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QUEST MEANS BUSINESS
Recovery in Europe; Future of Europe; European Markets Up; Lufthansa Historic Investment; US Markets Dip; London Whale Woes; US Car Sales Up; Nintendo Visionary Dies; "Grand Theft" Record
Aired September 19, 2013 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: A dip in the Dow the day after the markets hit record highs. It's the closing moment on Wall Street. Today is Thursday, September the 19th.
Tonight, we have the battles for Barroso. The European president tells me we must use all the resources we can in the fight against unemployment.
It's a whale of a fine. JPMorgan finally admits wrongdoing.
And the man who took Nintendo to a whole new level has passed away at the age of 85.
I'm Richard Quest. I mean business.
Good evening. The most difficult moments may be behind us in Europe. So says Jose Manuel Barroso, the European Commission president. And tonight, on this program, he tells me why.
He also says that we have evidence. Well, just look at the numbers that came out today. In Greece, the epicenter of Europe's debt crisis, unemployment has fallen for the first time in four years. The jobless rate remains painfully high at just over 27 percent, close to a record high hit in the first quarter.
Now, it is one of a raft of numbers which demonstrate Mr. Barroso's point that things may or perhaps are, indeed, could be getting better. Despite that small improvement in Greek unemployment, there is still no cause for complacency, they all say. If you look at other countries in bailouts, you start to see the current economic position.
So, first of all, let's begin with Greece. Starting with Greece. And we have the social unrest, a second day of general strike and social tensions. This time it was because of the -- of a murdered politician who was involved. The Greek prime minister, Antonis Samaras said the unrest could jeopardize the recovery.
(BEGIN VIDEO CLIP)
ANTONIS SAMARAS, PRIME MINISTER OF GREECE (through translator): We all know that the country is at an extremely critical moment and that the people are bearing huge sacrifices in order to defeat the crisis and achieve an economic revival. This is not a time for internal conflicts or tensions.
(END VIDEO CLIP)
QUEST: Now, we have that number in Greece, of course, of unemployment just ticking down slightly. One other bright spot came from Ireland. In the case of Ireland, the country is now out of recession, officially anyway. The economy grew 0.4 tenths of one percent in the second quarter.
So, Ireland, the poster child. Then, of course, the black sheep of the family, now once again, seemingly the poster child for recovery.
There are more tensions in Cyprus. In Cyprus, of course, the last country to go into an EU-Troika bailout program, the president is trying to sack the central bank governor and says the governor Panicos Demetriades is not up to the job, and the president has threatened the court that they would move him.
And in Portugal, S&P has given a negative downgrade to the country and a possible negative outlook as well. It all risks a second bailout for the country. That's what people are saying.
So, in this scenario, where there are seemingly moments of light and shade, I began by asking President Barroso about the current economic situation, where there is still so much more to be done in Europe.
JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: Yes, you are right. As I've said in my speech in the parliament, European Parliament, we are not yet out of the crisis. We have now clear indications that the most difficult moments are now behind us, that we may now be starting a recovery.
Technically, we are out of recession. But there is still a lot left to do, and certainly the biggest challenge is unemployment. Namely, youth unemployment.
QUEST: Do you think the Commission, the governments, have given enough emphasis to this unemployment crisis? Sitting in the United States barely an hour goes by without a politician or a banker or somebody emphasizing the jobs crisis. And I wonder, as Europe has restructured, would you now like to see more emphasis on unemployment?
BARROSO: Certainly. But I think here in Europe as well, people are emphasizing this as the biggest challenge. The question is how to solve it. And frankly, most of the decisions for that lie at national level. It's the reform of the labor market, it is go back to growth.
But apart from that, we have created new instruments at the European level, and we are mobilizing all the resources we can to fight unemployment, namely youth unemployment. The best way to achieve employment, to have a growth that is not a jobless growth, is of course to invest in the new sources of growth.
QUEST: How do you get Europeans to sign onto that when there is still such a high level of disillusionment, which is, if you like, symbolic -- or symbolized by the unemployment crisis?
BARROSO: Europeans have learned these last years how interdependent they are. It's true that there is deception in many quarters. Also because, as you know, when we have a difficult economic and social situation, there are always extremists and populists of the extreme right to the extreme left that want to put the blame on Europe for every difficulty they have.
If you look at the decisions taken by the Europeans, including European governments, they have always been for more integration.
For instance, the banking union that the European Commission has proposed. There is already an agreement on a single supervisory mechanism. It shows how interdependent we are, and I believe that precisely because of the lessons of the crisis, there will be support for further steps in terms of economic and even political integration.
