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Exclusive Interview: New Cypriot Finance Minister Harris Georgiades; Japan's Aggressive Strategy; Central Banks Policy Split; Central Bank Scrutiny; Wall Street Barely Changed; European Markets Down; Business Ethics Conundrum; Yen Collapses Against Dollar; Ending Global Poverty

Aired April 4, 2013 - 14:00   ET


RICHARD QUEST, HOST: Tonight, the Cypriot finance minister tells me what's ahead for his country in his first television interview in the job.

The ECB says it's ready to act. The Bank of Japan's doing so with gusto.

And the World Bank president on this program tells us he wants to halve the amount of people living in poverty in just ten years.


JIM YONG KIM, PRESIDENT, WORLD BANK: China has lifted more people out of poverty in a shorter period of time than any country in history. Now, the hard work is ahead.


QUEST: I'm Richard Quest. As you can see tonight, I mean business.

Good evening. He's been in office for just 48 hours. Now, Cyprus's new finance minister is running a crippled economy. Growth is set to plummet, capital controls are still in place, and large-scale depositors are facing huge losses on their bank accounts.

Tonight, in an international exclusive interview, Harris Georgiades, the new Cypriot finance minister, joins me live from the capital in Nicosia. Minister, good evening to you and thank you for joining us this evening.

HARRIS GEORGIADES, CYPRIOT FINANCE MINISTER: Good evening, Richard. Thank you for the opportunity.

QUEST: Now, we have much to cover, so let's begin straight up. When do you expect the capital controls put in place by the central bank to be further eased and perhaps even removed? Are we talking days, weeks, or months?

GEORGIADES: We are already doing progress, and there has been an easing on these necessary but temporary restrictions. We have been through an unprecedented event in our banking sector, and everyone acknowledges the need for a smooth return to normality and stability.

There has been an easing. We shall continue along this road of further reducing these restrictions. And even though I cannot offer a precise date, I think we are on good -- we are doing well, and soon this temporary measure will be behind us.

QUEST: Soon, OK. The whole -- the whole fiasco of the first plan that was put forward, Mario Draghi, you'll be aware today -- we can listen to what he said at his press conference -- Mario Draghi made it clear that the original idea to bail in all depositors was a very bad idea, not a smart idea. Let's listen to what the ECB president said.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: That was not smart. To say the least. And it was quickly corrected the day after in a euro group teleconference. So, that's past.


QUEST: So, the ECB says it wasn't them. The Commission says it wasn't them. The euro group says it wasn't them. Was it the Cypriot government who thought it was a smart idea to bail in everyone?

GEORGIADES: Well -- it wasn't -- it was certainly not us. Actually, everything is on the record, and there is agreement of the secret government and of the secret precedent could have not been expressed in a more clear way.

I do acknowledge the self-critical approach. We should also acknowledge our own mistakes and we should look ahead. This is my approach. Mistakes have been made, both of which in Cyprus, but not only in Cyprus, let's be honest and frank about that at the very least. But let's look ahead --

QUEST: All right.

GEORGIADES: There is no point, really, in looking back to what has happened. Our objective is to move ahead. Stabilize, the situation and move ahead.

QUEST: OK. Let's look ahead, then. I'm afraid if we look ahead, Minister, it doesn't look too cheerful, either, because by every definition, there's going to be a very brutal recession now in Cyprus, worse than you've experienced. Some suggest up to 8 percent of GDP over the next 12 months. How ready is Cyprus and your people for this, effectively, depression?

GEORGIADES: Well, yes, indeed, we are in for a rough ride, and nobody can be prepared, really, for such an unprecedented correction, this shock therapy that we are undergoing, so I will not try to present a rosy picture for the situation.

QUEST: Right.

GEORGIADES: We are, as I have said, in for a rough ride. We are prepared for a recession, we are prepared for a rise in unemployment. Things will not be easy, but within this bleak prospect, I am also optimistic. The Cypriot economy --

QUEST: Well --

GEORGIADES: -- has excellent prospects medium and longterm. It's up to us --


QUEST: Let me just -- let me just jump --

GEORGIADES: -- to take --

QUEST: -- let me just jump, with respect, jump in there. You say the Cypriot economy has excellent prospects, but one of the pillars of that economy that gave you such good growth was the financial industry. Under the bailout terms, or under the agreement terms, your financial industry has to contract to the EU average.

