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QUEST MEANS BUSINESS
Economic Shocks; Full Faith & Credit; Global Effects of U.S. Debt Crisis; The Year in Europe; Merkel on Europe; Insider Trading 2.0
Aired December 24, 2013 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: From Wall Street to the world, it's time to ring in the close of an economic year to remember, on the program, an 11th hour deal. The United States dices with default and we'll have to watch. Take three ringing endorsements for the German chancellor and ringing in the changes at the Fed.
To Yellen, we look forward to a new face at the helm. I'm Richard Quest in 2013, I meant business.
QUEST: Hello and welcome to this special edition of QUEST MEANS BUSINESS, "The Economy in 2013." Over the next hour, we're going to bring you all the twists and turns on the real turbulence of the past year.
And we're going to hear from the people behind it all. We're going to begin with a seismic shift in the global economic landscape. Now if you'll join me at the superscreen, where we can really delve in to what happened, you'll see thus in 2013, the epicenter of the global crisis moved.
A year ago, it was all about the collapse of the Eurozone. The emergency was concentrated in Europe. This year some of the biggest shocks came across the Atlantic in the United States.
The United States started the year off with a tremor that was the sequester, an abrupt cutoff in funding for government services. It began in January and speaking of abrupt cutoffs, at the end of September, the next one: the U.S. government shut down for 16 days, sending government workers home, delaying key, important economic reports.
There was more from the United States because on top of that, in mid- October, the debt ceiling. And for the first time, the U.S. came within realistic hours of crashing through its legal debt limit and defaulting on its obligations.
While that calamity was avoided, trust in the U.S. government was severely shaken. Of that there is no doubt. And it really all boils down to these words: the full faith and credit of the United States government.
The global financial system operates on the basic assumption that the United States will always pay its bills. And this absolute truth was called into question with the debt ceiling crisis. In economic terms, it's the equivalent -- well, frankly, of being told the Earth is flat. The consequences are difficult to imagine.
QUEST (voice-over): 'Round and 'round, every few years the U.S. government goes into battle over the debt ceiling. The essential law needed so that the government can keep borrowing more money, because day by day, step by step, the U.S. has to keep borrowing to keep the government open.
Sometimes the U.S. government goes through $60 billion in a day. The money goes far and wide paying for government workers, infrastructure, even interest on existing debt. All this costs Washington money.
As the spending continues, eventually the government will reach the legal limit of its authority to borrow. It has reached the debt ceiling and unless the ceiling is raised, the options range from nasty to disastrous.
At the moment, the U.S. Treasury has its head just under the ceiling. But decisions have to be taken. There can be instant austerity, hold spending at existing levels. That, of course, would push the U.S. and possibly the world economy towards recession.
Then there is robbing Peter to pay Paul, deciding who gets paid, prioritizing, technically very difficult.
And finally, there is always default, a catastrophe of dizzying proportions sending confidence in the U.S. economy tumbling down. Because there is so much U.S. debt in the global economy, any form of default would have disastrous consequences for the markets.
The only thing that is certain is it would take years to clear up the mess.
QUEST: The debt ceiling and the impact of the shutdown, the questioning of the full faith and credit was all anyone could talk about at the World Bank and the IMF meetings in Washington, D.C. There I chaired a special CNN debate, featuring some of the world's top policymakers.
And I began by asking the IMF managing director, Christine Lagarde, why the debt ceiling crisis could and would have global repercussions.
CHRISTINE LAGARDE, MANAGING DIRECTOR, IMF: It will have financial consequences that will apply not just to this country, but across the globe, given the strong inter-connectedness between the various economies, not to mention the very basic practicalities of how to deal with technical default, impaired/non-impaired securities, given the very, very deep penetration of the Treasury bonds from the United States in all portfolios around the globe.
QUEST: Jason Furman, you don't believe that there will be a default, do you?
JASON FURMAN, CHAIRMAN, U.S. COUNCIL OF ECONOMIC ADVISORS: I don't believe that there's any reason. I think cooler heads -- you're already starting to see that today, the cooler heads coming out, putting ideas on the table, both sides agreeing that default would have all of the consequences that Christine just described.
QUEST: But if we get, as it's reported, a six-week reprieve -- I'm going to use the horrible analogy -- we've just kicked the can further down the road, haven't we?