QUEST: Well, square that circle, Mr. President. Square that circle with the debate that is about to begin led by people like David Cameron, who are looking for a route and branch retrenchment. A return of competencies and powers to national governments. You can't have both at the same time, can you?
BARROSO: Look, to be fair, the British government, including Prime Minister Cameron himself, they have been supporting further integration in the euro area. They understand and they support the idea that if you have a common currency, the solidity and the credibility of that currency ultimately depends on the credibility and the solidity of the political institutions behind it.
Now, it is true that in some sectors in the United Kingdom and also in other countries, there are people that believe that Europe went to far in some areas. So, there is a debate going on, and I'm sure that debate will go deeper and deeper in the future.
But I believe we have good arguments explaining that, as I said in my recent speech in the European Parliament, Europe has to be big on big things and small on small things.
QUEST: And we'll hear more from President Barroso later in the program, including his views on Europe's federalist future.
The markets in Europe joined the global stock surge on the back of the Federal Reserve's decision not to taper. Take these numbers --
QUEST: -- with a little bit of salt. Up 1 percent for the FTSE, Xetra DAX was up half a percent. You have to remember, they are responding because they were closed when the Fed made their decision not to taper.
In Germany, Lufthansa's making an historic investment, a huge order for Airbus and Boeing aircraft. The carrier's ordered 59 modern jets. They've ordered the 777s, 900s, and they've also ordered the A350s. About $14 billion at list prices. Of course, no airline has ever paid the list price, at least not since I can ever remember. That's Lufthansa's announcement.
Now to the markets in the United States. What a very sorry session. Having touched record highs, things went very peculiar. Alison Kosik at the New York Stock Exchange. Was today just a case of a hangover after that bon ami?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: I think it really was. I think what I heard today from the floor was literally just a -- everybody taking a deep breath in. That's after that stunning run-up where we saw the Dow and the S&P hit those record highs.
You know what it was also, Richard? There was also this "aha" moment coming from the floor that the realization that the reason the Fed is keeping the status quo with quantitative easing is because the US economy is not operating on all cylinders.
There is this sense coming from the floor, Richard, that at some point, most likely as we get closer to the third quarter earning season next month, that there's going to be a repricing in that the stock is going to be that stocks are over-bought and that the health of the US economy does not necessarily warrant these kinds of highs on stocks. Richard?
QUEST: All right, many thanks, Alison Kosik at the New York Stock Exchange.
JPMorgan's London Whale debacle has just cost the bank another $920 million. Let's call it a billion, the best part, between friends. It's agreed to pay regulators to settle charges relating to the $6 billion trading loss.
Now, in the US, the SEC, look at the waves. It takes $200 million for the bank's failure to maintain effective internal controls. The Federal Reserve's also levying $200 million -- another whale -- of a -- for various deficiencies in risk management.
And the Office of the Comptroller of the Currency, another wave coming from the Whale, $300 million, unsafe and unsound practices. And in the UK, well, the UK Financial Conduct Authority gets $220 million, chump change, for the failure in skill, care, and diligence and management control to regulators. Maggie Lake is with me now. Maggie, a lot of money.
MAGGIE LAKE, CNN INTERNATIONAL BUSINESS CORRESPONDENT: Not particularly --
QUEST: I knew you --
QUEST: I knew you were going to say that!
LAKE: Oh, I call it like it is! It is a lot of money in terms of fines, Richard, but JPMorgan, what do they make? $6.5 billion just last quarter. So, to the rest of us, an enormous amount of money. To JPMorgan, more importantly, a black eye, not only for the firm --
LAKE: -- but for Jamie Dimon, who came out of the financial crisis the king of Wall Street, the guy, the banker who knew how to manage risk.
QUEST: Right. So, let's take this piece by piece. The important point also is they had to admit wrongdoing.
LAKE: That's right. And that's a change, right? Before the SEC would settle cases and no one would admit any wrongdoing. It's sort of like it never happened, but we're still going to pay all this money. This time, they came out and said yes.
First of all, let's talk about what the SEC said, and this is why they got that very big fine in terms of them. They said you messed up. And not only did you mess up, you put us all at risk. These were the words they used. "The egregious breakdown" --
LAKE: -- "in controls and governance put its millions of shareholders at risk," right? Too big to fail is one thing. So big you mess up and put all of us at risk is what this is really about.
Jamie Dimon -- and this is where the admit -- admitting guilt comes in -- Jamie Dimon says, "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them, and we have worked to fix them."
