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QUEST MEANS BUSINESS
Beirut Explosion; Egypt in Crisis; Egyptian Ambassador to UK Defends Crackdown; US Aid at Risk; Global Concern for Egypt; Standard Bank Results; Grim Day for Wall Street
Aired August 15, 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: A powerful explosion in the Lebanese capital. In this hour, we will be in Beirut to give you the latest.
A dangerous path for Egypt. Barack Obama condemns the bloodshed on the streets of Cairo.
And the stock market slide in the United States. It came out of nowhere, but the Dow is now suffering one of the worst days of the year.
I'm Richard Quest. I mean business.
Good evening. A car bomb explosion has rocked Lebanon's capital, killing at least 14 people and wounding 200 others. A previously unknown militant group has claimed responsibility for the blast in a video message that was posted on YouTube. We cannot confirm the authenticity of the video or, indeed, the men's claim.
Mohammed Jamjoom is live for us tonight in Beirut. This a very serious development, not just because of the very large loss of life and injury that's taken place, but that an explosion in Beirut of this nature, it raises certain concerns.
MOHAMMED JAMJOOM, CNN INTERNATIONAL CORRESPONDENT: Oh, absolutely, Richard. This is a city that is now on edge. Now, tensions have been high here for a while because of the spillover of violence from the Syrian civil war. All indication right now is that tonight's blast is another in a long line of incidents that's happening because of the Syrian civil war.
Now, we've seen a video claim of responsibility from a group calling itself the Brigade of Aisha, Mother of Believers. This is believed to be a Sunni extremist group. This blast happened around 6:20 PM local time, as you mentioned, targeting a real stronghold of Hezbollah in the southern suburbs of Beirut, just about 15 minutes' drive away from where our bureau is.
And what's really concerning, just forget the fact that as of this hour, we're hearing from the national news agency here that at least 14 people have been killed and over 200 people have been injured and that this was an extremely severe attack, this is the second such attack in this area, a Hezbollah stronghold, in the last two months.
The first attack happened in early July, I was there on the scene that day. Many people were wondering how an attack, a car bomb of that nature could have taken place in a stronghold of the militant Shiite group in an area that is strongly controlled and patrolled by a security apparatus that, by all accounts here in Lebanon, is stronger, even, than the Lebanese military.
Now, you have a second strike, and many people here believe that this is because of Hezbollah's involvement of the Syrian civil war, that this is angering extremist Sunni groups here in Lebanon, and people that I've spoke with on the scene there believe that this is just one of many such attacks that they believe will occur.
You must remember, one last thing I'll mention here, Richard, this is a country that experienced its own brutal civil war for 15 years between 1975 and 1990. Whenever violence occurs here -- and it does happen more frequently than the government would like to acknowledge -- people are worried that this country could be on the tipping point, that it could devolve back into the dark days.
And ever since the civil war happened in Syria, there have been more violent incidents here in Lebanon, in Beirut, and many people worry that there will be more to come in the days and months ahead. Richard?
QUEST: Let's talk about that for a second. The -- you talk about -- we have this group, a previously unknown group. You have an extremely serious, large, deadly explosion, and you put out there or you suggest, and there are now people suggesting, is this the precipice point when things turn down?
But Lebanon -- Beirut and Lebanon -- has managed, albeit imperfectly, to weather the storm of Hezbollah and the Syrian crisis. I say "imperfectly." So, you're suggesting that this could be a bad turn?
JAMJOOM: It's a very good point you're making. There's a unique psychology to Lebanon, especially from the generation that lived through the civil war. People here, when things like this happen, are concerned that all-out chaos could happen at any moment, that it could be a return to the dark days.
But this is a country that has been able to bob along and weather these storms that happen every now and again, and life seems to go on. But because the frequency and the severity of these attacks have been increasing in the past few months, many people worry that the country --
JAMJOOM: -- is on the precipice. Many worry that it is a harbinger of things to come. Richard?
QUEST: Mohammed Jamjoom, who's in Beirut tonight. The other story that we are, of course, following in great detail and closely, the resolve of Egypt's Muslim Brotherhood appears intact, even though the camps of their supporters have been flattened and a state of emergency is now in place in Egypt.
There'll be new protests on Thursday following the clashes of just yesterday. State media's reporting that supporters of President Morsy, now ousted, stormed and burned a government building in Giza, whilst another roadblocks near the iconic pyramids. In Alexandria, four people died in an outbreak of fighting, according to state TV.
