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QUEST MEANS BUSINESS

Seeking Justice in Cyprus; Crisis Aftermath; Bailout Template; European Markets; Europe in Crisis; Other Side of Cyprus; Turkey on Cyprus; Europe's Tough Stance; Dollar Flat Against Euro, Up Against Pound, Yen; Yahoo! Buys Summly

Aired March 26, 2013 - 15:00   ET

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


RICHARD QUEST, HOST: It's a superhuman effort. Cyprus battles to reopen the country's banks on time.

Talking of banks, a bank for the BRICS. Developing nations plot an alternative to the World Bank.

And you can bank one thing: bacteria. Tonight, why cash could be bad for your health. I'm Richard Quest, and of course, I mean business.

Good evening. Tonight, the two sides of Cyprus, from the epicenter of an economic tragedy to the shockwaves now reverberating through the eurozone. We may be looking at template for bailouts for years still to come, and we will be looking at both sides of this.

First, to the country itself. In Cyprus, where banks remain closed, they're subject to controls and possibly facing criminal charges. The central bank says it is making superhuman efforts to open the banks on Thursday, but by then, account holders will have endured a 12-day financial blackout. And when they finally get access, it'll be to limited capital controls to prevent a bank run.

Now, the government is already looking for someone to blame. It says staff at the banks that thought and brought Cyprus to the edge of ruin could and perhaps should face criminal proceedings. The Cypriot government also says that it will hunt down those responsible. It's calling it a great economic tragedy, and it needs, in their words, to satisfy society's sense of justice.

You're getting an idea of just how complicated the situation is. Staff at the bank staged protests as their boss handed in resignation. Andreas Atermis, chairman of the largest bank, now disagrees with the restructuring.

Jim Boulden is in Nicosia. Jim, this is getting very complicated, now, isn't it? We've not only got the bailout in place, we've got the banks still closed, you've got these resignations taking place, and nobody knows what really is next.

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: And we've just heard from the bank that they have not accepted the resignation of the chairman and a number of the board members, unless they keep that resignation letter on the desk of the CEO for the next few days. So, the resignations have been denied, if you will, Richard.

I've been standing here for over a week, every time we say the banks are going to open, the banks are going to open. I'm not going to guarantee the banks are opening on Thursday.

But the central bank says we're working really hard to put these capital controls in place to get the security guards out to the banks to see and to control people if they decide that it's time to take their money out of the banks if they open on Thursday.

And this idea of going after bank employees who took money, questionable money, as it were, from people from overseas -- I'm guessing they're thinking about the Russians -- will be an interesting sideline to this, because of course --

QUEST: Right.

BOULDEN: -- Cyprus's business model was to have lax rules and it was successful, of course, until the last few months, Richard.

QUEST: But Jim, is it -- from the people you've spoken to, the ordinary investors -- let's put aside the big money -- the ordinary depositors, are they mollified by the fact that their under 100,000, their money is safe? Is it likely they'll want to take their money out?

BOULDEN: I don't think they're going to want to take their money out, because what are they going to do with it? The question I've been talking to people is sort of the people who are older, who have put money away for years, people who have retirement accounts.

You can imagine that some of these people, who have worked for all those years, will have more to the 100,000 euros in that bank account, if it was their retirement savings.

And they know they're going to lose something. Could be up to 40 percent. They know there'll be a freeze on some of their accounts. They know they won't have full control of those accounts even if the banks open on Thursday.

They tell me they're embarrassed, they're annoyed, they're annoyed and angry at Europe. They feel they've been left hung and dried because they helped Greece by buying the sovereign debt in the first place.

QUEST: Right.

BOULDEN: And they say that they think that the business model's destroyed and they don't know what's going to replace it, Richard.

QUEST: Jim Boulden, who is in Nicosia for us again. Now, the issue, of course, is not just one of what's happening in Cyprus, with the individuals, tragic though that is.

The question -- the wider question -- is whether a template has been created which changes the rules for how depositors and investors will be treated in the future, the so-called bail-in. Join me at the CNN super screen as we talk about the template that some people believe.

Now, the first, of course, is the question of the bail-in, and with that, we end up with a European draft commission, apparently -- a European Commission draft law. They are now looking at whether it should be the law that large unsecured depositors should be bailed in, that is, they take losses along with, of course, investors and shareholders, and the limit will be anything over 130,000.

Secondly, capital controls. The president of Cyprus says the controls will be very tempered to avoid what you just heard Jim Boulden talking about, people taking money out of the bank in a panic. Limits of withdrawals, limits on debit cards. That is directly at odds with the European Union treatise, which calls for a single open market, article 26 of the functioning of the European Union.