So, it's not easy for these bankers. You'll remember during the financial crisis, we saw congressional hearing after congressional hearing of people get up and say, "Oh, it's so complicated, we don't really know what happened." JPMorgan said, "We messed up, our controls weren't good enough."
QUEST: But this -- the London Whale happened after the crisis.
QUEST: And that's really the awful part about it, isn't it? In the sense of --
QUEST: -- you have the crisis, you think -- you hope everybody's learned something from the crisis, 08 and 09 and 10, and then you have the London Whale.
LAKE: And this is the most disturbing thing. And this is why some people say that they got a fine, they admitted wrongdoing, the government bragging about it.
A lot of people say missed opportunity still. After the crisis this happened, and still no senior manager is held accountable, is going to jail, or even also being called out for not watching. So, some people are not happy and don't think that admission of wrongdoing went far enough.
QUEST: This is a very expensive tempest in a teapot.
QUEST: I mean, there's a couple of key don'ts --
LAKE: We asked Jamie Dimon if you could take them back out of everything, he probably wishes he could.
QUEST: Right. But he -- this is the -- I want to end on this note. He is in no shape, form, or description in any vulnerable position for his job.
LAKE: I don't think he is, because you take the bulk of what he's done in banking --
QUEST: The shareholders love him!
LAKE: -- and the exception -- they do, because he's served them well. And even in this handling, he behaved differently, because once he got a hold of it, he's made a lot of changes. He's protected people, and they -- this billion dollars is protecting those senior managers.
But he still is making changes, hiring -- they just hired a whole bunch of people for compliance. So, he is doing that thing. Richard, last note, it's not over yet, though. They still face a lot of other investigations on other issues. Jamie Dimon is spending a lot of time with government regulators.
QUEST: Maggie Lake, thank you.
LAKE: Sure thing.
QUEST: When we come back, it's been a tough for years for admirers of the American automobile, the motorcar. With the economy revving up, Americans are once again embracing the romance of the open road on America's Recovery.
QUEST: America is rekindling the love of the automobile. Such is its passion that new car sales are expected to surpass 16 million this year. Now, the automakers and markets is on track for a record.
Look at this. We used to be at 16 million cars in the United States. Then it dropped to 10.4, that's at the depths, the very moment, the hardest part of the recession. But the fortunes of the nation's carmakers are improving and doing so quite dramatically. They have returned back -- now, they're not quite where they were, but as you can see from this graph, things -- that V-shape is dramatic.
So, Americans are back with their cars. Just have a look at this. We have to bring you -- this is the Chevy Impala, the original living room on wheels. Now, why am I showing you a Chevy? Because if you want to know what's happening in the automobile industry, General Motors and Chevrolet is a pretty good place to start.
And in Texas, the brand that helped define American motoring is once again setting hearts aflutter. The classic Chevrolet. And I paid a visit to the largest Chevy dealership in the country in Dallas-Fort Worth, where they know a thing or two about selling cars.
QUEST (voice-over): This is a Texas car dealership, and here, they build them big. Very big.
QUEST (on camera): Look at them all. They go on forever.
ERIC BRYANT, GENERAL SALES MANAGER, CLASSIC CHEVROLET: They do.
QUEST: They can't sell them fast enough. The lot at Classic Chevrolet runs to a quarter of a mile. Every different type, from SUVs to hybrids to electrics to the family sedan. And this year, they're flying off the lot.
QUEST (voice-over): In fact, they hope to sell more than 5,000 cars this year.
DALE BRYANT, SALESMAN, CLASSIC CHEVROLET: Good morning. My name is Dale Bryant, and you?
QUEST (on camera): I'm Richard.
D. BRYANT: Richard, welcome to Classic Chevrolet. What can we sell you today?
QUEST (voice-over): We're in Texas. They aren't shy about the way they go about it.
D. BRYANT: They say this car will make you feel 20 years younger and do things you hadn't done in 20 years.
QUEST: A Texas promise, indeed, that's helped make this dealership one of the most successful in America. Classic Chevrolet chalks it up to customer satisfaction. And there's more to it than just that. Car sales are rising nationwide, to the highest levels since before the economic crisis.
And the buyers are coming in all shapes and sizes. There's 19-year- old Ravynne Wozniak.
RAVYNNE WOZNIAK, FIRST-TIME CAR BUYER: How do I start it up with the manual again?
QUEST (on camera): Left foot on the clutch.
QUEST (voice-over): Who must work three jobs to buy her new car.
