Return to Transcripts main page


Austerity Debate; Record High for DAX; US Markets Hit New Highs; Dollar Down; ABBA Museum Opens in Stockholm

Aired May 7, 2013 - 14:00   ET


RICHARD QUEST, HOST: A blueprint for the future. Europe is facing its austerity Waterloo.

Money, money, money. Stock markets move to fresh record highs.

And oh, Mama Mia! Bjorn from ABBA lifts the lid on the ABBA Museum.


BJORN ULVAEUS, FORMER ABBA MEMBER: I'm humbled by the fact that we are still around to this day.


QUEST: I'm Richard Quest, and I mean business.

Good evening. Moving closer, sharing burdens, and the easing of austerity. Tonight, a picture of the new Europe is emerging, and strict fiscal discipline may longer -- may no longer be at the heart of the Union. It marks a seismic shift in the thinking which underpins the governance of the single market and comes at a time when the EU is deep in what's forecast to be its second year of recession.

Join me over at the library and you'll see exactly what I'm talking about on a day that had all sorts of events taking place which have brought the future of austerity in Europe into question.

Let's start with the -- France's finance minister, Pierre Moscovici, who now says Europe needs to move away from spending cuts and tax hikes, the classic austerity recipe, which has now been imposed in so many countries in the Union.

He says the decision to give France more time to tackle its deficit -- in other words, out a bit longer to bring it back to Maastricht 3 percent - - he says that is a turning point.


PIERRE MOSCOVICI, FRENCH FINANCE MINISTER (through translator): Of course we have to make sure public finances are put right, but you have to carry out this exercise carefully, taking into account the national situations and defining the right rhythm for preserving growth prospects.


QUEST: Now, if that's the view from Paris, in Brussels, officials are discussing economic and monetary union, and the commissioner, the vice president of the Commission, Olli Rehn, is warning of difficult choices.

So, the answer, as seen from the Commission, from people like Commissioner Rehn and Barroso, is not less integration, but more.


OLLI REHN, VICE PRESIDENT, EUROPEAN COMMISSION: The Commission's blueprint is based on the guiding principle that any steps towards increased solidarity and mutualization of economic risk would have to be combined with increased responsibility and budgetary rigor. That is with further sharing of sovereignty and deeper integration of decisions we make.


QUEST: Further integration and sharing of sovereignty, a clarion call towards a Federal States of Europe, or a federated Europe, if ever I heard it. Paris, Brussels, and in the UK, it's up to the finance minister, the chancellor of the exchequer, George Osborne, who says he will not budget on austerity.

The IMF is due to arrive in the UK to begin what's known as the Article Four negotiations and review. This is where the IMF looks at the economic situation in leading member countries. In fact, in most countries, the IMF will then give a report. The fund has already said that Britain is on a dangerous path of austerity.

Now, a new book has come out. It is written by Professor Mark Blyth. Mark Blyth is very firmly on the left of the austerity debate. His book is called "Austerity: The History of a Dangerous Idea." Mark Blyth joins me now.

You're not going to suddenly take -- the scales will fall from your eyes, and you'll say, "Richard, austerity is the right solution." But in a nutshell, Mr. Blyth, tell me why is it -- the wrong solution, bearing in mind the debt that so many European countries faced?

MARK BLYTH, AUTHOR, "AUSTERITY: THE HISTORY OF A DANGEROUS IDEA": Simply because it doesn't work. It hasn't worked historically, and the cases that people think where it has worked are misunderstood.

Very simple way to understand this: take a country, a typical European country has got an 80 percent debt-to-GDP ratio. Turn that into a fraction, 4 over 5. Now, hack away at, say, half of government expenditure, which is 40 percent of the economy. You've just taken 4 over 5 and turned it into 4 over 4. You've basically taken a 0.8 and turned it into a 1.

So, you've now increased the amount of debt you have relative to the size of the economy. Do this with a bunch of economies that are all each other's trading partners using the same currency that none of them can actually issue, and you basically turbo charge austerity cuts such that the GDP of the country shrinks and the constant stock of debt gets bigger.

This is why every country in Europe that's undergone an austerity program now has more debt rather than less.

QUEST: Right. But, the opposite point of view is that if those countries had continues spending at the rate they were going or did not increase taxes or embarked on classic Keynesian Economics, they would have merely mushroomed their debt even further.

BLYTH: And that is wrong for the following two reasons. What the markets were pricing in when the yields were spiking was the possibility of the breakup of the euro, precisely because these countries do not control their own banking money and credit. They're essentially all borrowing in a foreign currency. So, austerity was making the yields spike rather than making their yields reduced.

