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QUEST MEANS BUSINESS

US Surveillance Scandal; Surveillance in Britain; Apple Unveils New Products; Dollar Down; Brazil Comes of Age; Hank Paulson on China

Aired June 10, 2013 - 14:00   ET

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


RICHARD QUEST, HOST: Swooping down on snooping. Britain insists its spies are not trolling through private e-mails.

Apple says we are not standing still. The chief exec reveals the future of its products.

And the patient is stable. S&P says the US is getting better.

I'm Richard Quest in glorious HD. And of course, I mean business.

Good evening. Tonight, the man who showed us that the US government can see our private e-mails, phone records, and internet search histories. That man is now plotting his next move.

He's Edward Snowden, and he says the US is building what he's described as a massive surveillance machine. It's called PRISM, and it's said to gather private information allegedly from major technology companies. Our correspondent at the Pentagon is Barbara Starr.

(BEGIN VIDEOTAPE)

EDWARD SNOWDEN, LEAKED MATERIAL FROM US NATIONAL SECURITY AGENCY: When you're in positions of privileged access --

BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): This is 29- year-old Edward Snowden, the high school dropout who worked his way into the most secretive computers of the US intelligence community as a defense contractor.

And then, blew open those secrets by leaking unprecedented details of top secret government surveillance programs. He now risks never living in America again as a free man.

SNOWDEN: I had access to the full rosters of everyone working at the NSA, the entire intelligence community, and undercover assets all around the world, the locations of every station we have.

STARR: Snowden didn't leak that, but in an interview with the British newspaper "The Guardian," Snowden reveals himself as the source of several documents leaked to journalist Glenn Greenwald outlining a massive effort by the National Security Agency to track cell phone calls and monitor e- mail and internet traffic of virtually everyone.

SNOWDEN: I, sitting at my desk, certainly had the authority to wiretap anyone from you or your accountant to a federal judge to even the president, if I had a personal e-mail.

STARR: Snowden says he just wanted Americans to know what the government was doing.

SNOWDEN: Even if you're not doing anything wrong, you're being watched and recorded.

STARR: And he wanted to be upfront that he was behind the leaks.

SNOWDEN: I'm just another guy who sits there, day to day, in the office, watches what's happening, and goes, this is something that is not our place to decide. The public needs to decide whether these programs and policies are right or wrong.

STARR: "The Guardian" says during the interview, Snowden watched CNN's Wolf Blitzer ask a panel who the leaker was.

WOLF BLITZER, CNN HOST, "THE SITUATION ROOM": Do you have any idea who's leaking this information?

STARR: Snowden watching did not react. Snowden fled to Hong Kong three weeks ago after copying a last set of documents and telling his boss he needed to go away for medical treatment. Before all this, Snowden says he had a comfortable life working for the NSA in Hawaii with a $200,000 salary and a girlfriend.

He told "The Guardian" he never got a high school diploma, attended community college, but didn't complete his computer studies. He joined the army in 2003, but was discharged after breaking both legs in an accident. He says he worked as a security guard for the NSA and then moved to the CIA in a computer security job.

In 2009, he left the CIA, eventually joining the contractor Booz Allen in Hawaii. He began to see top secret documents on the extent of the NSA's surveillance, including details that the government also had data on Americans. President Obama insists his administration is not spying on US citizens, only looking for information on terrorists.

For now, Snowden believes Hong Kong's climate of free speech will protect him, but there's no guarantee he won't be arrested, taken to Mainland China, or sent back to the US. It appears to be a risk he's willing to take.

SNOWDEN: You're living in Hawaii, in paradise, and making a ton of money, what would it take to make you leave everything behind? The greatest fear that I have regarding the outcome for American of these disclosures is that nothing will change.

STARR: Barbara Starr, CNN, Washington.

(END VIDEOTAPE)

QUEST: If only this was just, of course, the United States, it would be bad enough, but the extent of the revelations have shown it's a trans- Atlantic issue. Here in the United Kingdom, the foreign secretary, William Hague, has been defending the work of the security services. Recent report suggest if British spies have been using PRISM to gather intelligence. Dan Rivers is here with more.

Dan, the president and of course, William Hague said over the weekend -- didn't he? -- that the relationship between the two security services in terms of providing information was so very, very close.

DAN RIVERS, CNN SENIOR INTERNATIONAL CORRESPONDENT: And it is, and it's no secret that the NSA and its counterpart in Britain, GCHQ, Government Communications Headquarters, work very closely. They always have.

The issue in Britain is, have they been circumventing British rules and the regulatory framework to try and get access to information that ordinarily they wouldn't? Now, the government has come out and spoken today, William Hague insisting that they have done nothing wrong.

(BEGIN VIDEO CLIP)

WILLIAM HAGUE, BRITISH FOREIGN SECRETARY: It has been suggested that GCHQ uses our partnership with the United States to get around UK law, obtaining information that they cannot legally obtain in the United Kingdom.