Following on from events of last night, on the ground tonight for us is Arwa Damon, she's in downtown Cairo. Arwa, perhaps and hopefully, considerably more peaceful, at least in terms of gunfire and explosions than last night when we spoke.
ARWA DAMON, CNN SENIOR INTERNATIONAL CORRESPONDENT: It is all relative, though, Richard. What happened yesterday, we're talking about violence that left well over 500 people dead, 43 members of the police force killed as well, according to the government. Egypt has not seen this kind of violence, this level of violence, in its recent history, everyone still reeling from the aftermath of all of that.
Remember, the security forces not just having to deal with clearing out those two sit-in areas, but also with numerous flashpoints that became more intense as the day went on and also increased in frequency throughout the entire capital.
We saw pro-Morsy demonstrators trying to regather, trying to take over other squares in Cairo. We saw them trying to break through the ranks of the riot police, and the violence spread throughout the entire country. Angry Morsi supporters, Islamists, were also targeting police stations and they were targeting churches.
We were just at one of those scenes speaking to people there. They said that the mob stormed at around 9:00 at night. They were chanting angry slogans. They went and looted the church and then burnt it, and this happened in at least 30 other locations, too, Richard
QUEST: Arwa, the United States has canceled military exercises that were due to take place last week, and the US president has put Egypt on notice that other measures may follow, particularly, of course, everyone's looking at whether or not the aid should be reduced or canceled. Will that have any effect on the generals who are running the country? Will they care what the US does?
DAMON: At this stage, at this critical juncture in Egypt's history, that would be quite surprising, given the widespread anti-American sentiment that is here, and also given that Saudi and the UAE are more than willing to step in with a cash infusion, should the US decide to cut off -- much needed, it is -- assistance on any number of platforms.
That being said, moving forward, Egypt is going to want to have a solid relationship with the United States. But it's also a relationship that the US wants to maintain just as much as, perhaps, any Egyptian government would want to as well. So, it's a pretty tricky situation.
If the rhetoric is anything to go by at this point, everyone within the government and people who you speak to out on the streets, very angry at the US.
QUEST: I need to ask you very quickly and briefly, and it's a brief question, I'm afraid, and a hard one at that. Tonight, anybody watching our program hears bomb in Beirut, 14 dead, disaster and chaos in Egypt, civil war in Syria. Would anybody be right in thinking that this region, far from being normal chaos, is actually seriously deteriorating? Or is this something that we should just take in our stride?
DAMON: And to add to all of that, you also have the bombings that happened in Baghdad today, leaving at least 25 people dead. That country most certainly caught in a lot of violence as well.
Look, what we're seeing across the entire region, we're talking about cosmic changes here, and unfortunately, it seems as if the region is going to go through a cycle of very serious violence before it somehow manages at some point in time -- and this could take decades -- to truly restabilize and redefine itself. Because we're talking about massive change, here, throughout all of these various countries.
QUEST: Arwa Damon. I apologize to ask a very large question we don't have much time to delve into it further, but I do know that you and I will talk more on that issue in the days and weeks ahead. Arwa Damon for us in Cairo tonight.
The Egyptian ambassador to the United Kingdom launched a defense of the interim government's actions. He told the British media that protesters couldn't stay there indefinitely.
(BEGIN VIDEO CLIP)
ASHRAF EL KHOLY, EGYPTIAN AMBASSADOR TO THE UK: What the Egyptian government did and the police is an obligation from any state towards its people to defend their interests and to protect them. And 48 days of occupying an area in Egypt, stopping civilians going to their homes or their businesses or their schools is unaccepted in any community.
(END VIDEO CLIP)
QUEST: The Egyptian ambassador to the United Kingdom. We just learned that France, the UK, and Australia have asked for an urgent meeting at the United States -- United Nations Security Council, I beg your pardon.
Barack Obama's condemned the violence in Egypt, but refused to take sides. Speaking on vacation, the president announced he would cancel planned joint exercises with the Egyptian military, but he stopped short of suspending $1.3 billion of annual US aid.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: While we want to sustain our relationship with Egypt, our traditional cooperation cannot continue as usual when civilians are being killed in the streets and rights are being rolled back.
As a result, this morning, we notified the Egyptian government that we are canceling our biannual joint military exercise, which was schedule for next month. Going forward, I've asked my national security team to assess the implications of the actions taken by the interim government and further steps that we may take as necessary with respect to the US-Egyptian relationship.