Then you have the ultimatum. The ultimatum substantially is, of course, our way or the highway. For the first time, the bailout plan has been rejected and the tough stance has now been seen by Europe. Join me -- bearing in mind on the template issues that you can see here, but look at how the major indices all finished the day.

They were higher, which of course, was on wider issues. FTSE, Paris, and Frankfurt, except for Athens, where you see the market down there, the best part of some 5 percent, not surprisingly, open down and never recovered.

And that's largely because the fears here are -- already, Greek depositors -- Greek bonds have been haircutted, or haircut. Now, of course, the worry is what might happen next.

So, let's put this into perspective. Larry Summers is one of the world's great economic thinkers. He says Europe's approach to the crisis has been like the US approach to the Vietnam War: avoiding disaster without ultimate victory. When someone of his stature speaks, it's time to listen.

He's been involved in US economic policy for decades. He was President Barack -- that's Larry Summers. That's Barack Obama, obviously. He was his top economic advisor until two years ago. He was treasury secretary for Bill Clinton in the administration during the dot-com bubble. He was also the deputy treasury secretary before that.

He has been the Harvard University president, where he had to resign after scandal over some comments that he made. But Larry Summers is one of the great economic thinkers, and he told me that the US onlookers are losing their patience with Europe.

(BEGIN VIDEOTAPE)

LARRY SUMMERS, FORMER US TREASURY SECRETARY: The wisest thing someone every taught me about markets is that thing take longer to happen than you think they will, and then they happen faster than you thought they could. And so the fact that everything is stable at the moment is much better than the alternative, but hardly grounds for being sanguine.

QUEST: It's just -- from my experiences of being in the United States and covering the US recently, it is this feeling from people like yourselves of will the Europeans just get on with it and sort this out? Is that fair? Is that a fair -- ?

SUMMERS: I think there's certainly a sense of impatience. There's a sense that after many years when the Europeans lectured Americans about the dangers of bailouts, about the importance of moral hazard, about the centrality of the IMF, that they're now finding themselves engaged in the largest bailouts in the history of the world.

That they do it in ways that are sufficiently slow and grudging that there's a Vietnam character to it. Enough is done to avert imminent disaster, but enough is not done to offer any prospect of ultimate success.

QUEST: When you were in office, both at treasury and subsequent, did you see the sort of issues that have now blown up on this side of the Atlantic? Did you see them coming, and were you worried about them then?

SUMMERS: Yes. I think there was always a concern in the 90s when it was happening, and then again in the 2008 to 2009 period, that a monetary union without a common banking regime, without a set of measures for fiscal transfers, without substantial mobility across international boundaries of people, would prove to be very, very brittle.

And certainly, once the Greek crisis began, there was a sense that it was important to get ahead of the problem rather than simply to respond as landmines went off.

(END VIDEOTAPE)

QUEST: And we'll have more from Larry Summers in exactly 30 minutes or so from now, especially on his view that austerity is doing more harm than good.

Cyprus faces a huge transformation, and it's only half the story. North of the border, where Turkey has control, there are new fears.

(COMMERCIAL BREAK)

QUEST: As capital -- let me start that again. As capital controls take effect in Cyprus, one existing border faces a fresh challenge. It's the northern part of the island, which is controlled by Turkey. They're unaffected by the bailout terms. Now, the Turkish Cypriots are wondering what, if anything, will change. Ivan Watson traveled to Taskent, north of the Turkish border.

(BEGIN VIDEOTAPE)

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: The economic crisis has left the Republic of Cyprus reeling with many Cypriots very worried about what the future may bring. In the background, however, there are questions about what impact this may have on one of the oldest conflicts in the eastern Mediterranean, an unresolved dispute that has left this island divided between Greek and Turkish Cypriots for nearly 40 years.

We're now walking across the so-called green line. In 1974, this was basically a front line in a war between Greek and Turkish Cypriots, and it still divides the two communities. We're going over to the Northern Turkish Cypriot side to hear what the cousins of the Greek Cypriots think of this economic crisis.

The banks are OK here?

RESAT SARP, TURKISH CYPRIOT UNIVERSITY STUDENT: It's OK. Not perfect.

WATSON: Right. Do you feel badly for them?

SARP: Yes.

WATSON: As you can see, the dividing line has grown much more relaxed over the last ten years, and now, both locals and tourists can flow freely between the north and south of Cyprus.

KUDRET OZERSAY, PROFESSOR, EASTERN MEDITERRANEAN UNIVERSITY: In the Turkish Cypriot side, we don't -- we are not happy to see this bad economic developments in the Greek Cypriot side because at the end of the day, we are living on the same island and it may have certain negative consequences, repercussions on the Turkish Cypriot side as well.