QUEST (on camera): How do you feel about it?
WOZNIAK: It's nerve-wracking, but it's exciting.
QUEST: Why is it nerve-wracking? Tell me.
WOZNIAK: Because I have to pay the payments.
QUEST (voice-over): Or Otto Bielss. He's paying $45,000 for a new Chevy Tahoe.
OTTO BIELSS, CHEVROLET CUSTOMER: We feel much better, stable jobs, good careers, and the economy's going up now, so we're able to make a purchase like this.
QUEST: Behind these sales is a renewed confidence in America. And that's exactly what Chevrolet has always talked about.
DINAH SHORE, SINGER (singing): See the USA in your Chevrolet.
QUEST: These vintage commercials of the 1950s celebrate the American open road. Today, it's less about romance and more about replacement and finance.
D. BRYANT: Technology has changed. Drastically. Most people that are trading in cars now, the age of a vehicle coming in now is about eight to ten years old. Well, those vehicles no near about have the safety features these new cars have.
QUEST (on camera): Will it protect my wallet from you?
D. BRYANT: Sure it will. We make them easy to own, because we've got good financing rates out there.
E. BRYANT: Our banks have gone back to getting much more aggressive, interest rates are very competitive. They're ready to lend money, and people are certainly eager to -- certainly eager to spend it.
QUEST (voice-over): The financing may be there, and the open road may be more crowded, but some things will never change, like the eternal tug- of-war between customer and car salesman: the haggling.
TOUFIK ATTAHERI, SALESMAN, CLASSIC CHEVROLET: This one is around $35,000. Yes, sir. This is a brand new car. New body style --
QUEST (on camera): You can do better than that for me.
ATTAHERI: You know what? I might, probably a couple thousands.
QUEST: $29,000. Deal?
ATTAHERI: You know what? There is a chance, absolutely.
QUEST: I had a wallet here somewhere. Who's got my wallet?
QUEST (voice-over): New cars are more than just a barometer of the US economy. Here it tells us about how people are feeling.
QUEST (on camera): If this increase in vehicle sales was just in Texas, we'd explain it away as part of the state's car culture, but it's not. It's across the country. And what it tells us is that Americans are feeling more confident about spending money on those big-ticket items as the recovery takes hold.
QUEST: When we come back after the break, the man who drove Nintendo to dominance has died. We look back at the life and work of the gaming pioneer, Hiroshi Yamauchi, coming up next.
QUEST: The man who turned Nintendo from a playing card company into a global video gaming powerhouse has died. He was Hiroshi Yamauchi, the company's president, and he passed away age 85. That's him on the screen.
Now, during his tenure, he launched several legendary video games, consoles, and characters. Now, besides, obviously, the name Nintendo, there was the Super Nintendo entertainment system in 1990. Then, of course, the Game Boy, and one of the most recognizable video game characters, Super Mario.
To discuss Yamauchi's legacy, Steve Butts, the global editor-in-chief of IGN, joins me from San Francisco. Defined not only a generation of games, but defined an industry. Is that overstating it?
STEVE BUTTS, GLOBAL EDITOR-IN-CHIEF, IGN: I don't think so, not at all. I think he defined not only what this industry is, but how developers should approach it. He was a bit of an imperialist. Kind of a martinet, it seems like, internally. But he had a keen eye for what the public wanted from games.
You said yourself, Nintendo started as a playing card company, and he said, that's not our future. We need to get into the electronic entertainment business. So, I think without him, there may not be a Nintendo, and there certainly wouldn't be the type of Nintendo that we have today.
QUEST: But the ability of Nintendo to then maintain its position against all the competitors, or even the competitors that came in at the same time to eat their lunch. How did they respond?
BUTTS: Well, it's very interesting. He had a vision that games should be made by artists and not by technicians and that game consoles should be designed purely for that purpose. We're seeing kind of a reversal of that over the last ten years as Microsoft and Sony's consoles are aiming to take more and more of the home entertainment market.
But Nintendo's vision has always been, we are a game console. That is what we do. And the way that he opened up the architecture to allow the artist easy access to game creation, I think, worked very well for Nintendo and allowed them to stay relevant and respond very quickly to the demands of the marketplace.
QUEST: In that idea, what was his biggest achievement, do you think?
BUTTS: His biggest achievement. Wow. I think it was creating three separate research and development units within Nintendo and forcing them to sort of compete with one another. He created a culture where he was the sole arbiter of taste. If you wanted to get a product to market at Nintendo, you had to get Yamauchi onboard with it.