QUEST: David Schenker was responsible for advising the US Pentagon on Arab military affairs during his time at the Department of Defense. He joins me now from Washington. This situation, the US is in an extremely difficult position. How would you advise they proceed, besides with strong rubber gloves and caution?
DAVID SCHENKER, DIRECTOR, PROGRAM ON ARAB POLITICS, WASHINGTON INSTITUTE: Well, I think what you saw today with President Obama canceling these military exercises really highlights the type of position we're in. He essentially was dancing on the head of a pin. He didn't want to cut off the $1.3 billion a year in annual military assistance from Washington, but he did want to send some sort of message.
In any event, I think the Egyptian military would have likely canceled these exercises anyway. They're quite busy right now and don't have the assets to really train --
QUEST: Right, but let's -- let's just sort ourselves through the thicket, here. What's the ultimate downside in all of this? Bearing in mind, there's already bloodshed on the streets, there's a military dictatorship, or at least military rule in Egypt, and you've got the Muslim Brotherhood basically out on the streets in protest. So, what's the ultimate downside here?
SCHENKER: Listen, US wants to maintain what little leverage it has with the Egyptian military. That is very little at this point in time. And if you cut the aid, you have really no leverage left.
What the United States doesn't want is a further deterioration of -- a war, essentially, between the Muslim Brotherhood and the military that somewhat looks like the 1990s when there was a low-level insurgency that killed up to 2,000 people. I don't think we want that.
We recognize that there's about 20 or 25 percent of Egyptians who actually like the Muslim Brotherhood and support them. It's going to be very difficult for the military to get a grasp on this. So, we want to encourage them to do it in a more -- or a less physical way.
QUEST: So, who has the power here to influence the president and the prime minister and the military coup in Cairo? The Americans, with their aid and now canceled military? The Europeans, who are planning to hold a meeting to discuss this? Cathy Ashton was in Cairo only recently. The United Nations, where there will be a meeting at the Security Council? Help me understand, who can actually bring influence to bear?
SCHENKER: Well, the only person who matters right now in Egypt is the military. And the United States does not have influence over the military.
QUEST: Right. So, I --
SCHENKER: The military uses its --
QUEST: -- let me interrupt you on that.
QUEST: You say the only people who matter are the military, but who do the military care about besides themselves? Whose views will they listen to?
SCHENKER: Well, they will listen, perhaps, to the Saudis, to the Kuwaitis, and to the UAE that just gave them $12 billion and is keeping Egypt afloat financially from financial ruin. The Muslim Brotherhood may listen to the Qataris. But other than this, we have very little leverage. The Russians are trying to play in this, but they're not going to have any leverage either.
As long as the Muslim Brotherhood and the Egyptian military view this as a life and death existential issue, our $1.5 or $1.3 billion isn't going to really sway them into taking decisions they see against their own interests.
QUEST: So, all this talk of the White House and of Brussels and of Cathy Ashton and of foreign ministers and of meetings, it could all pretty much amount to naught providing the Gulf -- the GCC, the Gulf Corporation Council, the Saudis, they are the ones that hold the whip hands, here.
SCHENKER: I think that's right. And the Egyptian military is backed 100 percent by Saudi and the UAE and Kuwait. They like what the Egyptian military is doing. They do not like the Muslim Brotherhood, they did not want to see a radical Islamist regime in Cairo, they like the conservative military there, and so they will continue to back them, I think, unwaveringly moving forward.
QUEST: David Schenker, thank you very much, indeed.
SCHENKER: My pleasure.
QUEST: We'll talk more about that. Thank you for that. Now, we're - - put this point about who has the power and what can necessarily be done, Italy joined Britain, Germany, and France in summoning the ambassador from Egypt as international concern grew. Italy's foreign minister, Emma Bonino, joins me now on the phone from Rome.
Minister, it's one of those situations where, frankly, all of you can make noise and try and put pressure, but none of you have real influence. I'm not being unkind in saying that.
EMMA BONINO, ITALIAN FOREIGN MINISTER (via telephone): No, dear, I think you are so very right in the sense that at the end of the day, the destiny of Egypt is in the hands of the Egyptian people, and the military from one side and the Muslim Brothers from others.
We have been trying with the US and others, and we are still trying to mediate, to call on de-escalating the violence and to call for an inclusive government, but this mediation failed, and the reaction of the military has been, frankly speaking, brutal, overwhelming, and inexcusable.
QUEST: So, what do you now want --
BONINO: We --
QUEST: What do you now want?
QUEST: What do you now want to happen? The military ain't going to listen to Cathy Ashton, they seem not to be listening to the United States, so what can be done?