WATSON: Turkey is basically the only country in the world that officially recognizes the Turkish Republic of Northern Cyprus. And while the Greek Cypriots to the south have major financial and economic problems, here in the north, the Turkish Cypriots are experiencing their own political drama preparing for local elections.

This massive flag of the Turkish Republic of Northern Cyprus, it can be seen all the way from Greek-controlled Southern Cyprus. There are some Cypriots that hope one silver lining to the financial crisis hitting the south might be an opportunity for future cooperation between Greek Cypriots and Turkish Cypriots, that perhaps this could lead to a resolution of the frozen conflict that has loomed over this divided island for nearly 40 years.

Ivan Watson, CNN, Taskent in Northern Cyprus.

(END VIDEOTAPE)

QUEST: Turkey has reminded Cyprus and, indeed, the rest of the EU, about the need for tough reform to weather economic storms. The free market republic has undergone change to strengthen its own democracy.

The plans to join the EU remain stalled. At a weekend finance meeting in Lapland, I put it to the deputy prime minister Ali Babacan that he has the luxury of being on the outside of the eurozone looking in.

(BEGIN VIDEOTAPE)

ALI BABACAN, DEPUTY PRIME MINISTER OF TURKEY: We have the luxury probably because we did the tough homework timely and we have structured our economy and our banking system, we were able to bring down our budget deficit and public debt and so forth so that now we are in a more comfortable position.

And I think what needs to be done in most of the European countries are just tough reforms, necessary but difficult reforms that are absolutely needed, and with a sense of urgency.

Eurozone is very, very important to keep intact. It's a very important project, and we should not let this project fail. And how to do it is having a strong monetary policy, but then associated with strong fiscal and banking policies as a whole.

QUEST: Everyone agrees with you on that. It's the sense of urgency that might be lacking that allowed Greece then -- Portugal, Ireland, and now Cyprus. Don't you sometimes want to ring your European counterparts and say, get on with it?

BABACAN: For the whole island as a whole, that has to be a comprehensive solution, plan agreed and implanted. That's very important for the long-term stability and security of the island.

But then, for the very short-term issues I see, all though banking issues and the euro problem around the world, we have be careful because the banking sector of the Greek Cyprus is quite a particular case and it has to be treated in a particular way.

But then, what is being done over there should not be a precedent for some other countries. I think that's very important, because banking sector means trust, and if you don't have trust, then banks will not be able to function in a proper way. So, whatever you do has to strengthen confidence, not hurt confidence.

(END VIDEOTAPE)

QUEST: Confidence and trust. Let's continue to develop that theme. Finland has developed a warning to Cyprus about money laundering. If it's there, end it now or lose the bailout. The hard line came from the prime minister Jyrki Katainen, who welcomed the plan in principle.

(BEGIN VIDEO CLIP)

JYRKI KATAINEN, PRIME MINISTER OF FINLAND (through translator): It has been said already beforehand, if there really is money laundering in Cyprus, it has to lead to corrections or else the bailout is canceled. It is absolutely clear. Otherwise, I'm very pleased that things went very much as Finland wanted. Unfortunately, it wasn't the case a week ago, but fortunately, we got a good solution.

(END VIDEO CLIP)

QUEST: Now, at that weekend retreat in Lapland where the prime minister was the host, I drew a little more out of him, and he told me the deal had to protect taxpayers, Finnish taxpayers.

(BEGIN VIDEOTAPE)

KATAINEN: It's not a hard line if, looking at why taxpayers should pay all the bill or all the mistakes what the private sector has done. It doesn't make any sense. I think it's pretty simple when looking at -- that we tried to protect the ordinary taxpayers.

QUEST: You're in the same camp, though, as say, for example, the Netherlands, Denmark, Germany, the northern countries who are being much more rigorous in the negotiation than are others.

KATAINEN: Yes, actually the IMF belongs to the same camp. I think we all have experiences -- our own experiences of banking crisis, and that gives us an opportunity to share our experiences with the others, and our idea has been that we have to protect the ordinary citizens and taxpayers as much as possible.

QUEST: I know you don't want to. I know it's your last resort. But if you had to, would you be prepared to see Cyprus leave the eurozone?

KATAINEN: Absolutely not, because currency union needs stability, and we cannot create stability by kicking some countries out. And there is no reason why to do it, because we know how to deal with this crisis.

QUEST: So, we're moving to the Greece situation, aren't we?