I wish to be absolutely clear that this accusation is baseless. Any data obtained by us from the United States involving UK nationals is subject to proper UK statutory controls and safeguards, including the relevant sections of the Intelligence Services Act, the Human Rights Act, and the Regulation of Investigatory Powers Act.

(END VIDEO CLIP)

RIVERS: What you might find surprising is actually in this country, they can read your e-mails, they can listen to your phone calls. But in order to do that, the intelligence agencies have to get someone like William Hague to sign off on it. And he's saying if they want to go and look at all the data that they've collected in the USA on you, they'd still have to get that same signature.

QUEST: Right. And Hague admitted -- didn't he? -- yesterday again that he signs dozens of these things. He said a lot of his time is sent signing these sort of orders. Is it your gut feeling that this -- that this is growing in the UK, or is it still a US -- issue?

RIVERS: I don't think it's got quite the same traction here because I think people here partly expect the spies to be looking at your e-mails and your phone calls if you're up to no good.

William Hague is insisting that this doesn't really change anything. You still have to get the permission of someone very high up. There still has to be a real reason for them to go snooping on you, even if it's using US data that's been collected rather than collect it -- in this country.

QUEST: So, where does this go next? We have Snowden out in Hong Kong, we've got the Brits saying that GCHQ isn't reading yours and my e- mail, we've got the US saying that it's all necessary for the prevention of terrorism and the president says no one needs to be afraid of somebody listening into their phone calls. Obviously, there'll be congressional hearings, but where does it go next?

RIVERS: Well, interestingly, the British Intelligence and Security Committee, which oversees MI6, MI5, has asked for a report on all this from GCHQ, the NSA equivalent here.

(CROSSTALK)

QUEST: You --

RIVERS: And they're going to be handing over that tomorrow.

QUEST: You've looked at these things over many years. Is it your gut feeling this has got legs? Or is it going to peter?

RIVERS: I think it's got legs in the US, not so much here, because in the US, there is the fourth amendment to the US Constitution, which stops unreasonable searches. Here there isn't that kind of constitutional protection. I think people are less concerned.

QUEST: We'll leave it there. Thank you, Dan. Dan Rivers with us.

When we come back after the break, iPhones and iPads are about to get a different look. Apple's about to reveal its new mobile operating system, or iOS, as the cognoscente are wont to describe it. What's it going to have? After the break, QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

QUEST: Apple's unveiling a brand-new look and a brand-new computer at its worldwide developers' conference in San Francisco. In the past few moments, Apple's CEO Tim Cook has unveiled a powerful new Mac Pro desktop computer.

He also unveiled the latest updates to the MacBook operating system, called Mavericks. And we're expecting updates to iOS, which runs the iPad's and iPhones. It's the first major new product launch since last October, and the iPad mini.

Victor Basta is the managing director of Magister Advisors, who specializes in tech company mergers, joins me now. Well, now. Why should I be excited about this? What are they going to do?

VICTOR BASTA, MANAGING DIRECTOR, MAGISTER ADVISORS: Well, it's interesting. There isn't much exciting so far. The interesting thing is that we're passing into the second stage of Apple's evolution. So, the first stage, we had devices that changed our lives. Literally. The iPod, the iPad, the phone.

So, that's all set now. We may get one or two other great products, but we're not likely ever to see this kind of game-changing stage again.

QUEST: Never say never.

BASTA: Unlikely.

QUEST: We didn't know -- oh, we didn't know -- I know, but I take your point. Your point is well-taken.

BASTA: So, the next stage is payments and software. So, the most interesting thing so far isn't a cylindrical computer, it's just evolutionary, it's better, faster, cheaper, and looks great. But 575 million people have given their credit cards to Apple. So Apple now competes with PayPal and they compete with Amazon at least as much as they compete with Samsung.

QUEST: So, you're saying the sort of announcements that we are seeing today, new icons, bit faster, this, that, or the other. You're saying that's really just the trinket. That's just the prettying up of the window?

BASTA: Well, so, it's what great software companies do when they have great fundamental software and they want to keep improving it, you do it incrementally.

QUEST: Right.

BASTA: You don't make game-changing changes --

QUEST: Well, you do if you're -- you do if you're Microsoft with the -- last one that it was and --

BASTA: You do when you have to.

QUEST: -- and it went horribly wrong.

BASTA: You do when you have to, but Apple doesn't have to.

QUEST: Right.

BASTA: So, we're seeing high-quality incremental improvements, and it's going to get better and better, and more people will use iTunes and give their credit cards and use Apple for micro payments over the next five or ten years than ever have done before. But --

QUEST: But is this -- when you say they'll use it for micro payments, we already -- and I'll confess the conflict of interest: I use it, obviously, and they have my details.

Are you saying that those micro payments will no -- either will not just be in iTunes, but it will still be via Apple, or that iTunes will extend the reach of that which is offered thereby moving into the Amazons of this world's territory?

BASTA: Well, Amazon's moving into Apple's territory.