We know this because when the central bank governor came out and finally said "I will do anything," the yields went down. What has he done? Nothing. But he's given a credible single that this is bank policy that matters, not austerity.


QUEST: No! No! He didn't --

BLYTH: And the second thing is you don't need a large Keynesian stimulus --

QUEST: No, OMT -- OMT was not a response to questioning whether austerity was the right or the wrong policy, it was a -- OMT by the ECB was a response to the question of potential high spikes and default.

BLYTH: That's exactly my point. The price -- what the markets were pricing in was the possibility of default, and the governments read this as "we need to do more austerity," when in fact what was missing, which you had in the United States, was a credible central bank policy for dealing with the possibility of a bank run around the bond market.

QUEST: Angela Merkel --

BLYTH: Now, you don't need to be a Keynesian -- Richard, you don't need to be a Keynesian on this one. I've got a new one for you. It's called Hippocratic Economics, first do no harm. Why is that people --


QUEST: Well --

BLYTH: -- that always argue against government interventions only do it on the spending side?

QUEST: Right.

BLYTH: How about we just stop doing it? The US hasn't been cutting and it's been doing great.

QUEST: All right. Angela Merkel says -- told Germany's Association of Saving Banks today in the city of Dresden, "We always talk a lot about growth in Europe, but we have to ask ourselves what we mean by that growth."

The British chancellor on the question of austerity -- having lost his Triple A, I'll grant you that -- says "It's taking longer than anyone hoped, but we must hold to the right track."

Now, unless they are -- unless Mrs. Merkel and Osborne are blinkered, tell me why they're wrong.

BLYTH: I have told you. I've told you because historically we have no instances -- zero -- of this working when you do simultaneous contractions --


QUEST: Is it --

BLYTH: -- which is the world we find ourselves in.

QUEST: Ah! Ah!

BLYTH: It simply doesn't work. You can shout at me, but it's not going to change the facts, Richard.

QUEST: Isn't that the point?

BLYTH: It simply doesn't work.

QUEST: It --

BLYTH: Give me an example where it works.

QUEST: Well, isn't that the point, Mr. Blyth? It's not a question of austerity per se, it's as the IMF pointed out in the middle of last year and as the OECD has pointed out, it's because everybody's doing it at the same time, it's therefore heading for the door at the --

BLYTH: And even in the cases that we call austerity and misunderstand it, what actually went on was a massive currency devaluation among small countries, had themselves caught in the prop wash of large economic expansions. We have no positive cases of this working. It is a fantasy.

QUEST: So, if you're not to have austerity and you don't want to let debt balloon, what is your suggestion and -- prescription instead?

BLYTH: Very simple. We've run an actual experiment over the past four years. The United States, apart from the idiotic sequester, has not cut. We have, around 3 percent real growth.

The United Kingdom has its own currency and has been squeezing. Its deficit's going to be 7 percent. The US is going to be down to 5. The periphery of Europe is still around 10, and the Commission will tell you every quarter it's going to be reduced to 4, but I wouldn't take that one to the cleaners.

So basically, we have proof that if you don't cut, the economy has powerful self-healing tendencies on its own. The intervention is an intervention regardless of whether you're spending or whether you're cutting, and cutting is just as much of an intervention.

QUEST: So, when would you suggest it is the right time for the US to start to balance not only its deficit but also its debt-to-GDP?

BLYTH: It's already balancing it because the rate of growth has declined such that we're no longer adding to it by next fiscal year. And, in fact, if you go back ten years ago -- you may remember this -- the number one fear of the financial markets in 2000 when we last balanced the budget --

QUEST: Sure.

BLYTH: -- there wouldn't be enough federal debt around.


BLYTH: How did we get to there? Because we cut in the boom, not the slump. The boom not the slump is the time for austerity. It's an old tune, but it's the right tune.

QUEST: Finally, Mr. Blyth, do you believe -- well, yes, I think I know the answer, that answer's "yes" to my question, but I'll answer my own question, I'm answering my own question, which is probably the best way to proceed in any interview. But how do you believe this will play out in the longer term, since clearly you believe ultimately history will be very unkind to austerity?

BLYTH: It will be unkind, and the way we get out of this is the way we got out after World War II. You take those over-levered and indebted European banks that are already filled with government bonds, you push even more of the debt into them, you lengthen the maturities, you drop the coupon, and you run a mild inflation, and you eat away the debt with a liquidation tax.

That's what's going to happen, and that's what's the only way out of this, because chipping away at the nominal debt simply shrinks GDP.