KATAINEN: We tried to avoid this, because we don't want to create a new type of -- we don't want to do the same thing that we have done with Greece and the countries differ from each other quite well, also. So, that's why it is important that there is a private sector involvement, otherwise, the public debt in Cyprus would rise too high level.

(END VIDEOTAPE)

QUEST: That's the prime minister of Finland, and you can see more from him and the rest of my trip to Lapland and the retreat on "Marketplace Europe" after this program on Thursday evening, 8:45 central Europe, 7:45 in London.

Now to tonight's Currency Conundrum. If there was ever the fear of euro contagion, here it is. What is the average number of bacteria found on euro notes and coins? Ugh. 6,000, 16,000, 26,000? The answer later in the program.

Forget the bacteria, the dollar's flat against the euro, up against the pound and the yen. Those are the rates --

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QUEST: -- this is the break.

(COMMERCIAL BREAK)

QUEST: Yahoo! has snapped up a new app and in the process may have made its teenage creator an overnight millionaire. Let's go to the CNN Quest smart screen. SmartPhone, in fact.

Now, Yahoo! is reportedly -- the company of course is Summly, and Yahoo! is reportedly paying $10 million -- $30 million, I hear the number - - for Summly. What does Summly do? You probably know better than I do. It pares down long news articles to fit onto the mobile screen.

Now, the Summly founder is 17-year-old Nick D'Aloisio from London, says Yahoo! is the perfect fit -- I'll bet he does for $30 million -- as it reworks itself into a mobile audience, it's incredible for someone so young to put off such a big business achievement. So, how did he actually get started?

(BEGIN VIDEO CLIP)

NICK D'ALOISIO, FOUNDER, SUMMLY: So, I released a demo of the application when I was 15 years old, and it was called Trim It. And I've been told that the investors read about this on a few technology blogs, and it was actually featured by Apple as one of their apps of the week in their new noteworthy section.

So, they just cold e-mailed me, and after a few conversations, they ended up flying out to London and they invested $300,000 when I was 15 in 2011.

(END VIDEO CLIP)

QUEST: Now, that's how it started. With $30 million in the bank, it's the first step for Nick's career. He's not even out of college yet, so he wants to stay in college, he likes his football and his rugby, and he says there's a lot more to be done with Summly's technology before moving onto other things.

(BEGIN VIDEO CLIP)

D'ALOISIO: I'll be focusing on other projects kind of on the side as well as completing my A-level exams. But I'm really going to be focusing on integrating summarization technology at the heart of Yahoo's mobile solution.

The summaries that we provide make it a lot easier for users to consume content and information when they're on their mobile screen.

(END VIDEO CLIP)

QUEST: So, why Yahoo? It's a dinosaur when it comes to dot-comes some say. Summly was only dreamt of a couple of years ago, and D'Aloisio says when you put all that together, Yahoo's problems, Summly's inventiveness, and his drive and ambition, that's why the project's right.

(BEGIN VIDEO CLIP)

D'ALOISIO: The thing that really excites me and the reason why I want to join Yahoo! is there's such scale and opportunity here. Yahoo! has hundreds and millions of people visiting their content every month, and so for a technology like ours, or indeed any others, it's such a big platform to leverage, and again, with the focus on mobile and beautiful design, I think there's a ton of consumers who are going to love these products.

(END VIDEO CLIP)

QUEST: So, that's the Summly story, that's the many who was responsible for it, a very wealthy young man, 17 years old at the moment. When I was 17, I was in college, I was part of the students' union, I was trying to get into university.

What were you doing at 17? Were you heading towards your first multimillion with some brilliant new idea about something like Summly? Or were you maybe just trying to get on with things? Twitter.com, @RichardQuest, @RichardQuest is the name, and I'll read some of your thoughts out before we go too much further.

Straight ahead on QUEST MEANS BUSINESS, building a bank when others are losing theirs. We're posed for a breakthrough amongst the BRICS. We're in Durban after the break.

(COMMERCIAL BREAK)

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

(BEGIN VIDEO CLIP)

QUEST: Amanda Knox is vowing to fight renewed murder allegations in Italy. The country's Supreme Court judges ruled today that the American should be retried for the 2007 murder of her roommate, Meredith Kercher. Knox was acquitted in 2011 on an appeal of her original conviction. The court will also overturn the acquittal of Knox's ex-boyfriend, Raffaele Sollecito.

The French President Francois Hollande says U.S. bank deposit guarantees should be sacrosanct. He says the Cyprus bailout was a specific, unique and exceptional case -- I beg your pardon; that should be E.U. bank deposit guarantees.

