bathrooms, it said you can clean your hands -- cleaning your hands will not clean your brand. The Freedom Project.

When we come back, when it takes two to replace one. The Standard Bank chief exec is off. He's retiring, and it's taking two to replace him. QUEST MEANS BUSINESS, we're in Berlin, good evening.


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

The UN Security Council has voted unanimously to impose more sanctions on North Korea. The new restrictions are aimed at making it more difficult for Pyongyang to fund its nuclear weapons and missile research. They would also ban the sale of some luxury goods to the regime.

Thousands of people continue to line up to say a final goodbye to President Hugo Chavez. His body is laying in state at the military academy. The funeral is scheduled for Friday.

A Vatican spokesman says no date has been set for the conclave that will choose a new pope. One cardinal, the retired Archbishop of Los Angeles, tweeted that an announcement could come soon. It's been a week since Benedict XVI became the first pontiff in six centuries to resign.

A Russian judge has denied bail to the Bolshoi Ballet dancer who's been accused of planning an acid attack against his boss. Pavel Dmitrichenko admits to telling an alleged hitman to, in his words, "beat up" the Bolshoi's artistic director. He says he didn't know acid would be used.


QUEST: An unusual event took place in the banking world today. A chief executive resigned and he left virtually the same day. Well, he retired, more to the point. It was Jacko Maree, who was the CEO of Standard Bank in Africa. He's done a sterling job, over13 years as CEO.

In fact, so good, when Maree's gone, it's going to take two men to replace him, co-chief execs have been replaced. I asked Jacko Maree on the line from Johannesburg why did he go now?


JACKO MAREE, OUTGOING CEO, STANDARD BANK: First of all, I've always believed that the right time for a chief executive to retire is at the annual results so you take account of the last year's results. So that's one good reason, I guess, same on the results day.

But we've been planning this, obviously, for some time. We appointed three deputy chief executives four years ago, 2009, and as a team, we've been talking about it, discussing it; this is -- this has really been something that has been in the works for many years. I've been chief executive for 13 and the team has been together for about 10.

QUEST: For Standard Bank, it's going to be perhaps difficult because there are going to be two people now. And people will wonder who's running the bank.

MAREE: I think the joint CEO model has worked successfully in a number of banks over the years.

So we're not the first to do it. I think, in this particular case, because of the individuals concerned, because we have been a team for so long together and because these two guys have argued and sorted out their differences for many years, I don't think that -- you know, I've never had to intervene in issues between them. We've solved the things together.

So I think you're talking about people who really know each other well; who've formed the strategy together, who've worked together for many years. So I think, in this case, it will work. But they are jointly and severally (ph) liable and accountable. And they've signed up to there and stated that publicly today.

QUEST: How do you now see the African market and its potential for growth?

MAREE: We're very positive about Africa, obviously also very positive about the link between Africa and China and also Africa, Brazil and India. That is growing exponentially, the trade between -- call it the BRIC countries and Africa. So I think we're well positioned now.

QUEST: One of the beauties of retirement, so I'm told, is one can reflect and maybe even be presumptuous and give advice.

So if you are giving advice to governments in Africa about how they can create a business-friendly environment, what would that advice be?

MAREE: The first point is that you have to have a stable political environment. It's very hard to have a business-friendly environment if the political environment isn't relatively stable. So we've certainly experienced that in a number of countries.

Thereafter, it comes to having policies that allow business to do what businesses are good at, which is essentially to free up the regulation, the regulations that so often bedevil businesses and to minimize corruption, because if you do have to deal with corrupt officials, it makes business impossible for companies like ourselves and companies that subscribe to good corporate governance. I think those would be my three very high-level thoughts.


QUEST: Jacko Maree, talking to me from Johannesburg.

And when we come back after this short break --


QUEST: There's more from ITB. Indonesia is determined to have its slice of the tourism pie with 17,000 islands, we hear about the country's strategy in a moment.




QUEST: The answer to tonight's "Currency Conundrum," this is the mighty deutschemark, no longer in use. But where can you still use a deutschemark? The answer is B, in phone booths.