So, he didn't -- he never delegated that responsibility. I won't say never. He rarely delegated that responsibility. So, he used these three R&D divisions within his company to sort of work against each other --
BUTTS: -- and to try to one-up each other.
QUEST: But the next story I'm going to be talking about on this program, of course, is how the latest relate of the newest game is hitting nearly a billion dollars-worth of revenue. So, what we --
QUEST: -- what we learned from "Grand Auto Theft" (sic) -- but what we learned from this -- and we'll give the details and the numbers in just a moment on that -- what we learned from this is that what started out with Yamauchi as an idea and a vision has spawned into something that perhaps even he could never even have fully appreciated until he saw it happen.
BUTTS: Oh, I think he would totally agree with that. The prevalence of games today and it's power within the mainstream marketplace is probably more than he would have expected 50 years ago when he took charge of this playing card company.
QUEST: Thank you very much for joining us, sir. Much appreciated. Thank you. Now --
BUTTS: Thank you.
QUEST: We were just alluding to the fact there, proof of how pervasive video games have become, the game I was just talking to -- about a second ago that now holds the title of the biggest opening day blockbuster in the world.
It is "Grand Theft Auto 5." You'd better be sitting very comfortably on this. Sales hit $800 million -- $800 million -- in 24 hours. It has suppressed -- surpassed -- I can't even say the word, it's got so much in it -- the top-selling blockbuster movie "Harry Potter and the Deathly Hallows Part 2," which made $483 million worldwide during its opening.
Now this one, of course, is extremely violent, but exceptionally popular, $800 million, it's expected to do a billion in short order.
Coming up after the break, an open challenge to euro skeptics. Jose Manuel Barroso says he doesn't fear the debate about European integration. And the Commission president answers his critics when we return.
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
The US secretary of state, John Kerry, says it is possible to remove all of Syria's chemical weapons through peaceful means. At a State Department briefing around two hours ago, Mr. Kerry called on the United Nations to act at its General Assembly next week in New York.
(BEGIN VIDEO CLIP)
JOHN KERRY, US SECRETARY OF STATE: The Security Council must be prepared to act next week. It is vital for the international community to stand up and speak out in the strongest possible terms about the importance of enforceable action to rid the world of Syria's chemical weapons.
(END VIDEO CLIP)
QUEST: More heavy rain is forecast for the coming days across Mexico's northwestern coast. Hurricane Manuel made landfall on the area on Thursday. It's one of three tropical systems to slam the country this week. At least 80 people have died in the storms. We'll have more details in the weather forecast in just a moment.
In an interview with a Jesuit magazine, Pope Francis said women must play a key role in church decisions, and he brushed off critics who said he should be more vocal about fighting abortion and gay marriage. Instead, he said the Catholic Church should be a home for all.
A South African panel has just wrapped up its investigation into last year's deadly shootings at the Marikana mine. The commission says it found new police documents showing authorities lied about some of what had happened. Police opened fire on thousands of striking workers at the platinum mine, 34 people were killed.
The president of the European Commission says he wants to lead the fight for a common Europe. Jose Manuel Barroso says through integration can only make individual states more powerful. I asked President Barroso how he feels about calls in many quarters for the European community to hang back power.
(BEGIN VIDEO CLIP)
BARROSO: I don't feel a debate. I'm a Democrat from -- I like democracy debates and (inaudible) I believe it is something that we have to discuss in a democratic way. As I've been saying, the European integration can no longer go on by implicit consent.
We need the Europe not to be technocratic or bureaucratic, not even diplomatic, but to be a democratic. So I welcome that debate. In fact, I've been making an appeal to the mainstream forces, from the center right to the center left to come out and speak for Europe.
Until now, that was a theologic stand taken for granted. I think they should leave the comfort zone and make the case why at the age of globalization, we need more than ever a common Europe, a European project because in face of what's going on in the world, it's fact -- obvious that even the biggest countries in Europe alone on their own, they will not have the leverage to discuss these issues, policies in trades or be the big giant CF without more integration in many of the areas of our work.
(END VIDEO CLIP)
QUEST: You have been remarkably honest and out front, haven't you in last year's State of the Union and in this year's State of the Union. You are quite blunt about it. You believe that a move -- I know it's an inflammatory phrase, but you believe that moving towards more federation is the only way to make this thing work.
BARROSO: But the word federation, it's a word that is also an opposition against the super state, against the centralized super state. I believe in Europe, we have already now federal elements. We have a parliament who can voluntary (ph) direct elected by citizens. We have independent central bank and we have a European commission that is independent from the government so we already have several federal features.