So, you're not going to have a banking sector that will allow you to enjoy the growth. Basically, Cyprus's banking sector is pretty much over.

GEORGIADES: Well, that's probably -- an exaggeration. I hope that we shall have a healthier banking sector, one which is better regulated without the excesses of the past, and the financial services industry is -- well, it will go through a problematic period now.

But all those factors which made Cyprus a -- such an attractive, let's say, place to business remain. We have a low -- we have lower taxation, we have an excellent legal and institutional framework. We have a good set of double-tax treaties. Everything remains in place --


GEORGIADES: And -- so, yes, we shall have -- we shall face difficulties, but I do not believe that we shall lose this financial sector. On the contrary, it's up to us to make it even better.

QUEST: So, how do you restore the reputation of a country and a banking sector where large depositors have lost up to 60 percent of their wealth?

GEORGIADES: Well, we have to look ahead and we have to restore this confidence through a very decisive implementation of all the reform measures to which we have agreed. Let us not forget, the aim of the program is not to destroy the Cypriot economy. The aim of the program to which we have agreed is to improve the Cypriot economy --

QUEST: Right.

GEORGIADES: -- improve its foundations. So, this is what we shall do. And as I said, all those factors which made Cyprus an excellent business center remain, and we shall further improve them.

QUEST: But -- OK. So, you have an economy that you now really got to give this shock therapy treatment to. You're going to have rising unemployment, you're going to have a recession, and you've lost the financial sector to some extent.

Pulling the strands together, how would you say to your people tonight -- I mean, I heard the president talking about hard times ahead. But as you look forward, what hope can you give them that this is a price worth paying, when you look at, for example, Greece, and you see the high unemployment in Spain, and your people will say let's just leave the euro. Get out of it, it's a busted -- whatever.

GEORGIADES: No, no, no. There is no -- that's not an option for Cyprus, let me be very clear about that. We do not have an option to -- nor an intention to abandon either the eurozone or the European Union. We shall do whatever it takes to put our house in order, to fix -- the imbalances of our public sector.

At the same time, we shall offer incentives to attract new business, to attract foreign investment. Cyprus remains an excellent destination --

QUEST: All right.

GEORGIADES: -- for foreign investment. So, I want to be optimistic. Let us also not forget, Cyprus is an excellent tourist destination. The sun still shines over the island.


GEORGIADES: Bookings are coming --

QUEST: All right.

GEORGIADES: -- bookings are coming in.

QUEST: Let's --

GEORGIADES: The shipping industry --

QUEST: Right.

GEORGIADES: -- we are a leaders on a European level. We have a new, promising energy sector, huge investments along the way. So, I want to present an --

QUEST: Minister --

GEORGIADES: -- optimistic outlook for the Cyprus economy.

QUEST: Minister, next time we speak, hopefully on more pleasant occasions, hopefully it will be in Nicosia and hopefully it will be enjoying some of that sunshine and warm hospitality that I know we would find in your country. Minister, thank you very much for talking to us tonight.

GEORGIADES: Excellent. That's a deal. Thank you. Thank you.

QUEST: The minister -- the new finance minister, talking exclusively live on QUEST MEANS BUSINESS, as you would expect on this program.

When we come back -- now, it's been a very busy day in the central bank world. Japan has made an aggressive push for growth, and in Europe, Mario Draghi is sitting on his hands -- for now. The central bankers --


QUEST: -- after the break.


QUEST: Japan's new central banker is going to start printing money on a vast scale. The new man at the helm of the Bank of Japan is Haruhiko Kuroda, and his aggressive strategy took the financial world by surprise. The hope in Tokyo is massive money creation will rid Japan from the scourge of deflation.

The bank says over the next two years, it will double the money it makes available in the economy, the so-called monetary base. Pumping cash in will generate price rises and wage increases. It is the exact opposite of what central bankers normally try to do.

The bank's going on a bond-spending spree in the private sector, with a target of $70 billion a month through the end of next year. It's shopping for a wider range of assets, like longterm debt. Even other kinds of investments: real estate trust, exchange-traded funds. Almost anything in the old car boot sale they seem to be able to purchase.