Around 90 percent of Deutsche Telecom's coin-operated booths take the former coins at a 1:1 exchange rate. It means the free market calls it at half-price. I've got to be really careful with (inaudible). It belongs to somebody (inaudible) pain of something nasty if we manage to lose it.


The U.S. -- the investigative body, the NTSB, has released the first findings report into the 787 Dreamliner incident in Boston, searching for clues as to what's wrong with the lithium-ion batteries and how to get the fleet back into the air.

The entire Dreamliner fleet has been grounded after two fire incidents linked to the batteries. In the report, it's fact finding rather than analysis and so far there's been no details or further details of what actually took place and why.

Etihad Airlines is expecting to receive the first of more than 40 787s next year. A short while ago, I was joined by the chief exec of Etihad, James Hogan. And I asked him really if he still had confidence in the aircraft.


JAMES HOGAN, CEO, ETIHAD: Richard, the Dreamliner's going to be a great aircraft. I've got no doubt. Obviously, it's an important issue to be resolved. I'm actually meeting Ray Conner (ph) next week. He's coming out to Abu Dhabi to update us on what's happening with the program.

I'm committed. The airline is committed to the Dreamliner. I have every confidence I'll resolve this. We take our first aircraft in the 4th quarter of 2014 and we're still on track to receive it.

QUEST: You're still on track and it would have to be something exceptional for that not to be delivered.

When you look at the issues, do they raise concerns for you that, as an airline CEO, that a plane was able to go through the whole certification process and then seemingly fall at this hurdle?

HOGAN: Well, that is an issue for the appropriate authorities to determine why that's occurred. What's important to me as an airline CEO is that the fix is achieved quickly, that we in no way compromise the safety of the aircraft. And I have no doubt that Boeing will resolve this issue and resolve it to meet the requirements of everyone involved.

QUEST: We -- I must talk to you, obviously, about Jet Airways, a deal which many of us had thought with you buying a stake in Jet, many of us had thought it was just about ready to be signed, sealed and stamped. And now seems to be, if not off the tracks, a lot -- some way off.

What went wrong with Jet?

HOGAN: Well, nothing went wrong. I think maybe the media set a pace that was different to our pace. When you look at any transaction, you work through the process properly, as we did with Air Berlin. We spent two years evaluating, understanding and then, in fact, invested in Air Berlin. So time is not the issue. What is important is that you achieve the right deal for both parties.

In relation to India, it's a huge market. FDI, foreign direct investment, is new; we want to ensure that we understand the process. We obviously are working with Jet on understanding the opportunity as we move forward. And let's see if we're able to close this either way in the coming weeks.

QUEST: In the coming weeks; so we -- but are you still hopeful or -- I mean, I suppose what I'm really asking you is do you still expect the deal to be done?

HOGAN: Look, we're obviously in the final period of reviewing the terms on both sides. In any transaction, the terms have to meet what you expect is fair and proper. We're still in a dialogue. I'm hoping to conclude in the coming weeks and then I can present that to my board accordingly.

QUEST: And as soon as you've done that, of course, you'll then come on my program and talk about it with me, one would hope, as well.

But the other issue, James, is when -- are you -- are you worried you're going to have to pump more money into Air Berlin in the next 12 months, particularly with the Brandenburg airport problems, with other issues? See, are you prepared to put more into Air Berlin?

HOGAN: Well, as you know, Richard, Air Berlin has moved into profitability. They posted a profit for 2012. They've just had a bond raising which was subscribed, in fact, in five hours. The German market is the largest outbound market in Europe.

What we've seen is that Lufthansa restructuring, Air Berlin going through a very hard restructure. I'm confident that they've got the headroom to tackle the restructuring issues and stay in profitability moving forward.


QUEST: OK. We're going to leave James Hogan there at Etihad for the moment. The U.S. president -- look at these pictures -- is now signing the expansion of the Violence against Women Act in Washington.


QUEST (voice-over): You know, of course, as I told you earlier, the law extends protections for gay, bisexual, transgender victims of domestic violence. It also includes women who are attacked on tribal lands.

Barack Obama has thanked his vice president for making it a cause of his career.