FURMAN: I think there's no question that you want to move the debt limit as far out into the future as possible to have as much certainty as you want to have -- as you can have. But back in January, the debt limit was raised, actually, with no drama at all, no global discussion, no negotiations, it was just raised.
This time, there's obviously been a certain amount of drama, but if it was raised without a negotiation, you're starting to establish a new paradigm that you're not negotiating, you're not discussing, you're not taking ransom. You're raising it so you can go on to all the other important things we need to do in our economy.
QUEST: The IMF, obviously, would welcome a six-week reprieve from this sword over the global markets and the global economy, but it won't be enough, though, Christine?
LAGARDE: The longer it is the better, because the more uncertainty there is, the more trepidation there will be in the markets, and the more uncertain people will be. So as much as six to eight weeks is very welcome for the global economy, much longer would be a lot better.
QUEST: Mr. Yi, Deputy Governor, you've got nearly $2 trillion worth of his bonds.
QUEST: Are you worried?
QUEST: And if you're not, maybe you should be.
YI GANG, DEPUTY GOVERNOR, PEOPLE'S BANK OF CHINA: The market doesn't like uncertainty, and we watch this drama very closely. I hope what Jason said is true.
QUEST: A ringing endorsement if ever I heard it.
What does China want from this crisis, besides it being over?
YI: I think this is about the entire financial market of the world. The U.S. market is the major market. Right now, you see -- we see some recovery of developed economies and also emerging markets facing some difficulty.
Adding this budget and debt limit uncertainty would be a hurdle for the recovery and for the future development of the economy. So that I think they should have the wisdom to solve this problem as soon as possible.
QUEST: You should have the wisdom, Jason.
FURMAN: Richard -- I mean, this country saw the growth rate strengthening in the first half of this year relative to last year, the fiscal contraction largely over, there's a lot of good things. Just need to get this one piece of business done. It's one of the easier economic policies that any of our countries faces is just to do this no-brainer, and I think we will.
QUEST: Governor, you have already seen the effects of what happened. You had to raise interest rates because of what was happening in your country and the way your currency was being hit, didn't you?
RAGHURAM RAJAN, GOVERNOR, RESERVE BANK OF INDIA: Absolutely. No, I think the old dictum, the U.S. sneezes, everybody else gets pneumonia, is right.
QUEST: Even today?
RAJAN: Even today. So, to the extent that there is a disruption in U.S. financial markets, to the extent that U.S. collateral is no longer good, it could feed in ways that we don't fully understand. And that's why I think it's better that we not have to face that.
Now, it may be that it doesn't really matter very much. Everybody looks through the technical default, there's some securities which are impaired, many which are not. But if the financial markets are fragile in a state which is difficult and you have this layer of uncertainty, that's what I think the managing director is talking about, we don't need it.
QUEST: Howard Lutnick is the CEO of Cantor Fitzgerald and a Wall Street veteran. He has a vested interest in making sure that Washington's working well. In mid-October, the Senate finally agreed to raise the debt limit. That is until February of next year. And they're going to fund the government through the beginning of 2014.
So on the day when the deal was announced, I asked Howard Lutnick how close have you all really came to disaster.
(BEGIN VIDEO CLIP)
HOWARD LUTNICK, CHAIRMAN AND CEO, CANTOR FITZGERALD: . the U.S. doesn't want to default; it doesn't want to get into the whole nonsense of what happens when the richest country in the world -- with a printing press that can just turn around and print them up -- decides to cross their arms and not do it.
But all we've done is kick the can down the road. You put it up there -- February 7th -- January 15th, the government will shut again, and February 7th, they're going to be talking about this again.
QUEST: So, you don't think that there is the possibility for this compromise committee to reach any form of significant budget negotiations?
LUTNICK: No way. Because you elected a very strong Left president on the same day you elected a strong Right Congress. And the strong Left and the strong Right, all they're going to do is wrestle.
You hear John Boehner go out and say, "We lost."
You think he thinks he lost? He lost today. He will be back -- his crowd will be back, and they will slug it out again some other day.
QUEST: So, if that's the case, why did the markets hold their nerve? Because in many ways -- and I, look, I am not suggesting for a moment I wish to default. I'm not for a second saying that.
But the fact they did the deal at the last minute, at the 59th minute, reinforces the market's view that this will always happen every time there's disagreement.