Banks in Cyprus will remain closed until at least Thursday to give regulators time to guard against a run on deposits. They've been closed for 11 days and businesses are finding it difficult to keep operating. The island nation agreed to an E.U. bank bailout deal early on Monday.

North Korea says it will put missile and artillery units that target the U.S. mainland, Hawaii, Guam and South Korea on the highest alert. Most experts believe Pyongyang is years away from developing a missile that could strike such long-range targets.

The Arab League has passed a resolution giving member states the right to help Syria with self-defense. That includes providing weapons. Syrian opposition chief Moaz al-Khatib represented the country at the Arab League for the first time.

There's demonstrations going on inside the U.S. Supreme Court, who's wading into the debate over same-sex marriage. Today the nine justices heard oral arguments in a case looking at the constitutionality of California's Proposition 8. The law defines marriage as solely between a man and a woman and was approved by the state's voters.

(MUSIC PLAYING)

(END VIDEO CLIP)

QUEST: A smaller version of the World Bank or perhaps the IMF could become a reality within the next 24 hours as the BRICS -- that, of course you know well enough: Brazil, India, Russia, China and, of course, now South Africa -- are attempting to set up their own development banks.

(BEGIN VIDEO CLIP)

QUEST (voice-over): The heads of state of the countries are gathered in Durban for the annual BRIC summit. They're expected to finalize plans on Wednesday. The finance ministers have laid the groundwork. South Africa's Pravin Gordhan, the finance minister, told John Defterios it's a sign of the group's growing maturity.

PRAVIN GORDHAN, SOUTH AFRICAN FINANCE MINISTER: I think what the leaders will be able to announce tomorrow on the geopolitical front in relation to development issues and certainly in relation to the finance issues is a package which says that, as we host (inaudible) BRIC summit, to a very significant process BRIC sees the moving to a next stage of maturity and recognize that this phase is a very early phase in what will become an important historical entity.

JOHN DEFTERIOS, CNN CORRESPONDENT: It's interesting how South Africa can carve out its role. The other four economies, the BRIC economies, are all ranked in the top 10 in terms of total GDP. And South Africa at 28, but can you make a convincing argument you can represent a much wider market of southern Africa of 260 million consumes?

GORDHAN: Well, I think in this instance it's not the issue of where you fall within the GDP numbers that counts. South Africa is the biggest economy on the African continent. It's the biggest economy in the southern African development community context.

It's got the most advanced, if you like, business infrastructure, finance, legal services and other services, where we are amongst the top five in the world, let alone the top 10. And in that sense we offer a lot to other BRICS countries who want to enter the African continent and utilize skills and capabilities that are available in South Africa itself.

And of course, South Africa is fairly well integrated, particularly into southern Africa, but increasingly as we invest in infrastructure, in the rest of Africa as well.

DEFTERIOS: As you know, Minister, you hear that sputtering sound in the BRICS economies minus China, you're going to be struggling to try to get between 2.5 percent and 3 percent this year. Brazil's going to struggle to get up to 2 percent if it's lucky. What has happened here in the last 24-48 months that you cannot have a cohesive growth strategy that could take you above 4 percent?

GORDHAN: I think we tend to forget that we had over 5 percent growth in South Africa. And in Brazil, you had much higher growth as well. The effect of the recession in the first instance and the inability of Europe to resolve its problems quickly enough and (inaudible) better prospects for growth certainly harming economies from China to Brazil, including South Africa itself.

Each of us have also got our own internal reform issues to attend to. And I think that what we are facing is a very uncertain recovery as a result of repeated crises, small or big, that are emerging, particularly from the European context.

Cyprus in the last 10 days or so, although being a very small island and economy, has sent nervous reports out into the globe entirely as a whole.

And these are events that I think we can do without. If we get greater certainty in the European context, certainly some of the growth strategies that we have in each of the BRICS countries will begin to become a lot more productive. And ultimately the global economy as a whole will actually benefit.

(END VIDEO CLIP)

QUEST: Robyn Curnow's in Durban for us tonight.

Robyn, listening to Pravin Gordhan, obviously the South Africans are always -- I mean, the new members of BRICS, it's extremely important for them in terms of their global perspective and global influence. but the truth is the BRICS are a hodgepodge of countries, of economic power, but have very little to hold them together except the fact that they're growing, in some cases.

ROBYN CURNOW, CNN HOST: Absolutely. And I mean, just so you know, it's a whole lot of very powerful and influential people. I've been treated to a cultural show here in the conference center, the new Chinese president, Xi Jinping, of course; Vladimir Putin as well as the leaders of Brazil, India and South Africa, along with all their business advisers and business leaders here.