QUEST (voice-over): And, of course, the bill also reauthorizes the protection against human trafficking into U.S. legislation, one of the reasons with our Freedom Project we're bringing it to your doorstep tonight.

Let's continue with ITB --


QUEST: -- and what's happening in Berlin.

ITB, Indonesia is the partner country for ITB, the official partner. Earlier, I spoke to the vice tourism minister, and I wanted to ask him what was Indonesia in its strategy.


SAPTA NIRWANDAR, INDONESIAN VICE TOURISM MINISTER: We have to move forward to development to bring Indonesia more modern society, to bring tourism Indonesia more prosper and also, of course, more revenue (ph) in the world.

QUEST: But as I stand here, I have the Philippines over there; I have Malaysia over there, Vietnam and new markets like Myanmar over there.

So you're really going to have to fight.

NIRWANDAR: No problem. We not fight each other. We have collaborated together because --


QUEST: (Inaudible). It's -- you've going to get the people before they do.

NIRWANDAR: No, that's -- this is the first time in the Asian country we have hosted a -- cohosted (inaudible). After 45 years, Indonesia is (inaudible) consider important country for tourism.

QUEST: What's the strategy for Indonesia's tourism now?

NIRWANDAR: Our strategy, of course, we are going to more to focus on some designation, not only bail (ph). I mean, we focus on beyond Bali programs.


QUEST: If you are wondering what sort of boat, ship or vessel that was, it's called a pinisi schooner, a typical Indonesian sailing ship made completely out of wood. Long may she sail on.

And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest in the German capital of Berlin. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you in London tomorrow.




QUEST: From Krakow in Poland, this is MARKETPLACE EUROPE. I'm Richard Quest. The country which escaped the Great Recession is now facing an economic slowdown. All the numbers show it.

Poland has rising unemployment and slower economic growth, and at a time when the country needs to modernize industry fast. So on this program we look at the challenges facing two companies with manufacturing at the heart.


QUEST (voice-over): Coming up, the Polish window company that's fighting back with new export markets in Europe.

And the chief exec of Arcelor Mittal's East Europe operations tells me over capacity is tripling the steel industry.

SANJAY SAMADDAR, CHAIRMAN, ARSELO MITTAL EAST EUROPE: We want to produce steel. But we cannot produce what we cannot sell.


QUEST: Forgive me if you will. I've come to Oknoplast outside Krakow to get a window on the European economy, as growth slows down.

Countries like Poland were great beneficiaries as manufacturing moved east in the past decade or so. Now with the slowdown underway, companies like this are having to come up with strategies to deal with the cold chill.



QUEST (voice-over): There are large ones and small ones, windows of all shapes and sizes, 45,000 of them leave Oknoplast's factory every month.

MIKOLAJ PLACEK, PRESIDENT, OKNOPLAST: Last year was the first year when the most of our production went to exports. We export only to the European Union countries. The export is profitable when you export up to maximum 2,000-2,500 kilometers (ph) from the factory.

QUEST (voice-over): It's a delicate financial balancing act. When the company decided to expand outside Poland, Italy was identified as a potential market. And now it's the company's biggest export region.

QUEST: You sure about this?


QUEST: I have to say, it is an extremely odd experience, being on a piece of glass, jumping, even though they tell you I could jump up and down and it wouldn't break.

QUEST (voice-over): This tempered glass is made of tougher stuff than the European economy. Not only the Eurozone growth in Poland slowing down.

PLACEK: Naturally, I'm worried. But the key (inaudible) to be better than our competitors and thus we have to -- we have to work harder. We have to lower our costs and we have to -- we have to be more competitive in service. We have to be more competitive on flexibility and that's it.

QUEST (voice-over): The recipe is not new; the implementation in Poland is vital if the country's going to have a future in manufacturing.

PLACEK: But what we can do now is to use this advantage that our labor costs are lower than in Western Europe.

QUEST (voice-over): With half the sales in Poland and half to the rest of Europe, Oknoplast is pretty much balanced. It means the recession in the continent is hitting it right in the middle.

QUEST: Unemployment is going to go up in Poland and exports to the European Union are going to fall; 60 percent of your exports -- of your business -- 60 percent of your business goes to the European Union. You're going to face trouble.