Now the question is how to go forward. For me, the federation means democracy. I respect in the principle of sovereignty means that in some areas, we need to share sovereignty because that that is a way of grabbing power from the governments to Brussels, but on the contrary, as the way of making our states more influential in the world, this big and new world of globalization.
QUEST: That's the President of the Commission. Now, you can join me this weekend for especial debate on Europe. I'll be talking to the phone with ECB President, Jean-Claude Trichet, the Competition Commissioner Almunia, and the former Italian Prime Minister Mario Monti. The debate in full on Saturday morning, 10:30 in London, 11:30 in Berlin here on CNN.
Mr. Barrosso's men and women are currently in Portugal and part of the trigger (ph) helping to review that country's economic progress and here's something for them to know, Portugal Telecom is on the verge of opening Europe's largest data center. The site will co-host 50,000, I did say 50, 000 servers. It's like the capacity of up to 30 petabytes. Now that's a lot of petabytes I can't believe. I ask the Chief Exec, why such a major investment at such difficult times.
ZEINAL BAVA, CEO, PORTUGAL TELECOM: Yes, I think we have started a process of transformational for Portugal Telecom five years ago. We actually moved away from being what is a landline company, a fix line company to becoming a fix line and a mobile company, then we moved away from being just a telecom's company to become an entertainment company.
So today, we're leaders in triple-play in Portugal and if you think about all this data that's actually flowing through our pipes at the moment, they need to be stored somewhere, process somewhere so if you like this new data center gives us a lot more capacity to store this digital information and then to process it and process it .
QUEST: How bad are things in Portugal now, do you think?
BAVA: I think Portugal as an economy clearly is dependent to also in what happens in Europe. I would say the government has taken some very tough decisions. Of course, everyone is feeling if you like the pinch at the moment, but we have to be confident about the future outlook. I think the fact that Portugal also enjoys an incredible relationship with Brazil, on one hand, and with the Portuguese speaking African countries on the other is allowing us to underpin exports.
So I believe that the export-led recovery in Portugal, if you like substantiated with this increase financial and causes have been will up and then hopefully result in us having a better economic outlook in the future.
QUEST: When Europeans going to see a single same price in Europe whether particular within the EU, when they make a phone call or use data.
BAVA: I think you -- it needs to harmonize if you like regulation across the board. Having said that, I think we need to look specifically at each market. Great efforts are being made, you know, that to harmonize some of these policies. We need to understand that it's a 28-country market but I think -- really think .
QUEST: But it's not -- it's not with respect sir, it's not a 28- country market. It is suppose to be a single market, and if the US can do it from New York to LA, please tell me one what in Europe particularly big players like Vodafone or Delta Telecom can't charge the same from Finland to Cyprus?
BAVA: I think great progress is being made. You take for example termination rates in mobiles, they've -- in terms of voice, prices have come down substantially because these termination rates are clearly going to one sent. And I think same process will have happen in terms of data.
So you are seeing for example, you know, a single market emerge invoice, we're now clearly moving in the direction of data, data is like a more complex because as you know spectrum availability and spectrum prices are not the same across the boards. So that's why your comparison to the US it just flawed that, we know, with this single fact that in Europe still each market has its own rules of engagement, but I think we're moving in the right direction.
QUEST: Moving in the right direction. Question, how fast that movement is going?
Now to the weather forecast for this evening. We told you already about what's happening in Mexico and Jenny will have some more details of that in a second. And also your forecast for what's happening what's happening in Europe. Jenny, good evening.
JENNY HARRISON, WEATHER ANCHOR: Yeah. Richard, good evening to you. Yeah. Not about (inaudible) told in the Europe but I have to say, a bit of a warmer parts here in the (inaudible) and it cross to the Northwest. This is the situation on satellite; you can see the usual showers and thunderstorms coming through the central (inaudible) which have coming across the Northwest. It's sunny, cool and too much of Europe a part from the Southwest. This is where the warmer is on its way and look what it do to the temperatures.
Look at London, Sunday, 23, Saturday 21, and in fact same warm on Monday as well. Similar story for Paris, not quite the warm in Berlin but it at least will back up to the average some sunshine is all coming in with all of that. One or two delays at the airports, nothing major as you can see most of it because you got some low clouds, some fog causing problems in Geneva in the overnight hours, you can see we've got those scattered rain showers coming through as well along with the cloud but to say at least it's warming up across the west for a brief spell (ph) take us to through the weekend elsewhere on a Friday since the 18th of Vienna and 26 in Rome.