Now it's two hours late. So you can get a sense of wondering what they're thinking. And I've been trying to get a sense from all of these different advisers throughout the day here at this first day of the BRICS summit, of what exactly BRICS means to them. And there's still this no consensus, you know.

Is it still that abstract macroeconomic image created by Goldman Sachs employee? Is it more this pragmatic collaboration of developing, growing countries? Or is there this growing ambition, this political clout that they -- that they're aiming for?

I mean, nobody seems to be able to pin it down, in particular even those members of BRICS -- here's a Brazilian and an Indian cabinet minister. And this is -- get a sense of what their expectations are. They're conflicting. Take a listen to this.

(BEGIN VIDEO CLIP)

ANTONIO DE AGUIAR PATRIOTA, BRAZILIAN FOREIGN MINISTER: The agenda is broadening. It started out essentially as a group that coordinated on economic and financial issues. You will recall that the G-8 used to invite the emergent economies, essentially to have a cup of coffee at the end of their summits.

And, well, with the emergence of BRICS, well, one of the effects was that the G-8 transition to the G-20.

CURNOW: But from a foreign policy perspective, it must be interesting finding yourself, perhaps, lumped with countries such as Russia or China, where perhaps there wouldn't be as much commonality.

PATRIOTA: Well, we may vote differently in the Human Rights Council or in the United Nations General Assembly and Security Council. But I think there's a definite interest in exchanging notes and information and trying to coordinate.

PALANIAPPAN CHIDAMBARAM, INDIAN FINANCE MINISTER: We are not a political bloc. We are large economies. We are large countries. We have large populations. We have large GDPs and we are growing at a rate higher than the average of the world. I think we owe it to ourselves to help ourselves. We also owe it to other emerging economies to help them.

I think it's a great idea that five countries and four continents are coming together to help themselves and help other emerging economies.

CURNOW: And so the big question is, Richard, you know, do these BRICS countries and can they speak with one voice if they're to be influential they do have to speak with one voice. And the big question is can they and will they over the next few years, the next few decades, if they want to be as a powerful force, as I think many of them wish to be.

QUEST: Robyn Curnow, joining us from Durban at the BRICS summit. Watching Robyn's report, I was just blowing our own trumpet for a moment there. There's not many programs, business programs that brings you the Brazilian foreign minister, the Indian finance minister, Finland's prime minister, the former U.S. Treasury Secretary and Turkey's deputy prime minister all in one program.

QUEST MEANS BUSINESS. Time for a major rethink on Europe's economic policy. We'll be back with Larry Summers on why austerity isn't working, in his view.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

QUEST: The former U.S. Treasury Secretary Larry Summers is frustrated at the slow pace of the recovery and blames austerity for the holdup in Europe. In the second part of our interview with the former Treasury sec, Mr. Summers says there's one simple reason austerity doesn't work.

(BEGIN VIDEO CLIP)

LARRY SUMMERS, FORMER U.S. TREASURY SECRETARY: You know, there's a striking fact: the countries that have pursued the most austere policies as measured by the change in their fiscal position are the countries that have had the biggest increases in their debt-to-GDP ratio. It's not just that austerity is adverse for growth and for jobs.

In many cases, it seems as if austerity is adverse for its very objective of bringing down debt burdens because, when it slows down growth, it reduces income. And that raises debt-to-GDP ratios. It reduces income, and that increases deficits, because less taxes are collected and more benefits are paid.

QUEST: In that environment, what do you, then, say when you meet the likes of the U.K. chancellor or the E.U. officials who are still promoting the idea of fiscal consolidation over more growth-oriented policies?

SUMMERS: My judgment is that excessive fiscal consolidation is more likely not just to reduce growth, but to impair creditworthiness over the medium term than a policy that is more oriented to promoting growth and expansion.

That's why I believe that increased public investment throughout the Eurozone would be desirable. That's why I believe that the pace of austerity needs to be carefully considered. That's why I believe that there needs to be a focus on the surplus countries in Europe, on increasing domestic demand.

And that's why I believe that Europe-wide policies, particularly monetary policies, need to be conducted with an orientation to the kinds of growth and normal financial conditions that will enable monetary policy to play its traditional role.

QUEST: As we come out of this crisis, or as we are yet five years onto this crisis, how would you define your feelings on -- looking at both sides of the Atlantic as things are so slow in change, slow in improvement, frustrated, irritated? How would you describe yourself?

SUMMERS: Look, first, I'm relieved that the depression that could have happened didn't happen, that the kind of massive depression we saw in the 1930s, which was a real risk, did not take place.

Second, I'm frustrated that the pace of recovery has not been more rapid and that frustration is related to the fact that I think it could be different with stronger orientation towards growth and job creation, because ultimately growth and job creation are the best guarantors of creditworthiness.