The governor's inflation target is 2 percent within 2 years. Some of it are calling it "Abenomics" after the prime minister, Shinzo Abe, who's been putting pressure on the central bank.


HARUHIKO KURODA, GOVERNOR, BANK OF JAPAN (through translator): We can expect this monetary easing in quantity and quality would bring about a drastic change of the market expectation. It will support positive momentum beginning to show in the real economy and financial market and push up the consumer prices, leading to the end of Japan's deflation that has lasted nearly 15 years.


QUEST: Now, contrast the efforts to jump start the economy with what's happening in the US and Europe. Join me in the library and you'll see what I mean.

Let's begin with the ECB and the rate decision. The ECB kept rates at a record low of 0.75 percent. Mario Draghi says he's ready to act to boost the eurozone economy. In his press conference afterwards, the interpretation is not now, but he's leaving the door open to a rate cut as early as next month.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Weak economic activity has extended into the early part of the year, and a gradual recovery is projected for the second half of this year, subject to downside risks.


QUEST: Now, the Bank of England's Monetary Policy Committee, the MPC, rejected more QE, keeping rates firmly on hold at 0.5 percent. The governor, you'll be aware, of course, in the past has been in a minority wanting to increase QE. The rest of the committee saying no, not yet.

And in the Fed in the US, Ben Bernanke says some stimulus measures will stay in place until unemployment will fall to 6.5 percent. Inflation exceeds 2.5 percent. These are the forward-looking statements, the "intermediate forecasts" is the phrase that we use to describe that, or the qualitative measures that are taking.

Putting these policies into perspective, joining from New York, Nathan Sheets is with me. The global head of international economics at Citigroup. Nathan, by any definition, any standards, aiming to double the monetary base and naught in just two years, particularly in a country like Japan, which has been so slow to do major moves, what did you make of it?

NATHAN SHEETS, GLOBAL HEAD OF INTERNATIONAL ECONOMICS, CITIGROUP: I really believe that this is a historic day in Japan and, frankly, an unprecedented day amongst central banks. I don't know of another example where a major central bank has committed to double the size of the monetary base in a two-year period.

Basically, the BOJ is saying that after 15 years of seeing the Japanese economy grapple with inflation, now it's ready to do, to use Draghi's phrase, whatever it takes to defeat deflation over the next several years.

QUEST: I suppose we don't and we can't and we will not know whether it's going to work because normal monetary transmission mechanisms have -- they're working in a fashion. They're preventing things from getting worse. But there's not the evidence that they're making things much better.

SHEETS: You are absolutely right. When we look at the traditional channels through which monetary policy would influence inflation, like output gaps and exchange rates, those channels are very muted for Japan.

And this means that if this policy is going to be successful, it's got to work through so-called animal spirits. It's just got to be so aggressive that the Japanese citizen says I believe that Kuroda is going to be aggressive, and one way or another he's going to make --

QUEST: Right.

SHEETS: -- inflation rise to 2 percent.

QUEST: That's the qualitative aspect to this monetary easing that we've been talking about.

SHEETS: Exactly.

QUEST: But now let's -- but now let's put this into the global context. Mario Draghi says "I'll do whatever it takes," and he's got his OMT and he's ready to do outright monetary transactions. Well, people like yourself must be saying, to use the old Tom Cruise line, "show me the money." You want to see cuts in interest rates now.

SHEETS: So, I've seen Draghi be very aggressive to address financial stability roughs in Europe. He's done the LTROs and he's promised an OMT.

But what I haven't seen Draghi do is be equally aggressive in trying to support a recovery in the euro area. And I think that's where he's been fundamentally different than what we've seen in the United States and what we're seeing today in Japan.

QUEST: Finally, Nathan, you heard -- I think you could hear most of the -- my discussion with Cyprus's new finance minister. Cyprus is now on its own. Do you believe that there is another country and -- everyone's talking about Slovenia. Whether it's Slovenia or somewhere else, do you believe there's another eurozone country that's going to fall like a domino?

SHEETS: I certainly hope that that is not the case. But what I'm worried about is that the events that we've seen over the last few weeks in Cyprus have increased the probability of spillovers and contagion in Europe.