LUTNICK: I think that's true. I think it will, effectively, happen. But what will happen is there'll be no new spending, there'll be nothing on government. Every time the Obama White House wants to come in with something, the Republican Congress is going to cross their arms and say, "No."
QUEST: So, what do you want from a deal?
LUTNICK: Well, I don't think they'll be able to come up with a deal. That's the beauty of having a Republican House. The Republicans want to spend less money and Obama was not elected to spend less money. Those two things are just true.
So, what's going to happen is they're just going to continually slug it out and get what you got today, which is no new spending, the new sequester -- which we haven't talked about that -- $19 billion in cuts come the middle of January. You think there's going to be a deal to not have that happen? No chance, no way.
(END VIDEO CLIP)
QUEST: From a no-way in Washington to a resounding yes, please, in Berlin. In a moment, what Angela Merkel did right at the polls and what she believes Europe is still doing wrong.
(BEGIN VIDEO CLIP)
PIERRE MOSCOVICI, FRENCH FINANCE MINISTER: We are changing the labor market. We are reducing big expenditures to our reforming our pension system. We are asking for competitiveness through reduction of the labor cuts.
France is really on the move. And it's a country and an economy which you can trust.
GEORGE OSBORNE, CHANCELLOR OF THE EXCHEQUER: The British economy is turning a corner. And I think that's because we have stuck to a clear economic plan to fix our public finances, make sure our banks are strong, make sure we got a cover for the offensive economy. But I know remotely you can place it, because I am well aware this is still the early stages of recovery around the world.
FABRIZIO SACCOMANNI, ITALIAN FINANCE MINISTER: We have so far achieved to end one of the most, the longest recession in the history of Italy. We see now clear signs of recovery in the third quarter and in the fourth quarter. And we hope that this will materialize and strengthen next year.
LUIS DE GUINDOS, SPANISH FINANCE MINISTER: I think the thing that is important is that the population starts to perceive and to realize that despite the suffering, despite the hardships, there is light at the end of the tunnel. And I think that we are tipping closer to that.
(END VIDEO CLIP)
QUEST: European finance ministers gave themselves a pat on the back at this year's IMF meeting in Washington. And for good cause. This was the reality in 2013. The bailout club expanded in March; it let in Cyprus. And we'll have more of that in the hour. And then it contracted again as Ireland exited the bailout program.
Spain said it would do so next year. Greece, on the other hand, ended up taking a new dose of austerity prescribed by the troika of international lenders. Street protests followed. As for the ECB, well, they cut rates twice, in May and November. The fear there was deflation in the Eurozone.
And Europe's twin engines of Germany and France struggled. Unemployment in France is a record. The country was downgraded by S&P. German growth stalled and the E.U. launched an investigation into its export surplus.
The hiccups in Germany certainly didn't stop Angela Merkel winning a resounding victory in September's election. Not only was she voted in with one of the strongest mandates in the history of modern Germany, it was a hat trick of electoral victories. And Ms. Merkel became the only major European leader to be reelected twice since the great financial crisis.
Angela Merkel was just short of an absolute majority, a situation which led to months of coalition talks.
While Merkel's steady hand and austerity focus helped her at home, it didn't make her popular in the rest of Europe, particularly in the weaker economies. I was in Berlin in June on the eve of the G8. And I asked Angela Merkel what Europe could do to step up its game when it comes to growth.
(BEGIN VIDEO CLIP)
ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): Yes, well, Europe needs to do a lot of homework. I agree, we have lost competitiveness. We have for many years lived beyond our means. We have incurred debts time and again, and I think each and every country -- and the United Kingdom is doing that as well -- needs to consolidate its budget.
It's important for Germany, too, because we have a very noticeable demographic change over the next few years to come. We have to be very careful to leave some kind of leeway, some kind of breathing space to future generations to find the necessary investment.
But at the same time, we have to pursue structural reforms, we have to agree what is actually conducive to growth. Competitiveness is conducive to growth, and in this very difficult situation, we will need to initiate special programs, especially geared, for example, to youth unemployment. We have set aside a number of euros in the coming budget on this.
QUEST: You talk about youth unemployment. That is, of course, the biggest scourge, the biggest issue, the biggest problem facing the continent at the moment. They call it a lost generation.
How can you tell that lost generation that they, A, are not lost, and, B, not to become disillusioned with this -- with what they are facing? It is not easy.