(END VIDEO CLIP)

QUEST: Larry Summers talking to me from a while ago.

Now some deals made during the height of the crisis are still bearing fruit. Warren Buffett, for example, upping his stake in Goldman Sachs, Warren Buffett's company, Berkshire Hathaway, taking 9 million extra shares in Goldman. It'll make Buffett one of Goldman's 10 largest shareholders. It's part of a deal that dates back to when Buffett invested $5 billion in Goldman during the financial crisis.

So to the market. U.S. markets moving higher as we get to the last 15 minutes or so of today's trade, better than expected housing and durable goods up 100 points. Look at that, 14,557, a gain of three-quarters of 1 percent. It's the biggest yearly gain for house prices, 8 percent since June of '06.

There are some very serious issues in relation to the weather, parts of the U.K. affected by snow, cold and most worryingly, as Jenny Harrison joins me now, Jenny, we are getting numbers that suggest this is deadly.

JENNY HARRISON, CNN METEOROLOGIST: It really is, Richard. Yes, I mean, in fact, so far across Europe, the latest numbers I've seen, at least five people have died in Poland because of the cold weather. In the U.K., two people have died as well.

But the numbers you're really referring to, of course, are the livestock. And it is fear that as many as 10,000 animals in Northern Ireland alone are actually in danger because of these awful conditions that have just blasted parts of the U.K. over the last several days.

Now the really heavy snow is coming to an end. It's still coming down, as you can see here. But the Royal Air Force have actually been called in. They've been deployed; they've flown out to Northern Ireland to actually deliver a lot of food, particularly for these animals.

Of course, there are people also in the villages that are cut off in these mountainous areas. But Northern Ireland (inaudible) thousands of animals like this sheep, for example, that are just buried in these really deep snowdrifts.

At the same time, it is lambing season. And for example, in North Wales, one of the farmers there, he has been out, of course, as they all have, searching for their livestock, the sheep as well as cattle. And he has found a lot of these newborn lambs literally frozen to the ground because of the conditions. And that is if they can actually get to them because of all the snow.

The drifts are thought to be as deep as 6 meters in parts of Northern Ireland and that's because the winds are so strong, sustained at 60-70 kph, gusts over 100. That was over the weekend. And as I say, the snow was coming down and of course was just being blown. This is the forecast, the next 48 hours. So not a great deal to be worried about.

But it is going to stay bitterly cold. The winds that are also coming from a cold direction, but as I say, the snow will hang around, certainly (inaudible) drifts for several days to come, so not a good situation at all.

Central southern Germany is also seeing quite a bit of snow. But the southeast of Europe, 22 centimeters in Croatia, 11 in Budapest. And there is more on the way there as well. But some people are (inaudible) business opportunity in Kiev, Ukraine.

There's a notice on this car, basically saying if you want to have your car dug out, ring this number. I will dig it for you, obviously for a fee. But the temperature's well below the average, the highs on Tuesday, Berlin 2. The average is 10. Warsaw 1, the average is 8. So it feels much more like January than March.

And the temperatures will stay below the average for the next few days, just hovering above freezing. And they should be in double figures in most cases. So we've got more snow across the southeast mixed in with some rain as well. Still staying bitterly cold across the north, not a huge amount of rain or snow coming in there. That will stay across the south.

Budapest, well, you saw the amount of snow already, 11 centimeters. This is what it looks like. But guess what? Be prepared there is more to come, about 10 centimeters to come.

Meanwhile, (inaudible) in the U.K. (inaudible) time for this, Richard, this really quickly. Let's show some pictures, something a bit different. There's a sand sculpture festival underway. This is an annual thing in western (inaudible), 20 sculptors from around the world, taking part. The theme this year is Hollywood.

So you've got Harry Potter, Marilyn Monroe, "Star Wars," all of that. So something to sort of keep you warm in this bitterly cold winter that seems to draw on.

QUEST: Jenny Harrison, who's got a bucket in Spain out at the World Weather Center.

HARRISON: Big bucket.

QUEST: When we come back after the break, assuming you survive the winter, I've got something else that could give you a very nasty bout of something. Why this won't do you any good.

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QUEST (voice-over): The answer to tonight's "Currency Conundrum," we asked you how many bacteria are found on euro banknotes and coins and the average answer is 26,000, according to scientists at Oxford University.

So you'll excuse me if I take certain precautions, suitable precautions if I'm handling this stuff. Now whether it's euros or sterling or the U.S. dollar, the findings have been seized upon by MasterCard.