BONINO: We will continue our efforts to talk to them, to influence them. We are preparing a meeting of the Europeans to re-assess the situation, but at the end of the day, I repeat, that is -- and I would like to call on all the people in Egypt, be they the military, the intellectuals, my friends, by the way, the Muslim Brothers, that frankly they had a very good word uses ago, that was "kifaya." "Kifaya" means "enough."
And I think that I appeal to them. Enough blood already. And it's time to stop and de-escalate violence. I don't think that for them, for their futures, there is not really anything they can get from more blood and more violence.
QUEST: Europe -- do you see that Europe has -- can gain influence in this regard, or at best, will the European Commission and the Union and the countries be on the sidelines as this is played out between the Gulf, Saudi, the US, and others? And the United Nations?
BONINO: This is a multi-power world, as we say, so there are many actors influencing the region. We will continue our efforts with Cathy Ashton, with all the capitals, by the way. We are strongly united on all our efforts.
But then, at the end off the day, it's up to the Egyptians if they want to listen or if they want to rely on other so-called allies. But I strongly believe that no military dictatorship has never opened the door to any better future for no one, no country worldwide.
And it's enough now. I think that there is still room for them to avoid a civil war, to avoid going down in more blood, in more violence.
BONINO: But we -- with power comes responsibility.
BONINO: The government is in charge, the military is in charge. It's up to them, first of all, to de-escalate violence, and it's also up to the Muslim Brothers not to call for other manifestation and so on and so forth.
QUEST: Minister, we need to leave it there. We thank you for joining us. Forthright views there from Italy's foreign minister. Always good to hear Minister Bonino talking to us on the program.
QUEST MEANS BUSINESS on a Thursday. We'll be back after the break. Good evening.
QUEST: Standard Bank's profits rose 11 percent in the first half of the year. Its bad charges grew by 28 percent.
QUEST: Ben Kruger is one of two chief execs who jointly now head Standard Bank and joins me from Johannesburg. A difficult time to take over the bank and to be running it when you have growth in some areas, you have rising -- you have rising bad debts, but at the same time, inequality issues. How are you managing it?
QUEST: Hello, sir? Hello, sir, are you hearing me in Johannesburg? Are you hearing me?
QUEST: No, we definitely appear to be having a problem with -- let me try -- the -- yes. The markets are open and doing business in New York. What a grim day it's turned out to be. The Dow Jones Industrials are down 213 points at 15,123, a loss of 1.4 percent in the market.
We'll take a break, back in a moment. QUEST MEANS BUSINESS.
QUEST: Ben Kruger is one of two chief executives who head Standard Bank, joins me now from Johannesburg, hopefully where the connection is a good one. Ben, the difficulties and challenges that you're now facing --
BEN KRUGER, CO-CEO, STANDARD BANK: Good evening.
QUEST: -- with economies that are -- where the growth and thrust are, but at the same time, bad debt starting to rise and economic problems starting to deepen. How are you weathering those challenges?
KRUGER: Richard, clearly it is a consequence of slightly higher consumer debt levels. And I also think that the global economy is weak, and that's reflected in even the high growth economies. So, from our perspective, we have to be very careful. You have to choose your customers carefully, and you have to make sure that you do the right type of business with the right type of customers.
QUEST: What is it you are most concerned about in the year ahead? All the -- and obviously, it's the global economics, but in terms of Africa and the African economy, what are you worried about?
KRUGER: Africa at this point in time is attracting a lot of interest from many different parts of the world, as you know. I know you know Africa particularly well. And there's a huge interest.
You also find that in many of these countries, you have very competitive institutions, and as we grow, it's very important, I think, for all of us to remain sensibly competitive and not fall into the trap that when you look back a year from now, you really regret what you've done.
QUEST: Because that's the trap, where either you withdraw lending support, in which case you slow down economic growth, or you pour money in and you become reckless -- not that you would become reckless -- but in the lending, banks become reckless.
QUEST: Either way -- either way, it's a recipe for disaster.
KRUGER: Yes, I can't agree more. And there's a sensible way. It's obviously a terrible day, but I think for all of us, we all have to play our part and make sure that we remain relevant in all of the economies where we operate.
In many of these economies, there are very high levels of unemployment, high levels of poverty. And banks tend to be mechanisms for transferring wealth in terms of depositing into capital to be deployed. So, I think the sensible approach to what really would work for every economy is quite important, and we would like to focus on that.