QUEST: Mark Blyth, I could ask you what your favorite ABBA song was, but I'm not sure that --

BLYTH: Easy. "Knowing Me Knowing You."

QUEST: "Knowing Me Knowing You"? Interesting. Right. I'd --

BLYTH: Absolutely.

QUEST: I'd ask you to sing it, but we'll have to save that for another day. No, don't! Thank you very much. Mark Blyth --

BLYTH: Exactly.

QUEST: -- joining me there. Why was I wanting to know about his favorite ABBA song? Because ahead on QUEST MEANS BUSINESS --


QUEST: "Waterloo" gave ABBA the Eurovision crown. Nearly 40 years on, they had a dream. Their museum opens its doors. So, what's the name of the game? Still to come.


QUEST: It's been another record-breaking day in the markets on both sides of the Atlantic. In Europe, the DAX in Frankfurt closed at a new high of 8,181. Eighty-one eighty-one. My word. I've just realized, is that palindromic? I think it is, except for the .78, ignore the .78, and I think we have a palindrome. No. No, it's not. It's the opposite of a palindrome. Anyway, you get the point.


QUEST: London's FTSE added more than a half a percent to its highest level since December of 07. Financials led the way: Alliance, HSBC, and Societe Generale did a bit better than expected results. Details in a moment.

US stock markets are breaking new ground again. Alison Kosik --


QUEST: -- is at the -- is at CNN New York. Good evening, Alison. Another day, more Fed money being --


QUEST: -- more Fed money and more high rises.

KOSIK: Another day, another record. You're watching the Dow, the S&P 500 hitting new intra-day records, Richard. The big question, though, of course: are they going to close at these levels? And the funny thing is is you're seeing these levels happen, and there's really no major economic or market moving data happening today.

Look at the S&P 500, because any gains today for that index are going to be a record because it closed at a record high yesterday as well.

And many at this point are crediting the Federal Reserve for what we're seeing, of course, with the Fed pumping stimulus into the market. And it's a valid question to see if this rally is really real when you think about the Fed's hand in this.

Look how far the market's come. Coming into today, the S&P 500 is up 13.4 percent this year. All of last year, it rose 13.4 percent. It's amazing, it shows just how big --

QUEST: All right.

KOSIK: -- this rally is -- Richard.

QUEST: I'm pausing you, Ms. Kosik, because as my grandmother used to say, what have you done for me lately. Fine, so you give me 13 percent since the beginning of the year. But one forecast has been saying how high it might go, and that's more of an interest, where we're going rather than where we've been.

KOSIK: Right. And so, there is one analyst who is making headlines saying 1900 for the S&P 500 by the end of the year. That's Laszlo Birinyi. He says he thinks that it's going to get there, the S&P's going to get to 1900 by the end of the year. That would mean a 20 -- 20 percent gain by December 31st. Clearly very bullish.

But listen, he hasn't been right all the time.


KOSIK: He did make a name for himself because he was right when he predicted the past few bull markets. Who knows? You know what? We were laughing about Dow 15,000 just a short time ago, and here we are. It looks like the Dow could close at 15,000 for the very first time today. Though we've got two more hours to go in the trading day, Richard.

QUEST: Don't do any damage. And as I always say, Alison, nothing that you and I say -- or indeed anybody says on this program -- should be taken as investment advice. You pay your money --

KOSIK: Right.

QUEST: -- you pay -- let's face it. If you've got to take investment advice from me, you're in deep trouble.


QUEST: Hey, don't you agree? Let's have any agreement.

KOSIK: I do agree.

QUEST: Thank you.

KOSIK: I do agree with you.

QUEST: Thank you. Alison Kosik, who's joining me from New York. Now, a Currency Conundrum for you. We're going to be talking a lot about ABBA during this show, so gimme gimme gimme the answer to today's question.

ABBA has opened a museum, Bjorn from the band has decided it will not accept cash. The museum won't take cash. What's the reason? A, to keep down costs? B, to prevent crimes? C, tax reasons? I do, I do, I do have the answer later in the program.

The dollar is down against the euro and the yen, up against the pound. Those are the rates --


QUEST: -- this is the break.


QUEST: Now, the bit I've been waiting for, perhaps, throughout the program. Forget austerity. This needs no introduction. You don't get much bigger than ABBA. I think, actually, in Sweden it's pronounced ah-BA, I seem to remember.

Now, ABBA, of course, one of if not the most successful acts in the history of pop. We can argue and disagree on that. What we can't disagree about is a decade of dominating the charts worldwide from 1972 to 1982. And today, they open the ABBA Museum celebrating their career.