And specifically, if I'm a deposit holder in Greece or in Italy or in Spain or some of these other countries and I start seeing signs of economic stress, I don't know whether I'm going to wait around to see what happens next. I may very well be inclined to hit the bank and get my money out.

QUEST: Right.

SHEETS: And when you're in a world with bank runs, things become very unstable. So, I'm more worried than I was.

QUEST: Nathan, good to talk to you. We hope to have you on the program many more times. Thank you very much.

SHEETS: Thank you.

QUEST: Nathan Sheets joining me from New York. The markets in New York, let's stay there, up 42 points, just about a third of a percent, 14,591. First-time jobless claims were up last week, a bit of a nasty surprise. The Dow's trading close to its all-time high.

The euro markets now, a bleaker picture in Europe. They were all down. And I want to -- let's look up FTSE and just look and see how the FTSE traded during the course of the day. Yes, there's New York kicking into operation, so obviously those jobs numbers were not the -- were the sort of things. They were rattled, obviously, by Mario Draghi's ECB comments as well.

So, to tonight's not currency but Ethics Conundrum for you. These are all questions based on real-live examples and they're set as a test for bankers by the UK's Chartered Institute.

Imagine your firm is bidding for a contract with an ink cartridge company, OK? Now, one day, they notice your company's e-mails with the words "do not print this e-mail unless absolutely necessary." It's because your firm backs a charity with environmental concerns nominated by the stiff.

The ink cartridge company says get rid of the message or the deal's off. In other words, one of your companies that you do business with says you get rid of that or we won't do business with you. What do you do?

You talk it over with your staff? You scrap the message and give in to the client? Or you tell the cartridge company to forget it. What's the answer to the question?

Now, to the currencies themselves. The markets, and the yen has absolutely collapses against the dollar as a result of the announcement in Japan. The pound is a little bit stronger. Those are the rates --


QUEST: -- this is the break.


QUEST: The president of the World Bank says the number of people living in poverty will halve in just ten years to 10 percent if he has his way. Jim Yong Kim is nine months into his appointment as the World Bank leader, and he described how he'd like to see the organization in ten years' time.


KIM: You'll see an organization that's full of people who are passionate about ending poverty. You'll see an organization that has the best knowledge about how to solve difficult, difficult problems in places like Afghanistan, and we're going to provide that information to everybody.

But more than anything else, you're going to find an organization that's known for caring about the most forgotten, the most marginalized people.

QUEST: In ten years' time?

KIM: Yes, sir.

QUEST: What's the poverty? Twenty percent now, twenty-one percent now. What target would you like to see in ten years' time?

KIM: Well, our goal is 2030, but I'd like to see us less than 10 percent and going down by -- in ten years. And then, the end of poverty --


QUEST: Whoa! Whoa! Whoa!"

KIM: -- at that point --

QUEST: Ten and going down by -- within ten years?

KIM: Yes. Less than ten and going down --

QUEST: Within ten years?

KIM: Within ten years. And at that point, what we'll know is that the end of poverty is in sight. That's what I'd like to see.

QUEST: In your speech, you talked about how it had come down from 43 percent to about 20 percent in just a -- in a decade or two. So, what's your goal for 3 percent?

KIM: Well, so, if you look at the trends over time, many people say, well, poverty is just going to go down naturally, but it's not. The reason that poverty went from 43 to 20 percent mostly is due to China. China has lifted more people out of poverty in a shorter period of time than any country in history. Now, the hard work is ahead. This is what we have to focus on.

QUEST: Can you alleviate poverty with policies that don't annoy, infuriate, and generally bring upon your head the criticisms that have come to the World Bank before?

KIM: Richard, the great criticisms of the World Bank have been that we're dictatorial, we don't listen to countries, that we have one-size- fits-all policy.

But let me tell you, many years ago, when I'd graduated from college, the very first time I went to Washington, DC, I went there to protest the World Bank as part of the 50 Years is Enough movement. I was saying at that time that the World Bank should be shut down.

And I can't tell you how remarkable the change has been since that time. The bank has changed enormously. We don't have one-size-fits-all solutions anymore. We're on the leading edge of battling climate change. We're on the leading edge of calling for gender equality. And for every different country, we're trying to come up with a plan that makes sense for them.