QUEST: Of course, with these --

BASTA: So, they've got mobile devices, and they're going to do more of them, and they're trying to sell content down mobile devices that they've sold to people. That's what Apple also does. So, it makes absolutely sense for Apple to go the opposite way, which is start expanding the reach of iTunes and have people like you and I paying for more things - -

QUEST: But will -- can you ever see iTunes or the information that you've got with iTunes, can you ever see it being a third-party payment system?

BASTA: That's a stretch.

QUEST: You know, your PayPal. A PayPal. PayPal sits between you the retailer and me the consumer and acts as the conduit.

BASTA: Well, several years ago when iTunes came out, it was only for music. People didn't really think it was going to be for films.

QUEST: And what do you make of this iRadio that they're going to announce? It's taking Spotify on head-on.

BASTA: But it's incremental. If you're already delivering music, you're just streaming it.

QUEST: Hold a second: Tim Cook, the chief executive, has just been speaking at this conference in San Francisco. We need to hear what he said.

(BEGIN VIDEO CLIP)

TIM COOK, CEO, APPLE: -- the best Macs we've ever made, but we're not standing still. We've got lots of innovation left, and today, we want to talk to you about what we're doing with OS 10.

(END VIDEO CLIP)

QUEST: Right. I'm sure that meant something to somebody, but not being in the industry myself -- but the point is still, he says -- Tim Cook says "we've got lots of innovation still left." Is the market jury still out on his ability to lead Apple and lead it successfully?

BASTA: So, absolutely the jury's still out. But I would also argue Apple's making more progress on software innovation than we give them credit for because there's lots of stuff that happens beneath --

QUEST: It's just -- text and publicity.

BASTA: iCloud for example is not sexy, but it's becoming all- pervasive. So, it's as important as some of the other initiatives they've had, it's just not a sexy piece of hardware. So, its' harder for us to get the immediate benefit from.

QUEST: We thank you for that. Many thanks for joining us.

Now, in 2000, the Brazilian government experimented with plastic banknotes. It's tonight's Currency Conundrum, and we turn paper bills. What was wrong with the plastic? A, they stuck together? B, they shrank in the wash? Or C, the smelled bad? The answer later in the program.

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

(RINGS BELL)

QUEST: -- this is the break.

(COMMERCIAL BREAK)

QUEST: One more year until the World Cup, just about a matter of days until the anniversary. Slowly, the world's attention turns to Brazil. And under scrutiny is the ability to host a football tournament. Two years after the World Cup and Rio will stage the Olympic Games.

Now, if you're talking about the world's great assignments to be sent upon, Paula Newton has to be way up there. Live for us tonight on Copa Cabana Beach, where it's a very pleasant 26 degrees, it's a tough life, Ms. Newton, somebody has to do it.

PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Well, it's usually you doing it, Quest, so here I am, getting down to business here, Quest. This is what we're doing here, OK? Now, it's not just the World Cup and the Olympics. It is also the pope. He's going to be here in July.

I'm actually at Copa Cabana Fort, where this will be a staging area for that big show. Given all these events, Quest, this is certainly a bit of a coming out party for Brazil, although it's been out for quite a while. What it needs to be, though, Richard, is a coming of age sort of party.

Now, there's a very old saying about Brazil, but you might know it. But in case you don't, I won't spoil it for you. Take a listen to this.

(BEGIN VIDEOTAPE)

NEWTON (voice-over): You've heard the one about Brazil, right? We'll forever be the land of tomorrow. Well, time to put that tired cliche to rest. From the seemingly robust economy to the drop in crime even in the Brazilian shanty towns called favelas, to the new and growing middle class, many people around the world see Brazil as the country to be in now. People like Louis Vuitton, Cartier, Gucci.

NEWTON (on camera): In terms of the luxury brands, how many want to get into this mall?

GABRIEL PALUMBO, DIRECTOR, VILLAGE MALL: In terms of development, I guess Brazil is on the top of the wave at the moment.

NEWTON (voice-over): But for Brazil, riding that wave will soon mean proving it can meet expectations. This country is now consumed by staging the football World Cup next year and the Summer Olympics in 2016.

NEWTON (on camera): Brazilians are proud of it?

RENATO FRAGELLI CARDOSO, ECONOMIST: They tend to be, but my question is, are they really aware of the missed opportunities?

NEWTON (voice-over): The truth is, economic growth has slowed significantly in the last couple of years, and some worry rather than helping the country, the World Cup and Olympics will cost Brazil dearly. And that money might be better spent on infrastructure.

CARDOSO: This new middle class will start thinking about the future. We must have some strategies to grow in the long run. It's not a question of just distributing the income we already have. We have to increase income.

NEWTON (on camera): To do that, Brazil will need more investment, less corruption, and the continued resolve to lift people out of poverty and into the middle class.

IGNACIO CANO, SOCIOLOGIST: I think this is the crucial element for this country. This country was based on extreme inequality, slaves on the one hand and masters on the other. If it can change that, if it can reduce the gap, I think other things will happen.