Now MasterCard's research claims nearly six in 10 Europeans believe notes and coins are the least hygienic item that they will come in contact with, relating them and rating them filthier than escalators, handrails, payment terminals and even library books. Previous studies have shown they carry bacteria called Klebsiella, and that causes infections in humans.

Hany Fam from MasterCard joins me now. You'll forgive me I just rearrange myself suitably.

OK. Where does all this bacteria come from?

HANY FAM, MASTERCARD: Well, it comes, Richard, from multiple hands. These notes have a long time in circulation. They're handed hand to hand from different individuals, and it's inevitable that germs accumulate on them.

QUEST: Right. But germs may accumulate, but I'm looking at the list. The Denmark kroner has -- seems to have the most and also way up there the Norwegian kroner and the Finland euro, along with the -- why are they up there, (inaudible), why Denmark?

FAM: Well --

QUEST: I mean, I just thought they were awfully (inaudible) squeaky clean.

FAM: Honestly , I don't know why those ones. But it's been a long held view that cash is a -- is the universal means of conducting commerce. We don't agree with that. We've long known --

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QUEST: Ah, here we go. Here we go. You can say -- you can keep yourself pure if only you use a credit card.

FAM: Well, no, I'm not just advocating credit cards. I'm saying that consumers increasingly are flocking to other forms of payment, not only for cleanliness, obviously, but for ease, for convenience, for lots of reasons.

QUEST: And none of these germs will kill you. They'll give you maybe a bit of a -- and you've got (inaudible) -- I mean, touch your face or whatever.

FAM: But it's more than the germs. It's -- last night I was in the taxi, going to Waterloo Station. And the cab driver said to me, "I'd really prefer it if you don't use cash to pay me."

And I said, "Well, why is that?"

He said, "Well, I have a solution here called Get Taxi. If you sign up to this thing, you can pay me electronically. I can get paid. I'm happy. I don't have to handle dirty cash."

QUEST: Dirty cash. I'm going to put this to the test. It's -- we know -- all right. So it's full of bacteria.

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QUEST: All right. You don't want any bacteria, do you?

FAM: No, I don't.

QUEST: You want (inaudible) bacteria?

FAM: No, thank you.

QUEST: We have more bacteria.

FAM: No, thank you.

QUEST: You're going to have some bacteria.

FAM: No, thank you.

QUEST: Bacteria?

FAM: No, thank you.

QUEST: Bacteria?

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FAM: But you know who might be very interested in that, somebody who's actively involved in money laundering or (inaudible) somebody with shady intentions may well be interested in your (inaudible).

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QUEST: (Inaudible) give it away. Good to see you. (Inaudible).

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QUEST: I will be back with a "Profitable Moment" from Lapland.

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QUEST: The leaders and ministers at the Lapland retreat are at a well-chosen venue that bristles with metaphors for the current crisis. After all, Lapland is as cold and frozen as the Eurozone economy. And while it's a place full of promise like the euro, it's fraught with risks.

Finland is the only Nordic euro member and is also a hard-liner. You might be forgiven for thinking Finland's like these husky dogs, a bit of a pushover for a quick tickle. Well, don't be fooled. Like Greece and Cyprus is discussing, Finland has teeth and has prepared to use them. They won't back down.

Privately most seem to accept that the current system doesn't work that well. And unless there's fundamental change, we're destined to face more crises. While the meetings in Lapland have been useful in exchanging ideas, it'll take more brute force decisions in Brussels to thaw out this mess.

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QUEST: And you can see more from Lapland in MARKETPLACE EUROPE, of course, on Thursday. And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to in the hours ahead, of course I hope it's profitable.

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QUEST (voice-over): The headlines at the top of the hour:

Amanda Knox is vowing to fight renewed murder allegations in Italy. Supreme Court judges in the country ruled today the American should be retried for the 2007 murder of her roommate, Meredith Kercher. She was acquitted in 2011 on an appeal of her original conviction. The court will also overturn the acquittal of Knox's ex-boyfriend, Raffaele Sollecito.

The French President Francois Hollande says bank deposit guarantees should be sacrosanct and the Cyprus bailout was a specific, unique and exceptional case. Banks in Cyprus will remain closed until at least Thursday to give regulators time to guard against a run on deposits.

North Korea says it will put missile and artillery units that target the U.S. mainland, Hawaii, Guam and South Korea on the highest alert. Most experts believe Pyongyang is years away from developing a missile that could strike such long-range targets.

The demonstrations outside the U.S. Supreme Court as the court hears arguments over same-sex marriage. The nine justices heard arguments in a case looking at the constitutionality of California's Proposition 8.

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

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