QUEST: You're a poacher turned gamekeeper!


KIM: You could say that, I guess. Yes, sir.

QUEST: So, as you're walking around the bank now, do you see things and polices which you think, that is not happening under my watch?

KIM: Well, one of the things that we were protesting back then that's still around is that we're not as quick as we should be. We're too slow. We lend money to middle-income countries at libor plus 50 basis points. It's the best deal around.

But still, countries are choosing to take money from other sources because they say we're too slow. And we're now going through a pretty dramatic reform process to make ourselves less bureaucratic. Because I think what we do is very, very good for the world.


QUEST: That's the president of the World Bank. And you can hear more of our interview tomorrow night when we discuss the effect of the financial crisis on the developing world.

After the break and the news headlines, financial clout in the beautiful game. We look at how Qatari investment has transformed Paris Saint-Germain. QUEST MEANS BUSINESS.


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


QUEST (voice-over): North Korea has moved a medium range missile to its East Coast while the U.S. officials tell CNN there are indications Pyongyang is preparing to launch a mobile ballistic missile soon. Analysts say it would most likely be a test launch.

Cyprus's new finance minister says he cannot offer a precise date when the country's capital controls will be removed, but that the economy is undergoing shock therapy.

Speaking to this program in an international exclusive, Harris Georgiades says Cyprus has neither the option nor the intention to leave the euro. The newly appointed minister told me that the Cypriot public cannot be prepared for what lies ahead.


HARRIS GEORGIADES, CYPRIOT FINANCE MINISTER: We are in for a rough ride and nobody can be prepared, really, for such an unprecedented correction, this shock therapy that we are -- that we are undergoing.

QUEST (voice-over): The president of the World Bank told this program the level of global poverty will halve to 10 percent by 2023 if the president has his way. Jim Yong Kim says the organization has a poverty target of 3 percent in 30 years' time.

The former Enron chief executive Jeffrey Skilling may be released from jail early. He's due to serve another 15 years. But U.S. Department of Justice says it's considering entering into an agreement with him. Skilling was sentenced in 2006 after being convicted of fraud, conspiracy, insider trading and lying to auditors.



QUEST: After endless rumors Facebook has unveiled not a phone but a family of apps. New software will integrate all of the social network's services into the operating system of Android phones. The chief exec, Mark Zuckerberg, says the change will put people, not apps, at the heart of the mobile experience.

Dan Simon joins me now from Facebook's headquarters in Menlo Park, California.

Now hang on, it's not a Facebook phone, but it's a Facebook app thingy that will make it work better with a -- am I getting this right? Help me out here.

DAN SIMON, CNN CORRESPONDENT: It -- you are, Richard. Let me give you a few disclosures right here off the top. We just finished this event. No broadcast cameras allowed in for the event. Instead, Facebook did provide a live stream. So that's what you're going to be seeing.

The second disclosure is if you own an iPhone, Richard, this announcement does not apply to you. This is only for Android users. And as you put it, this is not a Facebook phone. This is a feature if you use Android. Essentially, you download an app and then Facebook takes over your home screen.

The way it works now with your phone, of course, is you have your phone and you have a series of apps. And the way Mark Zuckerberg put it is apps come first and people come second. Well, he wants to reverse the paradigm, make people first and then apps second.

So go ahead now and listen to what Zuckerberg had to say.


MARK ZUCKERBERG, COFOUNDER AND CEO, FACEBOOK: Since home is the lockscreen in addition to the home screen, you don't need to do any swipes or gestures in order to be able to see this content. And since -- and it's all right there, as soon as you look at your phone, because you've already loaded all this content in the background while your phone is sleeping.

So, you can flip through stories if you want, and if you find something that you like, you can double tap to like it right there. You can comment right there from the home screen. And one of the things that you're going to notice is that all the interactions are just really smooth and natural.


SIMON: Well, Richard, the elephant in the room here is Facebook wants you to use Facebook more on your phone. And they want to make more money off you. So this is a way to do it by putting all of the Facebook feed content right there on the home screen. At first, they're not going to serve up ads. But I think that's in the long-term strategy.