MERKEL (through translator): Quite true. Young people are paying a price for the sins of omission of the past, and they are really not the guilty part. So, it is our task to highlight a perspective to these young people.
And this can be done through different ways. On the one hand, countries that have jobs, for example, could also invite young people. We could give language courses to young people. We have a big single market in the European Union, but not a big single labor market.
When we had German unity, a lot of young people from the so-called old lender went to the new lender. This is not a solution for each and everyone, but Germany is an open place for young people.
Secondly, we need to do some benchmarking as to what programs have worked. Well, this is why we've invited on the 3rd of July to a labor market conference in order to exchange experience, and we need to know what is going to be the market of the future for us.
Where can we be competitive? What are the goods that we can produce that are competitive? And also how is the situation on global markets? We cannot only be invalid.
QUEST: It's not easy.
MERKEL (through translator): I always say if everything were easy, we don't need politicians. Politicians are always needed for the hard task of solving problems, and this is why we need to face those problems.
This is why we're also fighting over the possible solution and the right way to go, but G8 is going to be a very good forum to also highlight the European perspective.
QUEST: In a moment, high-speed and high risk, the New York attorney general on a worrying new trend in trading.
(BEGIN VIDEO CLIP)
ERIC SCHNEIDERMAN, NEW YORK ATTORNEY GENERAL: But if you can bring the Dow down 142 points with a hacked tweet of a fake explosion at the White House, all of us who care about the integrity of our markets have to be conscious that this is a new issue.
QUEST: It's been just over five years since we witnessed these scenes at the Lehman Brothers headquarters in New York City. Risk and retribution is still alive and well on Wall Street, it seems.
JPMorgan Chase received a record corporate fine of $13 billion in 2013. It was all about misselling of mortgages during the financial crisis. And part of the blame lay with WAMU and Bear Stearns, the very bank it didn't own, but took over, and are now paying the price.
RBS, Royal Bank of Scotland, was fined more than $600 million for rate rigging. Abuse happened between 2006 and 2010. In December, the E.U. leveled another round of fines against RBS and other banks, all this time for colluding.
And speaking of gaining unfair advantages, 2013 saw the emergency of a new problem. The New York attorney general, Eric Schneiderman, coined the phrase "insider trading 2.0." I spoke to the attorney general about what it all means and what people had been up to.
SCHNEIDERMAN: The United States and in other jurisdictions we've had laws about insider trading about using proprietary material, non-public information, to buy or sell a security in a way that gives you an edge on the market.
But insider trading in the traditional terms never took into account the potential market abuse of high-frequency trades coupled to computer programs. So we now have to redefine --
QUEST: But (INAUDIBLE) abuse is such, is it? They're merely taking advantage of technology. So you can't -- I see your dilemma. You want to stop it because you want to make the markets equal for all. But it's very difficult when you've got this new technology.
SCHNEIDERMAN: Well, but this is always the case with the law. Regulators and prosecutors, we always follow the law. Before there were telephones and telegraphs, there was no such thing as wire fraud. The Internet has brought us, you know, reforms in the laws in a variety of areas.
High-frequency trading, there are two issues. One is we need to get a handle on this generally because, as we know, market glitches, even in the absence of manipulation, can have devastating effects. I think there was a hacked tweet that drove the Dow down 143 points, a false report of a bombing at the White House.
QUEST: The flash crash.
SCHNEIDERMAN: -- the flash crash of 2010 that introduced that phrase into our international lexicon. But so -- but I have to give credit to Mary Jo White at the SEC. She's now called for a circuit breaker; that's one issue.
The other issue, though, is when you get an edge of information and it's non-public information, you get it a second, two seconds ahead of everyone else, you didn't used to be able to do anything with it. It was not a problem from insider trading. It now has become an issue.
QUEST: So can you say now on this program tonight you're going to be looking at those situations, whether it's something relatively obscure, like the Michigan sentiment survey or mainstream Fed, because you're in the lockup room when you got your information to your server quicker than anybody else, is this on your agenda?
SCHNEIDERMAN: It's on our agenda and it's on our agenda in two different ways. First of all, we have -- we are looking at specific firms and we've reached an agreement actually with Thomson Reuters that was, in fact, providing a 2-second edge to some -- an elite group of subscribers for the release of the University of Michigan Consumer Sentiment Survey. This is not super-secret research. This is not -- now as someone has discovered a new drug to cure cancer, this is just market moving information.