NEWTON (voice-over): This is an eternally resilient place with optimism to spare, and there are some good reasons to believe Brazil may finally be catching up with its destiny.

(END VIDEOTAPE)

NEWTON: One of the things that's going on here is the fact that this country knows that it's going to be in the spotlight. They're very, very down-to-earth about it, and they're saying look, everything may not be ready for the World Cup, for the Olympics. Most everything will be ready, and they certainly are earnest about getting to that point.

What many people, though, here are talking about Richard, is what we talked about for years, and that's the legacy project. Are they infrastructure projects going to be there from all these events? The infrastructure that this economy so desperately needs? Richard?

QUEST: All right, but let's -- let's get down to brass tacks here, Paula. Fundamentally, is there any serious critics and doubts in Rio that say they won't be at a sufficient level of readiness for these major world events?

NEWTON: You know what? I think you have to say FIFA's worried. I think you have to be very honest about that. If you look at the some of the stadia that are around this country -- it's a vast country -- 12 different host cities, it's going to be a problem, Richard. We'll have more on that throughout this week. They start the official countdown to the World Cup on Wednesday.

But the confidence among people here that even if it's the last minute, they will get it ready, it's there, Richard. They're all pulling in the same direction.

And you know, as the mayor of Rio said, Richard, they don't really care about the stadiums or the legacy projects or anything like that, the mayor of Rio says look, what does FIFA care about? How's the pitch? Is it good? And they say from that point of view, this will be a stellar 2014 World Cup.

QUEST: I think Paula Newton on Copa Cabana comes under the rubric to be filed as nice work if you can get it. Paula in Brazil for us, and we'll be there all week on the road to Brazil.

The other emerging market, China, and Hank Paulson says the country must become more competitive to boost its economy. Hank Paulson was the US Treasury secretary at the beginning of the global financial crisis.

He took all the major decisions -- or at least was part of them -- not least of which that deciding to let Lehman Brothers go. Hank Paulson now thinks and leads a think tank looking at global growth. Kristie Lu Stout caught up with him at the Fortune Global Forum in Chengdu, China, and asked him from an American point of view how China should reform its economy.

(BEGIN VIDEOTAPE)

HANK PAULSON, FORMER US TREASURY SECRETARY: From the American perspective, to me by far the biggest thing is Chinese continuing to open up to competition. Market access, level playing field. Why? Because that's going to ensure sustainable growth in China, markets for US products and services, more jobs in the US, but a more stable economic picture in China.

KRISTIE LU STOUT, CNN INTERNATIONAL CORRESPONDENT: But should China listen to the West? And I ask because there's a view among people in China, many, saying that the West caused the financial crisis in 2008. Why should we listen to you?

PAULSON: Right. As my friend and counterpart Wang Qishan said, "Hank, you were our teacher, but our teacher doesn't look quite so smart now after some of the problems you've had."

And they've -- our problems were actually a red herring, because if they'd opened it up to foreign competition, the foreign firms that were here would be just operating under the Chinese rules, the Chinese laws, the Chinese would be regulating and so on.

So again, I think the issue is much more vested interests don't like change. And so to push through any of these reforms, it's not easy.

STOUT: Now, if you, Hank Paulson, if you were the top regulator in China, how would you view the banking system and the debt situation here, and what would you do about it?

PAULSON: First of all, there -- I would be pleased with the progress we've made over the last 15 years, and then I would say, what we need to do now is we need to take it to the next level.

First of all, I think you need to open up to competition and foreign competition, because how are you going to have a world-class financial system if you don't have world-class financial institutions competing? And joint ventures aren't world-class. They don't work.

And then, when you look at the equity markets, again, I would rather than letting the government decide, I would let the markets decide. So I would go to a registration system, and if companies make -- meet the registration requirements, then you let them come into the market.

The reason you get these big excesses in capacity or so on is the government wants to say this company can go public or that company can go public.

(END VIDEOTAPE)

QUEST: Hank Paulson. Still to come, a pat on the back for Washington. Standard and Poor's raises its credit outlook for the United States just less than two years after it lost Triple A. QUEST MEANS BUSINESS.

(RINGS BELL)

QUEST: Good evening.

(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.

The man who exposed a secret US surveillance program is planning his next move. Edward Snowden has quite a job working for the US National Security Agency and gone public with his allegations. He's now inside a hotel room in Hong Kong deciding what happens next.

New battles in Syria's civil war show the momentum could be swinging towards government troops. Forces loyal to the government are gathering around Aleppo in an effort to retake the city. Hezbollah troops have joined the side of the Syrian president, Bashar al-Assad, in prosecuting the war.

The daughter of Nelson Mandela has flown in from Argentina to be with him. The 94-year-old anti-apartheid leader is spending his third night in hospital. He has a lung infection and is being treated in intensive care. Mr. Mandela is still said to be in a serious but stable condition.

The queen has visited her husband, Prince Philip, at a London hospital. The Duke of Edinburgh turned 92 today and recovering from an exploratory abdominal surgery. Buckingham Palace says he's comfortable and in good spirits after Friday's operation. He's expected to spend two weeks recuperating. We're told that the queen has just recently left the hospital.