Let's just remember how big they were, and you join me at the super- duper screen. The band itself -- oh, look at that! Yes. Well, I'm sure it was a good idea at the time.

Ring ring went the tills as 370 million albums were sold worldwide. It was ABBA gold. It was the highest-selling album in the UK. And according to the Rock and Roll Hall of Fame, ABBA was for a while Sweden's second best export after Volvo.

There's no escaping the fans and the ABBA effect, especially if you're of a certain age. The dressing up that goes with the territory, clearly out for a big summer night sitting.

And, of course, it wasn't just the songs of the 70s. On and on and on -- oh, who wrote this? -- the years went by until "Mama Mia" arrived. Nominated for two Golden Globes, grossing over $144 million in the US, and Moscow's best-selling music ever -- best-selling musical ever.

So, I was 12 when they won the Eurovision. I grew up, as indeed did you, with ABBA. I had the honor, the privilege, the pleasure, and the treat of asking Bjorn Ulvaeus about the museum, life after ABBA, and the chance that they will come together again.


ULVAEUS: I thought it was definitely someone else who would do it than me. To build a museum of yourself is kind of a weird thing to do. But we said yes because the city of Stockholm wanted it, and the tourist board and -- so forth. And as we love our city, we said yes.

But then finally, about a year ago, when they -- they found a place for it, a house for it, in Stockholm, then it dawned on me it was going to be here on the threshold, my own threshold. And I had to get involved, to --

QUEST: Right.

ULVAEUS: -- to make sure that it was something I would be proud of.

QUEST: I am of an age where, of course, I remember you winning the Eurovision song contest, and my entire growth --

ULVAEUS: Really?

QUEST: Oh, yes. Well, yes. And my entire sort of teens and onwards was to your music. But I need to ask you, sir, of those times, what is the one thing that you remember, that you take from that?

ULVAEUS: Well, it would have -- if I have to choose one thing, it would be when I went to bed after having won the Eurovision song contest in 1974. And it dawned on me that OK, yesterday we were this little group from Sweden. And now, one day later, the whole world is absolutely open. That was a fantastic moment.

QUEST: That moment continued for many years as the phenomenon got bigger and the songs got louder and the fans became ever more numerous. Did it ever frighten you, the sheer size and scale that ABBA became in those days?

ULVAEUS: It never did, actually, because we were so concentrated on the one thing that was important to us, and that was the making of the music. The rest that went on around us was like a circus. Something that you would have fun with.

We were pop stars, but we were also playing pop stars. It was like a game. But the music was always the important thing.

QUEST: And when you compare what you went through then to, say, Justin Bieber today, a young artist, not many years, perhaps, from what you were then, who is going through his own difficulties with the media and the press and the perception, can you see any either similarities or advice that you can give?

ULVAEUS: Well, he's -- he's a boy. And he's all by himself. It's such a different situation from two married couples. We lived a completely different life from his, I think. And also, I think less glamorous, perhaps, because we were living in Stockholm.

And as a matter of fact, during our heyday, Agnetha and I could walk around a supermarket with a trolly shopping. Everyone knew who we were, but no one would bother us, you know? It's such a different situation from what Justin Bieber has.

QUEST: I've got to ask you: how many times and how much money have you all been offered to reform and do one concert and one performance? It must almost be a nightly offer.

ULVAEUS: Well, we have at least two or three serious offers every year. But we -- we just talked about that the other day, because Frida, Benny, and I were at the opening on ABBA the Museum. And we said that it was the right decision to say no to all these offers, because we want people to see us as we were during the 70s, that young, ambitious, energetic group.

QUEST: But you thought about it.

ULVAEUS: We talked about it, yes. Yes. We -- of course, we talk about the offers we get.

QUEST: Finally, you've done many things since, and ABBA is a part of your life. If you had -- for all of you. If you have to balance it out, put ABBA and give me the perspective of where ABBA fits into your life today.

ULVAEUS: Well, it's -- I'm constantly reminded of ABBA. It's -- I read something, I hear something, someone says something, there's a picture. Constantly every day of my life, I'm reminded of ABBA.

But it doesn't matter because I'm humbled by the fact that we are still around to this day. Next year, it's 40 years after Brighton in 74. And I'm so proud of what we did. So, I --

QUEST: Bjorn -- Bjorn --

ULVAEUS: -- thoroughly enjoy every time --

QUEST: Bjorn -- 40 years, 40 years, that sounds like a good moment for an anniversary to all get together and redo "Waterloo." Sounds to me like there's an opportunity there.