QUEST: Ben Kruger, I apologize that we have to keep it brief this evening, but with events in Lebanon and in Egypt, I know you'll understand. We thank you for that.
The Dow is down more than 200 points. It came out of the gate in a bad temper and it never really recovered. Alison Kosik is at the New York Stock Exchange. When I heard this morning the Dow was off so sharply, why on an average Thursday, the middle of August -- the middle of August -- should the market turn turtle?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: You know what it was? It was this sort of perfect storm, Richard, of really just lousy earnings reports and one bad earnings -- one bad economic report. I'm talking about Walmart and Cisco basically saying how the economy is making business challenging, is making the business environment very challenging.
And to hear these major companies say this, although it's not a huge surprise to everybody, because we kind of already knew it, but to hear sort of the directness of the CEOs saying -- or talking about this on the conference call, it gave investors pause today. And, in fact, they are pausing enough to get out of the market today.
Also in the mix, a disappointing factory report pulling down the market. A New York regional manufacturing reading showed a big drop in July. So, what that's doing is it's raising concerns about manufacturing and if it's even moving forward.
But let's look on the bright side, glass half full, Richard. This is only one day. One day does not make a trend. And as you mentioned, August is notoriously weak -- a weak month for stocks. Richard?
QUEST: One day doth not a summer make, or whatever the phrase is.
QUEST: Alison Kosik, we will be talking more about that in the days ahead. Alison, we thank you for that. Now, as we come back, we'll -- after the news headlines, we will update you on the events in Egypt. The death toll in Cairo continues to mount. We're going to take you inside a mosque that is now a makeshift morgue to find scenes of anger and obviously emotion. Good evening.
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news will always come first.
(BEGIN VIDEO CLIP)
QUEST (voice-over): A car bomb has killed 14 people and wounded 212 more in Lebanon. The attack happened in a southern suburb of Beirut known as a stronghold of the Shiite militant group Hezbollah.
A previously unknown militant group has posted a video message on YouTube claiming responsibility.
France, Britain and Australia have joined Turkey in calling for an urgent U.N. Security Council meeting on the situation in Egypt. President Obama has condemned the action taken by the interim government and canceled joint military exercises due to take place next month.
At least 25 people are dead and dozens more wounded after a series of bombings in the Iraqi capital of Baghdad. Explosions targeted mostly the Shiite areas of the city.
There are no signs of survivors on the Indian submarine which sank after an explosion and fire in Mumbai on Wednesday. Eighteen sailors are believed to have been on board at the time. Divers and engineers are struggling to refloat the vessel at a Mumbai stockyard.
(END VIDEO CLIP)
QUEST: We return to Egypt now. And President Obama has condemned Wednesday's violence and canceled joint military training exercises which have been planned with Egypt. The funerals of some of the victims are now taking place after two former protest camps were bulldozed by the security forces.
State TV is claiming protesters today stormed and set fire to a government building.
Officials now believe at least 500 people died in Wednesday's violence with more than 3,000 wounded.
Frederik Pleitgen visited a mosque in Cairo where the Muslim Brotherhood is displaying some of the bodies of those who were killed. And the scenes he witness are harrowing.
FREDERIK PLEITGEN, CNN CORRESPONDENT: We're inside the Amman (ph) Mosque. It's only about 500 yards from where one of the main crackdowns happened here on Wednesday. And as you can see, many of the bodies from that crackdown were brought here to this mosque. Now one of the things, of course, that's been very controversial since the crackdown happened is the death toll.
The Muslim Brotherhood tells us that at some point as many as 500 bodies were inside this mosque. We can't independently verify any of that because when we got here, some people had already come here to pick up the bodies of their relatives for burial.
Clearly, there are many, many people. (Inaudible) mourning (inaudible), some of them broke out in tears (inaudible) very emotional. As you can see, they showed (inaudible) tear gas canisters. One of the things (inaudible) clear is that scenes like this are going to continue to (inaudible) here in Egypt -- Fred Pleitgen, CNN, Cairo.
QUEST: Britain's glorious summer has spurred on the spenders. The retail sales have risen at their fastest annual rate for more than two years, up 3 percent on the year and 1.4 percent for the month. This is the latest in a parade of positive data that seems to indicate the U.K. economy has turned the corner.
Ann Pettifor at Prime Economics says today's improved figures were fueled by debt. She says the U.K. economy is reliant on payday loan-fueled shopping sprees. She calls it "Alice in Wongaland" after the Wonga company, which is a payday loan company. Ann Pettifor joins me now from London.
ANN PETTIFOR, ECONOMIST: Good evening.