Now to get this, you go to the Android play store; you download it. It's going to be available on April 12th. It's going to be available first on six devices. And in conjunction with this event today, they announced that they're partnering with HTC for this Facebook home feature, if you will.


QUEST: I can -- I can imagine this is -- the dog is out of the trap and it's going to be a huge -- there will be a lot of debate, a lot of controversy and Dan Simon is in California watching over it.

And we will be back after the break.



QUEST: The answer to tonight's "Ethics Conundrum," we asked you what should you do when you're told to ditch this email message by an ink cartridge company, in which you're trying to win a big contract: "Do not print this email."

If you're told to ditch it, the answer is A. Talk to your staff. They chose the charity where the money goes to. They need to be involved in any decision to ditch it. You should be realistic and recommend that they scrap it.

Now to the weather forecast. Jenny Harrison is at the World Weather Center.

Jenny, I know that you are weary of people like me moaning about the cold weather. Brr!

JENNY HARRISON, CNN METEOROLOGIST: Well, I'm not, actually, I'm not actually. I've decided that, you know, I should just take it on the back and get used to it because I'm going to tease you a little bit and tell you that actually next week there's a bit of a change on the way. (Inaudible) too much about it. Might tell you more about it tomorrow.

But in the meantime, this will certainly make you feel a little bit cold. It's not this bad where you are. This, of course, is Warsaw in Poland. There was another big dumping of snow in the last 24 hours. In fact, there was about -- look at this -- 7 centimeters. The snow depth is 22.

It is, of course, unusual; don't know when we had this much snow in this part of the world at this time of the year, 14 centimeters to the east, 7 centimeters in Krakow. And there was actually some pretty bad power outages at the beginning of the week. That has since been fixed, but again, the temperatures, just look at this on Thursday, it was 1 Celsius in Warsaw. It was only 4 in London.

So this is the change I was just teasing you with. It is finally going to begin to break down. But about time, because we're now at 28 days in London where we've had these temperatures below the average. So we're going to see a little bit more of this, of course, the rain, because we're going to get some milder air finally.

But we've still got a few days to get through yet and still more heavy snow. It's going to work its way through the Baltics, push up towards Finland, western areas of Russia. So still those temperatures, they are going to stay below average as we go through the weekend.

Across the south, still quite a bit of rain working its way through the central Mediterranean. So you can't even head there for some nice sunshine. Also quite a bit of snow across northern sections of Spain, pushing into southern areas of France, the northwest of France also picking up quite a bit as well. But there's no real airport delays to tell you about. So that is some good news.

But the snow is still very, very widespread -- look at this -- through the Baltics and pushing into western areas of Russia. Across the mountain tops, too, so that must have been a pretty good year for all of those ski resorts. And after those temperatures still below the average, 15 in Rome and 20 Celsius in Athens.

Now if you're heading across to the U.S., not a great end to the week. There's been pretty vigorous storms working their way through the southeast. In fact, tornado watching to southern areas of Florida. And a little bit of a mix of sleet working their way along the Appalachians, too, in the last few hours, some very strong winds.

However, having said all that, to Chicago showing a few ground delays and not particularly lengthy. But the wind is cold. It is actually feeling like freezing in Atlanta right now. So you're not the only one, Richard, who is feeling still the winter chill. The temperatures have been well below the average.

But it is about to change. I'm not ready for it just yet. And through the weekend, it's actually going to be milder than average. Those temperatures are going to rebound and so 17 is the high on Friday in Atlanta. You'll get there eventually, Richard. It'll just take a little bit longer.

QUEST: No answer to that. Jenny Harrison at the World Weather Center. I'm going to be -- tomorrow, Jenny, and I will talk a little bit more about what I'm going to be doing over the weekend as I shuttle my way around Europe on a cook's tour of low-cost airlines. I'll tell you about it in tomorrow's program.

Now if you need to rustle up some cash quickly, try rooting for one of these in your attic. It's a Honus Wagner shortstop for the Pittsburgh Pirates. That's baseball, by the way. Now Honus has become something of a collector's item, or at least his baseball card has. Collectors see this card as being the Holy Grail of the baseball card collector.

Honus had it taken off sale in 1909. He didn't want it sold with cigarettes. So there's only 50 of them in existence. Now one's up for auction in New Jersey right now. Look at that, $2.6 million. Would you pay $2.6 million for a baseball card? Would you? @RichardQuest. That's the Twitter address.