Germany is still struggling to hold back the floodwaters as the crest of the Elbe River moves downstream towards the city of Hamburg. The Hungarian capital of Budapest seems to have been spared the worst of the flooding, as defenses held firm and the River Danube has now started to recede.

(MUSIC PLAYING)

(END VIDEO CLIP)

QUEST: The markets that are open and doing business, they are in New York where the Dow Jones -- ho, ho, be still, my beating heart -- such excitement -- not. (Inaudible) three points, 15,244, virtually unchanged. Let's not waste a second more on a busy day talking about it.

To Europe where it was a similar problem, a lack of direction with stocks finishing lower in Paris and London, gains, very small gains in Frankfurt and in Zurich were virtually unchanged. China's trade figures caused, though, concern; exports fell. Imports are expected to decline in May and that suggests the weakness in global demand.

The European wine is being used as a point of fractious trade dispute with China. It's wine against solar panels. If one vintner is to be believed, the (inaudible) must be playing havoc with the flavor.

From Italy, CNN's Ben Wedeman explains.

(BEGIN VIDEO CLIP)

(MUSIC PLAYING)

BEN WEDEMAN, CNN CORRESPONDENT: The Tuscan hills are alive with the sound of music. Mozart piped out over 80 waterproof Bose speakers.

Music for Carlo Cignozzi is as important as the winter rains and the spring sun to ensure the grapevines at his vineyard, the Paradiso di Frassina, are healthy and productive.

"We have shown that music helps them to grow better," he tells me. "The grapes mature two weeks earlier; the fruit is more regular and the leaves are thicker and greener."

Twelve years ago he dropped out of the rat race in Milan where he practiced law to dedicate himself full time to making wine. Carlo found the vibrations of classical music in particular Mozart are something the usual pests would rather not hear through the grapevine.

"The passage ends parasites and insects are disturbed by the sound," he says. "Wild boars, porcupines and deer don't come here because this sound, which we love because it's Mozart, bothers them."

The universities of Pisa and Florence are following Carlo's experiment to see if there is, indeed, veritas in this version of vinification.

Down in the wine cellar, which dates back more than a thousand years, Carlo believes the music continues to have an effect on the Brunello in these casks.

"Before this second phase of fermentation occurred randomly, sometimes in January, sometimes in March," he says. "Now with the music, it always occurs in January."

The result is a wine over which Carlo predictably waxes poetic. The wine with the music can go quickly to the head -- Ben Wedeman, CNN, Montalcino, Italy.

(END VIDEO CLIP)

QUEST: (Inaudible) this evening, whether it's Paula Newton on Copacabana, Ben Wedeman enjoying a tipple in Tuscany or (inaudible) having a good time. It's nice work if you can get it.

Coming up, no cyber-security for (inaudible) Barack Obama. Why the U.S. president didn't get everything he wanted from talks with his Chinese counterpart. That and the S&P (inaudible) at the U.S. QUEST MEANS BUSINESS.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

(BEGIN VIDEO CLIP)

QUEST (voice-over): The answer to tonight's "Currency Conundrum," what was wrong with the plastic banknotes in Brazil? The answer, they stuck together. In 2000, the bank said plastic notes would be more durable and harder to copy. Cashiers struggled to count them they got so sticky. (Inaudible).

(END VIDEO CLIP)

QUEST: The United States is getting an upgrade -- not fully. Standard and Poor's has raised the country's credit outlook from negative to stable. It's 22 months since the rating agency stripped the AAA rating, which of course set the (inaudible) heavily (inaudible).

Maggie Lake is with us from New York.

Now, Maggie, they've gone from negative to stable. I suppose what everybody wants to know is they couldn't -- when or if does the AAA ever come back, if?

MAGGIE LAKE, CNN CORRESPONDENT: Yes, and they didn't give any hints about that, Richard. So you're right; it's sort of acknowledgement that things are better. They feel more stable than that very tough summer of 2011, when you and I were on air, sweating it out literally. It was so hot; we were outside the New York Stock Exchange; markets were wild.

The global economy in turmoil; doesn't feel like that now, right? We had single-digit moves on the Dow. So S&P acknowledging that. But they're not saying that things are great and they're not saying the U.S. is ready to go back to a AAA. What they did say is that the economy's proving to be resilient. And, frankly, the U.S. is looking better than some of the places in the world.

We believe the U.S. economic performance will match or exceed its peers in the coming years. Europe's struggling; some concerns about China's growth. They're also saying that those forced budget cuts did trim back spending. That's helping as well.

However, on the conference call, sort of analysts were peppering them with questions, saying what about political risk? You're really pointed to the fighting in Washington as part of the problem. Are you saying you feel better about that?

S&P said, no, not really. We think they're going to avoid a debt ceiling at the 11th hour again. But we do have concerns about their ability to come together, compromise and put the U.S. on a long-term path to sustainability. So they're worried about that.