QUEST: You clearly -- I mean, obviously, the fact that the consumer is moving the economy is a good thing in one respect. But how serious is this payday loan aspect?
PETTIFOR: Well, I used the term "Alice in Wongaland" as a way of saying that the British economy is relying too heavily on debt. And it is both household individuals but also, if I may say so, our financial institutions, our banks.
And we are too reliant on easy but quite expensive credit.
QUEST: Hold on a second . Let me just jump in here. One of the big talking points and economic issues post-2008 has been deleveraging companies, individuals actually unwinding debt.
Are you saying they're taking it back on again?
PETTIFOR: Well, I'm saying, A, in Britain overall, where our private debt is something like 400 percent of GDP, we haven't done what the Americans have done, which is to begin the process of deleveraging. And United States has been pretty brutal; people have been foreclosed upon, thrown out of their properties. They've defaulted and so on.
But there has been movement in deleveraging the overall private debt.
Here in Britain, there's been virtually no movement. There's been total reliance on low interest rates to keep people afloat. In fact, if you're to keep the debt on board and just make it less expensive to service on a monthly basis. But while this has been happening, Richard, incomes have been falling year-on-year for six years now. And the -- many economists, including your fiscal budget responsibility, assume that people will pay back their debts by selling their assets, their property. But we don't pay back our debts by selling the roof over our heads. We pay back our debts through income. And when our income is falling, that's not the moment to borrow and go shopping.
QUEST: Well, but are you seeing people taking on more debt? Because the existing debt they've already got, well, you never know; with inflation higher than the MPC rate, you can inflate that away over some period of time.
And it's really the question of whether or not they take on more debt, isn't it?
PETTIFOR: What we're finding is that rather than saving, they've actually been raiding their piggy banks, so to speak. So in the first quarter of this year, we noticed that people spent about 11 -- British people spent about 11 billion pounds. Their income rose by about 2 billion pounds. And the balance was financed by raiding their savings.
Now that was one quarter's numbers, but it was indicative of what is happening. People are beginning to think, oh, well, things are going to be OK. And so rather than saving I'll go and raid my savings and go shopping. And I'm worried about that because interest rates are likely to rise. And indeed, today we saw the British 10-year gilt (ph) yield rise to its highest level in 2013.
And I'm not entirely sure that Mr. Kearney (ph) has control over rates. And it's a very big worry if we have debt and you're --
QUEST: Well, certainly --
PETTIFOR: -- the rates on that debt rises.
QUEST: Certainly the MPC said that such gilt (ph) rises of rates are unwarranted; nobody seems to be listening.
Ann Pettifor, my apologies to you again, as I have to (inaudible), I guess, this evening; we would talk normally longer, but it's been a very busy day with Egypt, Lebanon and I'm sure you understand.
The weather forecast now demands our attention. Tom Sater briefly at the World Weather Center, to bring us up to date there.
TOM SATER, AMS METEOROLOGIST: Well, Richard, want to give a heads up to your business travelers, give them a little idea what they can expect for a Friday across Europe. Look at this, cloud-free skies, temperatures warming still quite warm in areas of the Balkan Peninsula. The only thing that's unsettled weather wise as far as the rainfall, as you can see across the northwest, this is where we may have some slight Friday delays, based on the computer models. We're not talking much more than 15 to possibly 30 minutes. The trough breaks down a little warming trend possibly summer's last gasp in the second half of August. But again ,the numbers from Thursday, 31 in Bucharest, Istanbul as well, unseasonably warm, those numbers will stay that way in this area across the south over toward Madrid, 36 still been a very, very hot summer in Spain.
What was our typhoon, officer, Utor, making landfall in southern China and this is the western Yangjiang (ph) province, continues to provide some heavy rain. In some areas, that absolutely needed. However, if you're flying into Hong Kong, keep your seat belts fastened, your tray tables in the upright locked position, because we've got an influx of moisture that's still going to be found there for the weekend. The heat stays to the north. Shanghai now 41 days this summer at 35 degrees or higher. The all- time record is 55 days. We find the delays still in Hong Kong, possibly Mumbai, New Delhi as well, forecast models keep the monsoon rains active in New Delhi along the coastline from Mumbai southward over toward Bangladesh. In the U.S., most of the delays that are current are for volume and that weather related, some ground stoppages of course have been occurring in parts of Teterboro; wet conditions in the Deep South. It's been splendid weather up in the Great Lakes to the Northeast, 27 for a high in New York, the only problem we could have is Mexico, if you've got to go there and resort, Cozumel or Cancun, we're watching our next tropical system, possibly develop. And that, Richard, would be lifting into the southern part of the U.S. as well. Quick overlook around the U.S. for your travelers this weekend.