So still some good temperature we found in some places. The main story really if you are traveling and heading across towards Asia is this, this is super typhoon Usagi already pulls impact in the Philippines, but it really is going to begin to impact Taiwan and eventually heading pretty much directly towards Hong Kong, that is expected to take place in the -- the day time hour Sunday, Sunday night into Monday.
We've got winds of this thing, 260 kilometers, now the sustained winds gusting at over 300 kilometers an hour. This is a large very, very powerful damaging storm and look at what happens and it heads across Taiwan. You can really see where those isobars the topography in Taiwan.
So not surprisingly already we've got some delays in Taipei in the evening hours already up to two hours of the storm. Some torrential amounts of rain we're looking at flooding, we're expecting mudslides, and landslides. The totals are really going to add up as to say, this is going to be a region that if you don't have to be there you're going to need to avoid it over 340 millimeters of rain expected in the next 48 hours, Richard.
QUEST: Jenny Harrison at the World Weather Center. Jenny, we thank you for that tonight. And so tonight's Profitable Moment, Jose Manuel Barroso is going into battle. Not with his Euro skeptics, rather those who would let the dream fail because they're not prepared to fight with.
In tonight's interview, he meets the Gallic shrug with a fiery passion for the project Europe and has asked us those who believe in the block to leave their comfort zone, and come out and speak.
So Barroso, it all comes down to what sort of Europe, we won't. And do not mistake a federation for a super state he says, "A federation is a rejection," and he says, the technocratic, bureaucratic, or diplomatic government. It is an incredibly democratic vision he believes, and he says implicit consent is not enough. Now this is fascinating.
Implicit consent just letting them get on with it. That will never do, centralizing institutions means more power to the periphery. Now it's a vision, Europe's most troubled countries, Greece, Portugal and Cyprus would surely support. And as Barroso himself says, "Bring on the debate." European debate has only just begun.
And that's Quest Means Business for this Thursday night. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. Marketplace Europe is next. Then I'll see you tomorrow.
JONATHAN MANN, CNN ANCHOR: Welcome back. Now get more information about that incident at an Apple B's in Katy, Texas. Again, we just read you the statement from Apple B.
ISA SOARES, CNN REPORTER: From the land 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. Its home to iconic brand 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.
Coming up a bank full stocked 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.
ANTONIO BARAVALLE, CEO LAVAZZA: Yeah, like that, and then you really -- you inspire (ph) a lot. You're very polite.
SOARES: Small and medium-sized businesses are the backbone of Italy, the economy are counting for roughly 80 percent of the country's GDP. But these firms have been struggling to get funding from debt-lending (ph) bank in May lending fell 3 percent from the previous year. Italy's parmesan producers have overcome this challenge with a cash-for-cheese loan in the scene. I went to Reggio Emilia to find out more.
Here at Credem Bank, they're not taking any risks because inside in the lock and key are some of Italy's most solid assets.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Every year we store 430,000 wheels of parmesan cheese with a total value of EUR190 million.
(END VIDEO CLIP)
SOARES: These precious wheels of cheese belong to the bank for now at least, they're part of the cash-for-cheese loan that started 50 years ago with Credem Bank, but date back to the 15th century.
More than 20 Parmigiano Reggiano produces in 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 vat (ph), the bank holds on the cheese and sells it on, and you'll be surprise to know, this asset holds on to its value.
This maturing interest stays here for two years. In that time, the bank charge between three to five as an interest and a fee to making sure the cheese matures properly in the air-conditioned humidified vault.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: We hear the producers who leave their cheese with us are guaranteed that we will abide by all the rules set out by the consortium of Parmigiano Reggiano that the preservation of the cheese will be respected.
(END VIDEO CLIP)
SOARES: It's not only a case of staring at the cheese, though. Periodically experts are hired in to ensure they're maturing well. They hammer it. Prick it. And say the certain batches.
UNIDENTIFIED MALE: We want to taste it. That is very important because we have to eat the cheese at the end of the process.
SOARES: Oh, so sorry. I just ate it.
UNIDENTIFIED MALE: (inaudible).
UNIDENTIFIED MALE: Yeah. Very good.
SOARES: But if it doesn't meet the strict criteria, the cheese is downgraded in the Parmigiano Reggiano imprint scraped off.
UNIDENTIFIED MALE: This way we'll become not Parmigiano Reggiano but Italian cheese.