But for now, enough to change that outlook, Richard.

QUEST: It really comes down to an ability of the economy to thrive, despite the politicians in Washington, not because of anything -- not because of anything that they have done that might make a bad situation any better.

LAKE: Nothing that politicians have done. But I'll tell you where S&P was full of praise, and that was for the Federal Reserve. They did say that the Fed -- a lot of critics of quantitative easing out there -- S&P doesn't seem like they're one of them -- they said that that was needed. The Fed's done a good job.

And interestingly, said they said they feel confident that the Fed is going to be able to exit.

And the other thing I want to mention, Richard, which was kind of interesting, bond yields are rising. That affects mortgages and things here. A lot of analysts and investors worried about that. S&P said they don't feel like rising bond yields will -- that may be related to a FedEx (ph). It will impact the real economy very much. So that was interesting.

QUEST: Is there a feeling at all on your side of the Atlantic, Maggie, that the volatility which we've seen, consequent upon the odd comment from Bernanke or the FOMC, or just this idea of when an exit strategy will start to be implemented, be it so ever lightly, is there a feeling that it's not going to be as grim as they think?

LAKE: I think there is a feeling of that, Richard, even though it's reluctant, verbally you hear a lot of people worry. And all that worry is centered around the exit. And where the market runs ahead of the Fed. But when it comes to stocks, I think people are worried about bonds. When it comes to stocks, I feel like people think that the economy is in recovery mode.

And even if you see bonds start to be affected, that will just move money into stocks. So there does seem to be a feeling that some of those really wild swings that we saw, even -- I mean, (inaudible) not long ago, that seems to have receded for the moment.

But I think people psychologically still very scarred from that. So you won't hear many say that. But there does seem to be a little bit more of a sort of calmer, more confidence out there, Richard.

QUEST: Maggie Lake in New York for us this evening, where the market, frankly, is doing just about nothing at all.

The White House says cyber-security remains at the center of its relationship with China. President Barack Obama was hoping to press his Chinese counterparts on the issue in California at a weekend meeting. No breakthrough was reached. Our correspondent, Jessica Yellin, was in Palm Springs in California.

(BEGIN VIDEO CLIP)

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT (voice-over): President Obama and Chinese President Xi wrapped up their Sunnylands summit with a late-morning stroll in the California desert. President Obama declared the visit --

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Terrific.

YELLIN (voice-over): Over two days, the leaders met for a total of eight hours.

OBAMA: I'm very much looking forward to this being a strong foundation for the kind of new model of cooperation that we can establish for years to come.

YELLIN (voice-over): The summit, held just four months after Xi took office, meant to launch a close new relationship with the new Chinese leader.

XI JINPING, PRESIDENT, CHINA (through translator): And at present, the China-U.S. relationship has reached a new historical (inaudible) point.

YELLIN (voice-over): The backdrop was unusual and not just because temperatures soared about 110 degrees. They met at Sunnylands, a private estate of the Annenberg (ph) family, better known for hosting Frank Sinatra and the Rat Pack and Ronald Reagan for New Year's Eve 18 times.

Aides say it offered them a quiet space to work through a range of issues, among them North Korea. The leaders agreed to keep up pressure to rein in its nuclear ambitions.

TOM DONILON, U.S. NATIONAL SECURITY ADVISER: I think we had quite a bit of alignment on the Korean issue, the North Korean issue. And absolute agreement that we would continue to work together.

YELLIN (voice-over): Cyber-attacks, according to the White House, the Chinese acknowledged there are problems, agreed to investigate and work out rules of the road.

OBAMA: I believe we can work together on this rather than at cross- purposes.

YELLIN (voice-over): And climate change, for the first time, China agreed to work with the U.S. to limit the production of greenhouse gases. President Obama gave the Chinese leader a parting gift, this bench made of California wood.

BEN RHODES, U.S. DEPUTY NATIONAL SECURITY ADVISER: The bench was made out of a redwood. The two leaders were able to take a walk and were able to sit on what became the bench that the Chinese will be taking with them.

YELLIN (voice-over): Throughout the summit, the president and his aides were peppered with questions about new revelations involving government surveillance programs. White House officials had strong words about the consequences of these leaks.

RHODES: It's frankly doing assessment of the damage that is being done to U.S. national security by the revelation of this information, which is necessarily secret because United States needs to be able to conduct intelligence activities without those methods being revealed to the world.

YELLIN: During the summit, President Xi publicly invited President Obama to visit China. White House officials say the president agreed to come and now they're looking at holding a similar informal summit outside of Beijing in the not-too-distant future -- Jessica Yellin, CNN, traveling with the president in Palm Springs, California.

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QUEST: Now the weather, it may be spring officially, but Germany's still struggling to hold back the floodwaters as the crest of the River Elbe moves downstream towards the city of Hamburg. A German lawmaker is calling the flooding a national catastrophe. And it isn't limited to Germany, of course. The floods have caused death and destruction across central Europe.