QUEST: Tom, we thank you for that, Tom Sater at the World Weather Center.
And the Dow Jones industrials off 180 points if it closes around 190, then it will be the seventh worst loss of 2013.
And that's QUEST MEANS BUSINESS tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable.
ISA SOARES, CNN CORRESPONDENT: From Milan in Italy, hello and a very warm welcome to MARKETPLACE EUROPE. I'm Isa Soares.
Northern Italy is one of the richest regions in the European Union, accounting for roughly 70 percent of the country's exports. It's home to iconic brands such as Fiat, Lavazza and Pirelli, as well as the three P's, prosciutto, Prosecco and Parmigiano Reggiano. In this week's program, we look at the challenges facing the businesses that make up this economic powerhouse.
(BEGIN VIDEO CLIP)
SOARES (voice-over): Coming up, a bank vault stacked with gold, not the precious metal, but wheels of maturing Parmesan cheese. And I get a taste of Lavazza's latest strategy with some helpful tips from its CEO.
UNIDENTIFIED MALE: Yes, like that, and then you (inaudible).
You're very polite.
(END VIDEO CLIP)
SOARES: Small and medium sized businesses are the backbone of Italy's economy, accounting for roughly 80 percent of the country's GDP. But these firms have been struggling to get funding from debt laden banks.
In May, lending fell 3 percent from the previous year. Italy's Parmesan producers have overcome this challenge with a cash for cheese loan scheme. I went to Regimilia (ph) to find out more.
SOARES (voice-over): Here at Credem Bank, they're not taking any risks because inside under lock and key are some of Italy's most solid assets.
UNIDENTIFIED MALE (through translator): Every year we store 430,000 wheels of Parmesan cheese at a total value of 190 million euros.
SOARES (voice-over): These precious walls of cheese belong to the banks and now at least they're part of a cash for cheese loan that started 50 years ago with Credem Bank that date back to the 15th century.
SOARES: More than 20 Parmigiano Reggiano producers and wholesalers keep their cheese in these vaults. In return, they get a cheap loan. For the bank, it's almost risk-free. If the producer defaults on its debt, the bank holds onto the cheese and sells it on. And you'll be surprised to know this asset holds on to its value.
SOARES (voice-over): This maturing interest stays here for two years. In that time, the bank charges between 3 percent to 5 percent interest. And a fee for making sure the cheese matures properly in their air conditioned, humidified vault.
UNIDENTIFIED MALE (through translator): We clear the producers who leave their cheese with us, a guarantee that we will abide by all the rules set out by the consortium of Parmigiano Reggiano, but the preservation of the cheese will be respected.
SOARES (voice-over): It's not only a case of staring at the cheese, though. Periodically experts are hired in to ensure their maturing wealth. They hammer it, prick it and savor certain batches.
CRISTIAN BERTOLINI, EXPERT TESTER: We want to taste it, which is very important, because we have to eat this cheese at the end of the process.
SOARES: I'm sorry; I just ate it.
BERTOLINI: Very good.
SOARES (voice-over): But if it doesn't meet the strict criteria, the cheese is downgraded and the Parmigiano Reggiano imprint scraped off.
BERTOLINI: This way, we become not Parmigiano Reggiano, but Italian cheese.
SOARES (voice-over): Harsh as it may seem, it's the best option for producers squeezed by the economic crisis.
UNIDENTIFIED MALE (through translator): Because of the financial crisis, Parmigiano producers are now leaving their cheese with us for a longer period of time.
SOARES (voice-over): For the cheese producers like the Coretti (ph) family, have cattle to feed and staff to pay, this precious liquid is hard currency. Right now, they have their own vault on site, financed by the bank. But from time to time, they still use the bigger Credem vault.
UNIDENTIFIED MALE: We still use the bank to anticipate money of the cheese. So we must keep the cheese inside our vault until we pay the bank.
SOARES (voice-over): The two years it takes the cheese to mature allows them to keep on producing. Every day, they make 32 wheels of parmesan. That's almost 12,000 wheels a year, each one weighing around 40 kilos, a laborious process that has changed little over the years.
UNIDENTIFIED MALE: (Inaudible) production in the same of the same as nine centuries ago. It means same ingredients, same technique and same care, right? We improve with modern instruments ,too. But way we produce the cheese is always the same.