In that two seconds, the market was moving. I'm pleased Thomson Reuters has agreed to hold up pending the outcome of the investigation. There are other problems like this. But we're also calling on our colleagues in financial services and our colleagues in the federal government for us to address this more comprehensively.
This is something that given the notorious gridlock of Washington, the timing of the gridlock and the emergence of the technology, is creating a particular moment of challenge and that's something that we're trying to address.
QUEST: A moment of challenge and a moment of opportunity for those to take advantage of it.
SCHNEIDERMAN: You could look at it that way --
QUEST: I am.
SCHNEIDERMAN: -- but I will tell you this, I have a lot of friends and I used to represent a lot of people on the street. Lots of people complain about the problem, it's time for us to take action. And we do require help from the good actors in the financial services system.
QUEST: The only time you're -- I was talking about this again with the commissioner -- the only way you're going to get results is either prosecute, lock up or fine.
SCHNEIDERMAN: Well, I think that's true, but I think it's also true that you can -- as we have in other areas in the past -- if you get the industry to agree together that there's some things you can't do -- then --
QUEST: They won't follow it -- come on --
SCHNEIDERMAN: -- no, no, no --
QUEST: -- because you know as well as I do, they won't follow it.
SCHNEIDERMAN: Well, they're not going to follow an artificial rule, but they are going to be able to get us to get some changes done at the federal level. We can't move Washington without the industry, and it is in everyone's interest to stop the flash crashes, to stop the market distortions.
We're talking about things that aren't traditional insider information. But if you can bring the Dow down 142 points with a hacked tweet of a fake explosion at the White House, all of us who care about the integrity of our markets have to be conscious that this is a new issue.
QUEST: Still to come, the one word that came to define central banking in 2013. It began with a T, and if you can't guess, you'd better keep watching.
QUEST: When it came to the Fed in 2013, there was only one word that mattered and it was of course tapering. From the moment Ben Bernanke hinted at it in May to the moment he finally announced it in December, the markets were on tenterhooks and this is how he set the wheels in motion.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: The committee currently anticipates that it would be appropriate to moderate the multi pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year.
QUEST: Measured steps. That was in June, and that same month the emerging market currencies plummeted as overseas investors sold a record $40 billion of treasuries and money headed back into the United States. The head of the IMF, Christine Lagarde told me central bankers should be very careful.
CHRISTINE LAGARDE, MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND: What we want is that gradual exit to be gradual - to be well communicated, to be data-based as much as possible and to be in a dialog with other authorities around the world because anything decided in a key market like the United States, like Japan, like the European Union, it's going to have effects elsewhere.
QUEST: Having had a very difficult first few months in the prospect of tapering, well it seems like the managing director's words were heeded. Ben Bernanke waited until December to reduce bond buying by a very modest - a teensy-weensy little $10 billion.
BERNANKE: Today's policy actions reflect the committee's assessment that the economy is continuing to make progress, but that it also has much farther to travel before conditions can be judged normal. Notably, despite significant fiscal headwinds, the economy has been expanding at a moderate pace and we expect that growth will pick up somewhat in coming quarters, helped by highly-accommodative monetary policy and waning fiscal drag.
QUEST: What this has proved is that tapering is a very delicate business. We're talking about cutting things here and adding things there and shifting things `round. Making things look a little tighter. And when we need to understand how to do it, there's no one better to ask than a master tailor.
QUEST: They're running up the clock with a stitch here and a pin there. It's all in a day's work at this New York' tailors where precision is everything. Tod, tell me the principles of tapering.
TOD GREENFIELD, TAILOR: Well, we custom-make suits so if we're going to be tapering, there has to be a reason.
QUEST: Like master tailor Tod Greenfield, central bankers are used to making small adjustments, a sluggish economy might need a little more room, more accommodation, and as it grows fitter and stronger, it'll be time to trim back the excess, to taper those bond-buying asset purchases.
GREENFIELD: So we tighten the suit and that way it's closer fitting. There's a balance between fit and style and it's a little tricky because if it's too tight, it's no longer comfortable.
QUEST: If they taper too much, it'll become very uncomfortable for the economy and could squeeze new growth. But surely if we taper down, we can un-taper and let it out again.
GREENFIELD: Well, sometimes you can, but it's possible that the seam will show, so you can't always count on being able to let it out again.