ULVAEUS: There is an opportunity. If England wins this year, so that the final can be in England next year.

QUEST: You -- hang on! If England wins, you will all sing? Is that a deal?


ULVAEUS: Not quite, but you're closer to a deal than you were before.



QUEST: We're closer to a deal. All that has to happen is England has to win so that next year, the 40th anniversary, Eurovision is back in the UK. Now, come on, @RichardQuest, very simple question: what's your favorite ABBA song. It really is that simple. We've all got one.

When we come back, money, money, money. I can tell you, there's plenty of money piling into the stock market. The Dow's above 15,000, the S&P's at a record high, and we will be back after the moment -- after -- you know what I mean.



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


QUEST (voice-over): You may have heard three women who vanished about 10 years ago in Cleveland, Ohio, have been found alive. The dramatic rescue followed a desperate call to Emergency Services by one of the women, Amanda Berry. Three brothers have been arrested in connection with the alleged abductions of the women, who disappeared under separate circumstances.

Nineteen people have died and more than 30 injured after a gas tanker exploded on a motorway in Mexico City. The driver lost control of the tanker, which then crashed into several homes and cars before exploding into flames. The driver is under arrest in hospital.

The former cricket star Imran Khan has fractured his spine in two places after a terrible fall at a political rally in Pakistan. He was injured after he and several others fell off a makeshift lift that was taking them to a stage.

The U.S. Secretary of State John Kerry has been meeting the Russian President Vladimir Putin in Moscow. Mr. Kerry told Mr. Putin that he hopes Russia and the U.S. can find common ground on Syria. The U.S. has been trying to convince Russia to help put more pressure of Bashar al-Assad's regime.

The United Nations says four U.N. peacekeepers have been abducted in the cease-fire zone between Israel and Syria. Members of a Syrian rebel brigade in the area say the peacekeepers were caught in the crossfire of a gun battle with the Syrian military, and they were seized for their own protection.



QUEST: It's an extraordinary story, the very idea. It might not be a complete U-turn but Microsoft apparently is undergoing one of the biggest changes in corporate direction ever seen in marketing history.

Microsoft is said to be responding to public pressure and lackluster sales. Windows 8, the new operating system, using tiles, not desktops, and starts. And now they say it's going to make it easier to use. Microsoft CFO Tami Reller is quoted in saying, "We need to work to address a real learning curve."

In other words, they got it seriously wrong. Join me in the computer library, in the lab, and you'll see what we are talking about. Now this is the desktop of which we are familiar. It is running a traditional version of Windows that you and I know too well.

This, of course, is the new Windows 8 with its tiles; it sort of combines a tablet format with a traditional computer. So if I want to open a simple document, let's see how long it takes. Now we did have a go at it earlier and then we've restored everything back to normal.

So here we go. This one, of course, it's on the desktop. We all know there's nowhere else it can be. I simply click to the document and bingo; we all know how to do that.

Now unless you are -- and I have to say I've already forgotten where we put this document. Where did we put it? Is it in the start at the bottom? No, that's not even the start. I can't even get the start -- ooh, lordy.

Now wait a minute, no. Do bear with me. Talk amongst yourselves for a minute. Right. I think it's -- I think it's here. All right. That's that. That's that. And there. Tricky? Not as easy, at least not yet.

And of course, to get back to the desktop this one is relatively simple; I just go like that and I'm back to square one. Here, I'm closing things out, I'm going down here and I'm (inaudible). I'm right at the bottom here and I'm going back to that. It's all very tricky. And you can understand why people of a certain age are having a little difficulty, the lack of familiarity.

I spoke to the technology analyst, Richard Doherty, and I wanted to know, compared between the two, how did Microsoft get it so wrong?


RICHARD DOHERTY, TECHNOLOGY ANALYST, ENVISIONEERING: It's been my privilege now, Steve Palmer, Bill Gates, from the '70s and '80s and as people go up in power, sometimes they're more and more reflective windows around them -- no pun intended -- and they -- they're presented with what they'd like to think is happening as opposed to the -- to the consumers, to the doctors, to the teachers, educators we've spoken to around the world, that are frustrated by Windows 8 when they walk up to it and frustrated after their first experience.

QUEST: You have just described arrogance, not being person to Palmer or to any individual, but the arrogance that says we are going to take something that you have worked with for many years and we're going to turn it on its head and stuff you if you don't like it.

DOHERTY: Quite right. Usually consumers are given something and told to either love it or leave it. And unfortunately, they've been leaving it. And Microsoft has slowly gotten the message.

QUEST: Is Windows whole beneath the water line?