It's not hard work. It is a strong passion for me and for us.
SOARES (voice-over): A passion that's strong as the cheese itself, backed by a bank that takes a mature attitude to lending.
SOARES: It's time for a short coffee break, but when we come back, I'll be speaking to Antonio Baravalle, the CEO of Lavazza about the company's plans to roll out proper shops all over the world.
SOARES: Welcome back to MARKETPLACE EUROPE from Italy. I'm Isa Soares. The coffee culture is hard to ignore here. Cafes line pretty much every street. Coffee was first introduced to Europe in the 1600s, first through the port of Venice and later Trieste and Turin, where two of the biggest brands were born, Ille (ph) and Lavazza.
SOARES (voice-over): Fresh coffee beans arrive here in Turin from around 30 countries all over the world. A rigorous selection process takes place before blending and roasting. The driver of Lavazza's business remains a coffee at home category and a pound for around 70 percent of revenue. The company has a 48 percent market share in its league, and now hopes to increase its share internationally.
ANTONIO BARAVALLE, CEO, LAVAZZA: From a consumer point of view, we are facing a crisis in Italy because market is reducing 3-4 percent. Our objective is to grow outside Italy, because it's the only way to balance in the right way the balance sheet of the company.
We want to create USA as the second market in -- for us. Then Europe will play directly in Germany, France, U.K. and Nordics (ph) and then we go to Australia. But for us, it's an important market. These are the market where in a direct way, we will perform.
SOARES: Let's look at the markets in the U.K., you're looking to open more shops. How are you going to do that? And the feeling is that the market's are extremely saturated. How are you going to try and really face the competition?
BARAVALLE: Coffee shop is an important instrument to build the brand. But we are not a retailing company. We are not Starbucks. Our business is totally different. So for us, coffee shop is the way to build the brand. We will do it always indirectly so we are not going to face any more, any direct involvement in coffee shop because it's a totally different business.
We will choose in every single market a player. We will write the competence in the market like we did and we are doing in the U.K. and this player that is signing a master agreement with us, we will give them all the support in terms of coffee expertise, recipes, architecture, design, business model. But they will have the ownership to build the brand inside the market.
SOARES: How are you going to compete with the likes of an espresso, which holds at 36 percent share of the coffee making market?
BARAVALLE: Look, for sure an espresso, it's a big player. But you have to imagine first of all that that category today has got a penetration only of 3 percent worldwide. It's growing 25 percent category in the last five years and will be the future. But we take still a lot of time of growth. In Italy, 50 percent of a market is controlled by us, by Lavazza. And we are putting, in terms of innovation, all the efforts that in the single serve, because for sure, single serve, if we see it in 20 years' time, will be the future.
So our objective is just to become a credible alternative to an espresso.
SOARES (voice-over): And from the talk to the taste at Lavazza's training center.
BARAVALLE: (Inaudible) to do coffee, we buy from, we'll say around 30 countries worldwide and more than 60 regions. Then you start mixing the product together, trying to be able to have at the end the right cup, because we are interested in the result in the cup. And so it's like in whisky with blending. When you start to mix different origins.
SOARES: So I'm seeing here these water fountains. I'm guessing they're not to drink water.
BARAVALLE: No, it's not to drink water. It's pretty area, I would say, where normally you start tasting the coffee and you feel the smell of the coffee and then you split (inaudible).
BARAVALLE: In this case, it's robusta detimer (ph) is more round. And you start to listen. First of all, you have to put the noise means that you are putting a lot of oxygen inside your mouth, because oxygen allows the taste, to release the taste. So you see all the different organic sensation. And you start to listen it is to dark roasted, to sweet if you -- yes, too bitter and so. And you can understand that it better when you do comparing cup to cup.
So let's -- don't you want to taste?
SOARES: I would like to try. Can I try the Brazilian one?
SOARES: So am I supposed to --
SOARES: -- make a noise?
BARAVALLE: A strong noise. You not at a restaurant.
Yes, like that. And then you really -- you inspire a lot.
You are very polite.
BARAVALLE: Yes, you have to inspire a lot of water. Yes.
SOARES: Oh, OK; let's give a second try.
SOARES: Not very good, am I?
BARAVALLE: (Inaudible). We are doing different jobs so.
SOARES: That was Antonio Baravalle, the CEO of Lavazza, bringing this week's edition of MARKETPLACE EUROPE to a close.
From Milan in Italy, thank you very much for watching. We'll see you again next week. Arrivederci.