It's been a very busy week, busy day for us today as we've been watching what's been happening in Cyprus and the markets. And of course central bankers all over are now making great moves, particularly in Japan, Ben Bernanke and now the markets up 44 points, the Dow Jones gaining a third of 1 percent at 14,595.

The euro market's proving that when the central bankers speak, the markets can go in opposite directions. Now the FTSE down over 1 percent, all as a result of what we saw in New York.

So that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Thank you for your time and attention. And as always, whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE EUROPE continues on CNN.




NINA DOS SANTOS, CNN HOST: Hello and welcome to MARKETPLACE EUROPE. I'm Nina dos Santos in Milan. The Lombardy region in the north of Italy has long been one of its richest and most productive, accounting for the lion's share of this nation's exports.

In this week's program, we examine how this area could prove to be a model of recovery in a country dealing with its most pronounced recession in decades.



DOS SANTOS (voice-over): Coming up, releasing the brakes on exports, how high technology performance is driving growth at Brembo.

And the CEO of Pirelli on how the Italian workforce can get the country moving.

MARCO TRONCHETTI PROVERA, CEO, PIRELLI: That's the flexibility of our country. So we are a country that is politically stuck. But people are flexible. And they are capable to go around, talking with anybody, from China to Argentina.


DOS SANTOS: This region is full of traditional family-run businesses that have been exporting their goods for generations. In fact, Northern Italy generates twice as much GDP per head as the south. Businesses in this part of the country live and breathe manufacturing. And some say that it's that mindset that will set the country on a path towards economic growth.



DOS SANTOS (voice-over): It's almost as iconic as the Ferraris and Lamborghinis that's hidden within. And it's just as stylish. Brembo is the world's leader in high-performance brakes. Like many of the business success stories in the Lombardy region, it's grown from a small family-run operation to an export powerhouse with annual revenues of $1.8 billion.

ANDREA MARESCOTTI, MD, BREMBO: There are many examples in Italy of the very strong families which developed from really tiny workshop. This company in 51 years ago, the years ago was 10 people working in a very small mechanic shop.

And through strong passion, which, in my opinion, is a really strong (inaudible), strong passion, dedication and openness to invent every day the business, understanding what the world is going, where the world is like people to go and they try to anticipate the needs. And I have to say that these cars are really good. They were able to grown (inaudible) companies.

DOS SANTOS: Today, the business is a stock market listed multinational employing over 6,000 people around the world. Despite this internationalization, half of the employees are Italian, many working in innovation and design, a traditional hallmark of made in Italy.

DOS SANTOS: (Inaudible) the color calipers and the carbon ceramic disks, Brembo has managed to make brakes sexy. And key to this company's success is its relationship with Germany.

DOS SANTOS (voice-over): This was Brembo's biggest market last year, accounting for 23.7 percent of sales. North America makes up 22.5 percent of business, leaving Italy with a diminishing slice of just 15 percent.

MARESCOTTI: So what we did (inaudible) the crisis 2009, we had a strong brand; we had good products, but we were suffering. We lost 25 percent of the sales in 2009. We understood that (inaudible) focus only to match on top luxury was supposed (inaudible) sentiment all goes through a crisis.

Then we engage in a very bold, very strong investment plan to increase the market share across the world with which intent to penetrate (inaudible) top luxury (inaudible) medium. That is the segment strongly linked with the German.

DOS SANTOS (voice-over): The plan has paid off. They now work with Audi and Mercedes-Benz. And while car sales continue to fall in Europe, Brembo's sales (inaudible), allowing it to reinvest revenue back into research and development, a department where the brakes are always off.

MARESCOTTI: You can see here we have an example of what is the edge of the technology in the braking discs. Here is the joint of the ceramic and the carbon fiber and technology that is satisfying the requirement of the market to have a very high performance braking performance and a very light disc that is very much important in the high edge of the high-end cars and the sports cars.

DOS SANTOS: So those kinds of clients, one would assume, would be quite demanding. How demanding is your average client?

MARESCOTTI: Our (inaudible) so demanding that we have to name each single disc from the very initial stage of process up to the end of life. And we name them by name and last name. We know the whole history inside the manufacturing cycle and throughout the whole life cycle on while the car is in field.