DOHERTY: Oh, I think to stay with the nautical analogy, the ship is actually very, very solid under the water line. Windows 8 is very robust; developers we've spoken to love it. It's institutions and teachers and students and seniors who've had trouble acclimating to this different geography, if you will. Beneath the water line, it's very solid.

But I think there has to be some architectural renovation above the water line where everybody sees that first screen.


QUEST: And we'll find out more from Microsoft exactly how they're going to reform it in the weeks ahead.

The U.S. is upping its campaign against cyber espionage. Yesterday (inaudible) and for the first time it's openly linking attacks to the Chinese government. We'll discuss that after the break. QUEST MEANS BUSINESS. Good evening.





QUEST (voice-over): The answer to tonight's "Currency Conundrum," why the ABBA museum will not accept cash from visitors and the reason is to prevent crime on the museum's website, Bjorn Ulvaeus says, "I challenge anyone to come up with a reason to keep cash that outweigh the enormous benefits of getting rid of it. Imagine the worldwide suffering because of crime, from murder to bicycle theft."


QUEST: Jenny Harrison's at the World Weather Center for us this evening. We'll talk ABBA in a moment, Ms. Harrison, after, of course, you've given us a full update on what we can expect.

JENNY HARRISON, CNN METEOROLOGIST: Full update, Richard, yet not bad. You've had some lovely weather across much of central and northern Europe the last few days. But as of course, most things weather-wise, all good things come to an end. And it's cut off the low that's been sitting across the central Med.

It is cut off no longer and it is heading across the central areas as a new system heading into the northwest. And it means that's why we're seeing all that cloud. Look at the temperatures right now, 20 Celsius in London, the same in Paris, 16 in Munich, 21 in Berlin.

So despite the hour of the day getting on towards the 8 o'clock hour in London in another sort of 20 minutes or so, it is still feeling very mild and in fact this Tuesday in London, 21 Celsius. That is how warm it actually got, 18 is the average, 21 is what in London, in Paris that says - - I can read; it says Paris, 21 was the temperature.

The average is 17 and actually a degree warmer in Berlin at 22. And again your average is 17. But look at this, the last 12 hours there's been quite a bit of rain already working its way across in Germany, some heavier spells at time.

And notice the rain on its way to the U.K., pushing through Portugal, Spain, on through France, really a very unsettled picture as we head through Thursday, not quite making it to Scandinavia, it has to be said inside of anything, look at this, this is a temperature trend as we go through the next couple of days.

And this color show you the temperatures above average that that is what you have in store up there in Scandinavia. And sort of which across the northwest we see some green, a little bit of blue for a while. So those temperatures actually back down to the average, very unsettled picture as you can see.

There's that new low pushing into the northwest. So temperatures not especially cold but just add to the average. So 16 in London and 19 at the high in Paris on Wednesday.

Slowly improving picture across the United States, not just yet across the mid-Atlantic. That rain that's been sitting across the Southeast it's actually going to sit across the mid-Atlantic, pushing to the northeast as we head to the next couple of days. Very heavy rain at times. It has been heavy across the Southeast. And the temperatures, they'll be slow to rise, but they will eventually.

As you can see the next 48 hours again it's just a very unsettled sort of picture. By Wednesday, we should manage 24 Celsius in Atlanta and maybe 17 at best in New York. So similar sort of scenario really across the U.S. as it is in Europe, Richard.

QUEST: Now, Ms. Harrison, you're too young to remember ABBA (inaudible) --

HARRISON: I'm so not. And you know I'm not. Oh, well, actually, to be fair, I don't really remember "Waterloo," but you know I remember ABBA. I love ABBA. Love them. I do.


HARRISON: Why? Oh, good tunes, good songs, good words, yes, all of that. Fantastic. And aren't they wearing well? I was thinking earlier watching them.

QUEST: (Inaudible).

HARRISON: At my age as well, I know.

QUEST: That is a quick, quick question: your favorite ABBA song?

HARRISON: Oh, "Money, Money, Money."

QUEST: No, I'm not surprised, not surprised. Jenny Harrison at the World Weather Center, we thank you for that.

Now the U.S. Department of Defense has accused China of engaging in hostile cyber espionage to extract information from its systems. It's the first time the Pentagon has been so outspoken in a report. Alison Kosik is in New York.

Not only outspoken, but also saber-rattling in many ways in what they've been saying. I mean, quite blunt about it.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, that's a good way to put it, blunt. But remember, this isn't the first time China has been accused of cyber attacks, Richard. The different now is that the Pentagon is pointing the finger. Now the report says that China targeted computers owned by the U.S. government.