Mari Ramos reports.

MARI RAMOS, AMS METEOROLOGIST: High waters hitting Hungary, this was the scene in Budapest on Monday as the Danube River surged to record levels, cresting at nearly 9 meters or about 29 feet. Street signs are submerged, water laps at the steps of parliament and thousands of sandbags are deployed throughout the city to keep the Danube at bay.

UNIDENTIFIED MALE: Curious to see how they manage to cope with this high flooding.

UNIDENTIFIED MALE: Actually, the flood hasn't been as bad as I thought it would be.

RAMOS (voice-over): Prime Minister Viktor Orban says the worst may have passed Budapest, but the emergency is not over, especially outside the heavily-protected city center.

VIKTOR ORBAN, PM, BUDAPEST (through translator): From now on, we have to focus on the southern areas because the water levels will be higher than ever. The defense of the area south of Budapest is a huge task.

RAMOS (voice-over): A bird's-eye view shows the scale of flooding outside the Hungarian capital, where many villages and towns along the river are inundated by floodwaters. Tens of thousands have been forced out of their homes and dozens of roads are closed.

Meantime in Germany, the Elbe River remains dangerously high, cresting in Mattersburg (ph), one of the oldest cities in eastern Germany and setting a new record level. More than 20,000 people had to be evacuated from the city on Sunday, after a nearby dam broke.

People in Wittenberg, about 160 kilometers northeast of Berlin or about 100 miles, are bracing for further flooding. Parts of the town are already underwater and the Elbe is expected to peak on Wednesday above 8 meters.

In Dresden, where the river crested last Thursday, some 10,000 evacuees returned home, some to find their homes filled with mud and water. Many are still trying to estimate the cost of the damage and cleanup is expected to take weeks -- Mari Ramos, CNN, Atlanta.

(END VIDEO CLIP)

QUEST: So if you're watching us this evening in central or Eastern Europe, the only core question that you need to know is whether the worst has passed or is there more rain or more floodwater on the way.

Jennifer Delgado is with us at the World Weather Center.

Good evening.

JENNIFER DELGADO, AMS METEOROLOGIST: Good evening, Richard, and you're asking if the worst is over with. Certainly it's now. We're still looking at some areas right along the Danube as well as the Elbe River that are still going to be experiencing a crest as we go through the next couple of days.

To give you an idea of the flooding that's been happening there, we have an image from Amontigo (ph). This comes to us from NASA of the Elbe River. Why you don't really see it that well there. But once we move it ahead to current time, and notice on Saturday, see the black there? That is actually showing you the Elbe River as it's swollen and burst its banks in some of these locations.

So that gives you an idea of how saturated the areas across parts of central Europe. As we talk more about the Danube, again, for Budapest, we did see the crest there. And here is the crest right now. But it still has to go downstream. It's going to be affecting areas like Serbia, Croatia, as we go into Wednesday. So there's still more of that floodwater heading towards the south.

Now as we move up towards north in Germany, downstream we're expecting more flooding as well for areas, including Hamburg. Mari just mentioned that there. We're expecting that to come Wednesday or Thursday. So these levels are continuing to be dangerously high and record high across many parts of central Europe.

As we talk about some of the rain out there, and the reality is we're looking at the radar, showers and thunderstorms moving through parts of Germany, right along the Danube River. And the same for the Elbe. So is this going to last as we go through today and tomorrow? We will continue to see showers out there. And then the heaviest rainfall moves over towards Eastern Europe.

As we look over towards west, we do have another low working in. That is going to be bringing showers and thunderstorms as well as some windy conditions for parts of Ireland as well as into areas, including England and as well as into France.

Now on a wider view, you can kind of see for yourself that the rain is going to be for the next couple of days, high temperatures for your Tuesday, about seasonal (inaudible) you have the rain cool there. Of course you're going to be a little bit for like Vienna tomorrow.

We're expecting a high of 17 for areas including Budapest, we're expecting 27 tomorrow, 28 in Kiev. And for you in London, Richard, I'll give you an 18 degrees for tomorrow for the afternoon high.

QUEST: I can live with that, at least with these difficulties, the appalling weather, flooding.

Thank you, Jennifer.

And over the next couple of days we'll want more information, of course, on exactly where that is. Stay with us and that will be.

After the break, food at 40 kph. The world's first unmanned airborne sushi -- yes, I promise you.

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QUEST: The restaurant chain YO! Sushi has unveiled what it's claiming is the world's first flying tray -- I jest not. It's made from a lightweight carbon fiber and the iTray has four propellers and it is controlled by, of course, where are the ubiquitous iPad. You can have your meal winging to you perhaps a little faster than you like. The question is, is it a gadget, a gimmick or a useful tool in the fast food world?

Jim Boulden saw the concept off the ground.

(BEGIN VIDEO CLIP)

JIM BOULDEN, CNN CORRESPONDENT: You think people will really feel comfortable sitting outside and having this drone deliver them a burger without it spilling on them, hopefully?