PLACEK: We will see how we looks like a future. But I don't think so, because our plant is -- we are very aggressive. So what we -- what we -- our plan is to take over our competitor, Xilex (ph). And that's it. And only in this way we can develop faster.

QUEST: You're going to eat their lunch?



QUEST: You don't have to look very far in this part of Poland to find steel. It's pretty much everywhere. At a time when Europe's steel industry is in crisis. After the break, the chairman of Arcelor Mittal's East Europe division tells me what he wants from Brussels. Otherwise, there will be cuts.




QUEST: Welcome back to MARKETPLACE EUROPE in Poland. This is the Arcelor Mittal hot strip rolling mill, the most advanced steel mill of its kind in Europe. When it opened in 1954, it was the pride of Socialist Poland. At its height, it employed 38,000 people and manufactured 6.5 million tons of steel. Today, 4,000 employees make 1.5 million tons.

European steel is in crisis. At Arcelor Mittal, along with other steel producers, it's looking (inaudible).


QUEST (voice-over): The battle promised to be ferocious. Arcelor Mittal planned to cut jobs and close facilities in France, Belgium and Luxembourg. It triggered violent protests and a serious battle with the French president. Those plans to close plants have been put on hold until June. That's when the European Commission is to unveil proposals designed to save Europe's struggling steel industry.


SAMADDAR: Right at this moment, the steel industry is struggling to remain viable in the recessionary conditions which we are in. And it's finding it tough and challenging to face the impact of the climate change package and the energy crisis.

We want to produce steel. But we cannot product what we cannot sell which means we have to optimize our asset portfolio in a manner where we product something which is in tandem with the market-to-mark (ph).

QUEST: Right. That's a -- that's a polite way of saying if we can make it and sell it at a profit, we'll do; and if we can't, we won't.

SAMADDAR: Yes. But we have to make it at a cost which is efficient, which is competitive and we have to produce only what the market can take, which means our costs have to be managed better and to have a good and efficient cost, we need certain supporting mechanisms like the climate change laws and the energy crisis. And the ability to optimize when there's no other solution.

QUEST: The European Commission is due to produce its plan for the future of the European steel industry by June. What is it that Arcelor Mittal wants?

SAMADDAR: We cannot continue like this for too long. So we need a review of the climate package. And the current -- in the current configuration of the climate package, it is, in our opinion, unachievable. The expectation to reduce emissions by a certain level, by 2020, we believe these expectations are unachievable, given the current state of the technology.

Any new technology costs a lot of money, is expensive; which the steel industry cannot support at this current moment. Our second point is that energy crisis in Europe are almost three times that of the U.S.A. So at these levels of energy crisis, steel production or cost-efficient steel production is almost impossible.

QUEST: But you know as well as I do, if the commission or the -- gives you a break, if it shifts the goalposts for you, everybody is going to be coming along. They didn't do it for aviation and they had half the world's airlines in countries threatening boycotts.

SAMADDAR: What we're asking for is a level playing field because these conditions are not applicable in the other countries. And when you have to compete with imports, then you don't have a level playing field as it stands now.

QUEST: Anybody not in the steel or construction industry simply says, well, if we can't make steel, so be it. There are better countries that can do it at a cheaper price. So tell me, why is a steel industry important for Europe?

SAMADDAR: Important, a healthy steel industry means a healthy coal mining industry. It means a healthy transportation industry because of all the wagons and trains which transport our steel. So several industries are interlinked with steel.

So the same concept is as much applicable for Europe. Construction will happen; replacement demand will come this way or the other. And steel being the fabric of life, you see it in the cars you drive, in the building you sit in and the washing machines and the coins in your pocket. These fundamentals will not change.

So we remain very optimistic that steel is important, will continue to be important for Europe. And we will make steel in Europe, but in a more cost-efficient way.


QUEST: The chairman of Arcelor Mittal here in Poland.

And that's MARKETPLACE EUROPE for this week. I'm Richard Quest in Krakow in Poland. I'm going to leave you with the bugler at St. Mary's Basilica.


QUEST: As always, whatever market you're in, I hope it's profitable. And I'll be playing next week.