But the big question is what were they looking for? The report says China is, quote, "using its computer network exploitation capability to support intelligence collection against the U.S. diplomatic, economic and defense industrial base sectors that support U.S. national defense programs."

Translation: China uses computer networks to collect information on the U.S. defense system.

Now there aren't any specifics on exactly what type of defense data was collected. But what this report does is it claims that China is interested in getting this high-tech information that it can use in addition to boost its own military. Now China is denying any involvement in this. But I want you to listen to this translated response from a Chinese foreign ministry spokeswoman.


HUA CHUNYING, CHINESE FOREIGN MINISTRY SPOKESWOMAN (through translator): China is firmly against any forms of cyber attacks. Not only the U.S. side and U.S. enterprises are concerned about cyber security.

China's enterprises and the Chinese government are also concerned. China is willing to carry out constructive and friendly dialogue with the U.S. on cyber security issues. But we oppose groundless accusations and hyping because they will only harm the efforts and atmosphere of the two sides' dialogue.


KOSIK: But this Pentagon report, Richard, it follows a similar one that came out in February from an American cyber security firm, Richard.

QUEST: Yes, indeed, and of course, this was (inaudible) the newspaper -- I think it was "The New York Times" had -- it had been hacked -- or was it the "Journal"? Said it had been hacked and numerous other companies have said they'd been hacked.

So the question becomes is this going to harm relations between the two because the U.S. has consistently accused China -- well, eventually, if you accuse long enough, Alison, you've got to do something about it.

KOSIK: Well, and it certainly makes things more contentious between China and the U.S. But probably only, you know, in the area of cyber security because look at U.S. -- the U.S. and China. You know, they're generally open on trade.

Both countries benefit from that trade relationship. U.S.-China trade relationship, the relationship itself is one of the -- of the biggest in the world. It's measured by the billions of dollars. So I don't think you're going to see the cyber security issue get in the way of that. Still, though, you know, there's a lot of finger pointing going on.

In the past, China said it was a victim of cyber attacks originating in the U.S. And then you've got this side, with President Obama saying that he expects China to just follow international rule, Richard.

QUEST: Yes, I meant to ask you earlier, really, much more -- a very significant question about markets and the Dow is at an all-time high. The S&P is also trading at an all-time how. And all anybody wants to talk about in the office is ABBA and (inaudible) ABBA. It's extraordinary the capacity of people to have (inaudible) interest and it's -- so go on.

KOSIK: Of course, ABBA, all that counts is ABBA.

QUEST: What's your favorite?

KOSIK: My favorite song -- you don't know it? Come on, look at me. You can't figure it out?

"Take a Chance on Me."


KOSIK: My favorite one.

QUEST: Alison Kosik in New York. I'm just longing to sing something, but I won't. Thank you very much.

A quick apology that I need to make, by the way. Earlier on in the program, I described -- I said if England win the European song contest. And quite rightly, (inaudible) more than one viewer has taken me to task. Of course it's not England; it is the U.K. (Inaudible). Sweet '74. I was in the womb when ABBA won in England in -- nevertheless, "Waterloo" is my favorite.

Who else have we got? Oh, yes, it has to be "Mamma Mia," says Deepak Anand (ph). I was 12 in 1972 (ph), says Venugibok Manan (ph). I was playing, strumming my guitar. Janis Roberts (ph) asks me, "You're not really an ABBA fan, are you?" For me to know and you to guess.

Berkshire Hathaway's vice chairman Charlie Munger doesn't mince words when it comes to the banks. They can't be trusted. You'll hear him explain why after the break.



QUEST: Charlie Munger says banks should be simpler and more restrained. Munger is Warren Buffett's right-hand man at Berkshire Hathaway and a guru in his own right, and says the U.S. banking sector could still pose a major risk to the global economy. He was speaking to CNN's Poppy Harlow and he said he would support more regulation on Wall Street.


CHARLIE MUNGER, VICE-CHAIRMAN, BERKSHIRE HATHAWAY: This is my personal opinion; this is not necessarily Warren's or Berkshire's opinion. I think the banks should be more heavily regulated. There should be fewer things they're allowed to do and they should do it with more simplicity.

I don't think they should have vast derivative books in banks with insured deposits. I think that was a fundamental error that we ever allowed it.

POPPY HARLOW, CNNMONEY.COM CORRESPONDENT: So one of the latest proposals, Brown Vitter or basically just increasing capital requirements for banks, is that something that we need -- do we need more stringent frankly regulation banks beyond what Dodd-Frank does?