ROBIN ROWLAND, CEO, YO! SUSHI: Well, it's in tests.

(CROSSTALK)

ROWLAND: -- working on something which is pushing boundaries. (Inaudible) conveyor belts so they bring dinner (inaudible) going to work. I don't know. We're going to see.

BOULDEN: When do you think you could implement it?

ROWLAND: Well, it's in test phase. This is no ginger line, maybe later in the summer. We're just showing it off the press now because it's been very interesting. But watch your space. I think, we don't need heavy winds, as you found out outside. But could certainly come (inaudible) summer, late in the summer.

BOULDEN: As we come out of this massive recession and economic upheaval the last four years, has sushi become a luxury for people only? Is this you trying to expand it because you need to bring more people in?

ROWLAND: No, I think YO! Sushi is now well established. I think Asian food is probably as a 21st century pasta. And people get it, in England particularly. And we've got phenomenal success from either being down to Plymouth, to Norage (ph) and it's a worldwide thing in terms of U.K. and (inaudible) Middle East.

I think it -- what people are looking for is sushi as a kind of window onto Tokyo. So they expect us to bring the new best thing. And this is the new best thing we've seen most recently on the streets. And then in Tokyo. But sushi, that's half our menu. It's -- will be there forever. And with 5-6 million customers a year, and they keep on wanting more of it.

BOULDEN: Did you notice a difference in the last few years? Have you seen things improving the way you might in other businesses as we come out of a recession?

ROWLAND: OK, well, I didn't come out of a recession. We've particularly the last 12 months, we've seen stronger like for likes. We've seen more sustainable patterns on sales. We open lots of restaurants over the last five years. So we've taken advantage of the recession. But underlying business continues to grow. And we're (inaudible) 15 years old. That's pretty unusual in the restaurant world.

So I'm quietly confident there's early signs of improving performance for the restaurants.

BOULDEN: Do you ever get criticized of this being a gimmick and maybe that the iTray is a gimmick?

ROWLAND: Well, it's exactly the same conversation level as 15 years ago, but the reality is that people come here because they want sort of a theater. They also want the quality of food. And (inaudible) people come back to restaurants twice for the quality of food. And for us, sure. We had some interesting facets to it.

But I think they become part of the experience. They (inaudible) the whole experience. It really is around the food. But we have the concept and we know to operate sushi restaurants.

(END VIDEO CLIP)

QUEST: I want one. I mean, I don't mean a sushi; I want one of those trays. (Inaudible) actually works.

When we come back, a "Profitable Moment" on the issue of surveillance and privacy (ph).

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QUEST: Tonight's "Profitable Moment," what on Earth to make from this surveillance scandal on both sides of the Atlantic? Let's stay in the U.S.

From Watergate to the Pentagon Papers, leaks and conspiracies are almost a time-honored tradition in American politics.

And yet there's something that seems different about the case of PRISM. The allegations being made could well affect us all directly, particularly those of us non-Americans outside the United States. In a way, the political scandals rarely do.

Any of us who as much as check our emails or our computer in the studio or do a bit of Twittering and Facebooking, well, we have a stake here, personal privacy has always been a thorny subject. It's a balancing act.

But now the connected nature of our world with the size and the scale of scandals are exponentially greater than the ones before, ignoring the rights and wrongs of the allegations here, there's debate to be had. We need to have that debate. Tradeoffs have to be agreed.

The president acknowledged that himself last week. And the companies who have created this connected world are now surely acknowledging that something is happening. Change is underway. And all we have to now worry about is how the authorities manage it in our name.

And that's QUEST MEANS BUSINESS for tonight. Our first broadcast in HD. I hope there was no fluff or otherwise that disturbed your viewing.

I'm Richard Quest. Whatever you're up to in the hours ahead, I do hope it's HD profitable.

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(BEGIN VIDEO CLIP)

QUEST (voice-over): The source who leaked details about a secret U.S. surveillance program is holed up in a Hong Kong hotel room. Edward Snowden is a former technical assistant with the CIA on Monday a U.S. congressman called Snowden a defector and dangerous to the country. There's no word if he will be charged, indeed, which would need to happen before he could be extradited to the United States.

New battles in Syria's civil war show the momentum could be swinging towards the government troops. Forces loyal to the government are gathering around Aleppo in an effort to retake the city. Hezbollah troops have joined the side of Syrian President Bashar al-Assad in the war.

The daughter of Nelson Mandela has flown in from Argentina to be with him. The 94-year old anti-apartheid leader is spending his third night in hospital. He has a lung infection and is being treated in intensive care. Mr. Mandela is still said to be in a serious but stable condition.

Germany is still struggling to hold back the floodwaters as the crest of the Elbe River moves downstream towards the city of Hamburg. The Hungarian capital of Budapest seems to have been spared the worst of the flooding, as defenses held firm and the River Danube has started to recede.

(END VIDEO CLIP)

QUEST: You're up to date with the world news headlines. Now to New York, "AMANPOUR" in HD is live.

END