SOARES: Harsh as it may seem, this is the best option for producers squeezed by the economic crisis.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Because of the financial crisis Parmigiano producers are now leaving their cheese with us for a longer period of time.
(END VIDEO CLIP)
SOARES: And the cheese producers like the Caretti family have cattle feed and staff to pay. This precious liquid is hard currency. Right now, they have their own fulton (ph) site financed by the bank. But from time to time, they still use a bid at Credem folds.
(BEGIN VIDEO CLIP)
DAVIDE CARETTI, PARMAGIANO REGGIANO PRODUCER: We still use the bank to anticipate money as it is. So we master, keep the cheese inside our vault until we pay the bank.
(END VIDEO CLIP)
SOARES: The two years it takes the cheese mature allows them to keep on producing, everyday they make 32 wheels of parmesan, that's almost 12,000 of wheels per year, each one weighing around 40 kilos, a laborious process that has changed little over the years.
(BEGIN VIDEO CLIP)
CARETTI: Parmigiano Reggiano production is the same of -- the same as of 9 century ago. It needs the same ingredients, the same (inaudible) and the same care, right? We improve the way the modern instrument tools, but the way to produce the cheese is always the same. It's not hard work, it is a strong passion for me and for us.
(END VIDEO CLIP)
SOARES: Our passion is strong as the cheese itself, boxed by a bank that takes the mature attitude to lending.
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 coffee shop 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 1600's, first with the Fort of Venice and later Tres and Turin were two of the biggest brands were born Italy at Lavazza
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 remain the coffee at home category which accounts for around 70 percent of revenue. The company has a 48 percent market share in Italy and now hopes to increase its share internationally.
BARAVALLE: 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 in Europe, we will play directly in Germany, France, UK and even Nordics. And then we'd go to Australia that for us is an important market. These are the market where in a direct way we will perform.
SOARES: Let's look at the markets in the UK. You're looking to open more shops. How are you going to do that? And the feeling is that's the market's already extremely saturated? How are you going to try and really face the competition?
BARAVALLE: Coffee shop is an important instrument to guild a 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 give the brand. We will do it always and directly so we are not going to face anymore any direct involvement in coffee shop because it's a total different business. We only choose in every single market a player we will write the competence in the market like we did and we're doing in UK.
And this player that is signing a master agreement with us, we will give them all the support with them so coffee expertise, recipes, architecture design, business model, but they will have the ownership to build a brand inside the market.
SOARES: How are you going to compete with the lines of Nespresso which holds a 36 percent share of the coffee-making market?
BARAVALLE: Look, for sure Nespresso is a big player but you have to imagine first of all that that category today has got the penetration only of 3 percent worldwide. It's growing 25 percent tag during the last 5 years and we'll build the future, but will take still a lot of time of growth.
In Italy, 50 percent of the 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 18, 20 year's time we'll be the future. So our object is just to become a credible alternative to Nespresso.
SOARES: And from the talk to the taste of Lavazza's training center.
BARAVALLE: To do coffee, we buy from, well, say around the 30 country worldwide in more than 60 region. Then, you start mixing, get the product together, trying to be able to add at the end of the right cup because we are interested in the result in the cup. So it's like in whisky we're blending when you start to mix different origin.
SOARES: From seeing here, these water fountains .
SOARES: . I'm guessing they're not to drink water.
BARAVALLE: No. It is not to drink water. Strictly (inaudible) I would say, where normally you start the taste in the coffee and you feel the smell of the coffee and then you spit over.
SOARES: That's good for it.
BARAVALLE: In this case, it's robusta (ph) (inaudible) is more round. And you start to listen. First of all, you have to put -- the noise means that you're putting a lot of oxygen inside your mouth because oxygen allows the taste -- that you would at least would taste and so you see all the different organoleptic sensation and you start to listen, it feels that too dark, too roasted, too sweet .
SOARES: Too bitter.
BARAVALLE: Yeah, too bitter. And so -- and you can understand it better when you do comparing cup to cup. So let's -- don't you want to taste .
SOARES: I would like to try.
BARAVALLE: . or to try?
SOARES: Can I try the Brazilian one?
SOARES: So am I supposed to .
SOARES: . make a noise?
BARAVALLE: A strong noise. You are not at your restaurant. So .
BARAVALLE: . yeah, like that and then you really -- you inspire a lot. You're very polite.
BARAVALLE: Yes. You have to inspire a lot of water here.
SOARES: Oh, OK. Let's give it a second try.
BARAVALLE: My .
SOARES: I'm not very good am I?
BARAVALLE: I know, 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. Arrivedercci.