MUNGER: I think if you increase the capital requirements and let them do whatever they wish, they'll get in trouble again. I think you need to prevent banks from doing what a lot of them want to do. It is so tempting to run a great derivative book and make a lot of money without making any real contribution to civilization or doing much for anybody or --


HARLOW: -- the lending that they do?

MUNGER: Lending is what banks are supposed to do. That greases the wheels --


MUNGER: -- in the world.

HARLOW: Underwriting?

MUNGER: I don't think -- it would have been OK if underwriting everyone near the banks. But they -- in Canada, they do underwriting. I think it would be OK if they did some ordinary underwriting. It's the trading books that I think is such -- where I think the poison is.

HARLOW: Do you think that the U.S. banking sector still poses a risk to the global economy?

MUNGER: Well, maybe not tomorrow. But do I think our situation is fixed for the long haul? The answer is no.

HARLOW: Do you think it's even significantly better?

MUNGER: Oh, sure, it's better from a low point. At the low point, they were all berserk. But I don't think we ought to have revenue books in the trillions and trillions of notional value and bank reports that nobody can possibly understand that's really going on by reading a report. That is not what a bank should be.

It should be a more simple, straightforward business if it's going to get deposit insurance from its government.

HARLOW: So Berkshire has significant stakes in Goldman Sachs, Wells Fargo, Bank of America, these are banks that participate in what you oppose.

Have you ever talked to Warren about or have you considered on your own pulling out of those investments? Or is that -- ?

MUNGER: No, no; we kind of live in the world as it is and we don't expect the government policy to be the policy that we would make or the companies we invest in we don't expect them to agree with us on all subjects.

So and you're asking me questions about what would be my prescription for the country. Well, that would obviously be different than the prescription of our leading bankers. But I'd be delighted to have banks more simple, more restrained, more constructive.


QUEST: That's Charlie Munger there.

U.S. stock markets are (inaudible) now away from an all-time record close. This is the way the markets look at the moment, gaining 76 for over 15,000 on the Dow. We'll have more in just a moment. In fact, there will be a "Profitable Moment" after the break.



QUEST: Tonight's "Profitable Moment," well, I was just a wee lad when ABBA entered the world, entered my world, entered all our words. It was of course, "Waterloo," I was 12 when the song stole the European song contest back in 1974.

And my reaction has, indeed, the same with many, I dived into the cocktail cabinet and I liberated the Harvey's Bristol Cream. Whatever happened to Harvey's Bristol Cream? The drink was never the same again and neither was I, I can assure you.

ABBA's impact, not just on my drinking, was enormous and for a decade they stayed on the course. And then when they had gone, "Mamma Mia" brought back the memories, and we were all knocked off our feet in waves of nostalgia.

And now an ABBA museum in Stockholm, it's all about renewal, the name of the game, reinvention before becoming stale. We'll probably never see the like of ABBA again, that is, unless tantalizing beyond suggested hinted gave us a scintilla of hope if the U.K. (inaudible) wins the Eurovision song contest. I'm getting ahead of myself.

It's just nice. Every now and again to remember what was and what we were and a bit of nostalgia before we think about what might come next. Because that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I promised I was going to sing an ABBA song, didn't I? I shall do that, because I hope it's profitable.


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

Three women who had vanished about 10 years ago in Cleveland, Ohio, have been found alive. Their rescue followed a desperate call to Emergency Services by one of the women, Amanda Berry. Three brothers have been arrested in connection with the alleged abductions of the women, who disappeared under separate circumstances.

Nineteen people have died and more than 30 injured after a gas tanker exploded on a motorway in Mexico City. The driver lost control of the tanker, which then crashed into several homes and cars before exploding into flames. The driver is now under arrest in hospital.

The former cricket star Imran Khan has fractured his spine in two places after a terrible fall at a political rally in Pakistan. He was injured after he and several others fell off a makeshift lift that was taking them to the stage.

The U.S. Secretary of State John Kerry has been meeting the Russian President Vladimir Putin in Moscow. He told Mr. Putin he hopes Russia and the United States can and will find common ground on Syria. The U.S. has been trying to convince Russia to help put more pressure on Bashar al- Assad's regime.

And within Syria, the United Nations says four U.N. peacekeepers have been abducted in the cease-fire zone between Israel and Syria. Members of a Syrian rebel brigade in the area say the peacekeepers were caught in the crossfire of a battle, a gun battle with the Syrian military, and they were seized for their own protection.


QUEST: The news headlines at the top of the hour: you are now up to date. And now to New York and "AMANPOUR" is live.