DOS SANTOS (voice-over): The number on the brake disc will ensure it finds its counterpart at the spoke belt waiting further down the assembly line. And any flaws will be traced right back to where it originated in the process.

MARESCOTTI: I believe that this is somewhat the good backbone of the country and one of the reasons for which personally I am not worried.

There is really a multiplicity of medium and small companies who were very brilliant entrepreneur with good managers which are global to the (inaudible) international really competitive. It is already appreciable in movement for which German and makers are massively utilizing the capacity of the Italian companies.

DOS SANTOS (voice-over): Traditional Italian design meets German industrial demand. It's a model for success and it's ingrained into businesses right across the region.


DOS SANTOS: Coming up after the break, turning a business around, the CEO of Pirelli tells me how he put the company back in the fast lane.




DOS SANTOS: Hello and welcome back to MARKETPLACE EUROPE here in Milan. Italy is synonymous with some of the biggest names in luxury cars. And with a decline in motor sales, it's actually been the prestigious top end vehicles that have held up best. But what about the businesses that actually serve the premium end of the market?


DOS SANTOS (voice-over): Pirelli is the fifth largest car manufacturer in the world with a presence in over 160 countries, the company employs 34,000 people. Last year Pirelli's revenues were $7.8 billion. That's up 7.4 percent since 2011.


PROVERA: We started as a multinational company around 40 years ago. Has been the first multinational company in Italy (inaudible). Today we can say we are a global company. In the last few years we went to China. We went to Russia. We went to Mexico. We strengthened our position in Latin America. We are the largest (inaudible) in the Middle East.

So that is Pirelli. So we are everywhere, where there is a request of technology, where there is a request of good tires. And there you can find Pirelli.

DOS SANTOS: The topic of research and development, that obviously must be a huge, huge investment for a tire company like yours. And at the same time, what we're seeing is the European Union changing the playing field yet again, bringing a more labeling regulation. Has that forced companies like Pirelli to up their game?

PROVERA: That is for us good news, the request of more technology is what we want. So we want to win our battle, thanks to technology. And so any regulation that is imposing more restriction in a sense to protect the environment and more restriction in order to protect the consumers is good news, because we have to provide performance with safety and (inaudible) environmental friendly.

DOS SANTOS: Now the other aspects of this is the changes to regulation on a country-wide basis when it comes to snow tires as well. A lot of countries like, for instance, Italy and Germany are now making drivers carry snow tires just in case of emergency.

Presumably that's another market for Pirelli, because snow tires are at the premium higher end of the price bracket.

PROVERA: Of course, it is one of the major changes that happened in the last decade. So thanks to technology and thanks to the materials, today the (inaudible) winter tire is such that you can go anyplace. The winter tires on the snow without chain. That is the change. And that has created a market that is becoming global of trends of millions of tires very high technology. And very good grip.

DOS SANTOS: A lot of the very successful businesses like for instance Pirelli started out as family-run businesses. You've been trying to change Pirelli, but it is important that this is a traditional family-run business originally 140 years ago.

PROVERA: Yes, I think that in our country we have an attitude toward entrepreneurship that is really one of the best assets of the country. Even in difficult environment, entrepreneurs, they are trying in any case to make their companies successful. That is passion.

I mean, I -- something that involves people and their families, then the new generation could be good, could be not as good as the previous generation. But is really an attitude of the country. We have to level (inaudible) making life easier for entrepreneurs.

DOS SANTOS: The politics of this country are literally in a quagmire. What do we need to see from the political world in Italy to underpin business like yours for growth?

PROVERA: Every businessman wants to have his (inaudible) future. This is an issue not only for Italy; it's an issue for Europe.

Europe has to change in order to provide better visibility to people for the future. It's really the perception of people is that Europe is a burden, that we have only to make sacrifices and there are no investments. I think that European politics have to be changed. All people around Europe are asking for this.


DOS SANTOS: The CEO of Pirelli there, Marco Tronchetti Provera, bringing this week's MARKETPLACE EUROPE to a close. Join us again next week if you can. But in the meantime from me in Milan, it's goodbye and thanks for watching.