QUEST: What advice would you give Mr. Bernanke?
GREENFIELD: I'd advise him to do a little at a time and make sure they don't take too much in at one time.
QUEST: Like the central banker, the tailor is always on the lookout for those areas where the policy could be revised. You're being a diplomat but you're really dying to tell me that my jacket doesn't fit.
GREENFIELD: Well, it could fit a little bitter. It could be constructed with a little more hand work to conform better to your body.
QUEST: So, like me, the U.S. needs a bit of tapering for that sharper economic silhouette. The hardest bit is making the first cut.
QUEST: Ben Bernanke made that first cut at the last Fed meeting of the year. His current deputy Janet Yellen is due to take over as Fed chief on February the 1st. She'll be the first woman to hold that top job. She's not the only new face we saw in global central banking. Mark Carney flew from Canada to take over as governor of the Bank of England in July. He's the first non-Brit to serve as governor in the bank's 300-year history. In Israel, Karnit Flug became the first woman to head that country's central bank, taking over from Stanley Fisher in the autumn. And in India, Raghuram Rajan, a former IMF chief economist, joined the Reserve Bank of India. He took the helm in September, days after the Rupee hit a record low against the dollar and he had to raise interest rates. Janet Yellen has another few weeks to steel herself for the top job. Even with tapering already underway, hers will be a formidable task. Luckily she's well qualified. For several decades, Janet Yellen's career has looked like a textbook path to the top.
JEFFREY SACHS, DIRECTOR, THE EARTH INSTITUTE: She's had the run of senior positions in macroeconomic and monetary policy. She's been within the public sector, she has not played the revolving door game.
QUEST: Professor Yellen began her career in teaching, and a young Jeffrey Sachs was amongst her earliest students.
SACHS: She had come from Yale, she was the star student of James Tobin, one of the greatest economists of the 20th century in the United States, and I felt always privileged to be in her class.
QUEST: She rose through the academic ranks, and by the mid-1990s it was on to Washington.
BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: I will nominate Janet Yellen to be chair of the Council of Economic Advisors.
QUEST: Serving under Bill Clinton, she worked directly with her future rival and a former student.
MARK CARNEY, BANK OF ENGLAND GOVERNOR: I see this as a challenge and it's - I'm going to where the challenges are greatest.
QUEST: His resolve is steely, his path though fraught with dangers. A government intent on stringent cuts, the ongoing headache of the European crisis and of course that primary mandate.
CARNEY: One of the issues in the United Kingdom is the speed with which inflation has returned to target with the optimal path of monetary policy in that environment.
QUEST: Finding the optimal path may require all his special powers. Forward guidance is Super Mark's version of x-ray vision. And don't worry about super human speed, this mission is all about reaching escape velocity. (Inaudible) fast enough for recovery. Even Super Mark must face his kryptonite - quantitative easing. Ending its grip will be painful but sooner or later he must find a way out if he has any chance of taking the British economy up, up and away.
QUEST: After the break in just a moment, call it a bailout bombshell. One of Europe's smallest economies sent shockwaves through the region - again.
QUEST: The economy in 2013 - well during the year the Eurozone got the closest yet to losing one of its member countries. For about ten days in March, Cyrus teetered on the brink of financial collapse. On March the 16th, Cyprus secured a bailout deal worth 10 billion euros, about $13 billion, but in a shock move that sent waves right across the financial world, savers were hit with an unprecedented tax on bank deposits. So, by March the 19th, lawmakers rejected the bailout terms and banks remained closed. By March the 25th, a last-ditch deal was reached with revisions to the original terms - the tax was gone. The new deal spared more savers. It shut down one of the country's two biggest banks, restructured the other. March the 28th, the banks finally reopened. There are serious restrictions on how much cash people can withdraw. The controversial tax on savers angered many Cypriots and it led to the resignation of the finance minister, Michalis Sarris. The man who took his place, Harris Georgiades, spoke to us exclusively from Nicosia only 48 hours after taking the job.
HARRIS GEORGIADES, CYPRIOT FINANCE MINISTER: Mistakes have been made both (inaudible) Cyprus but not only in Cyprus - let's be honest and frank about that at the very least. But let's look ahead.
QUEST: All right.
GEORGIADES: There is no point really in looking back to what has happened. And our objective is to move ahead - stabilize the situation and move ahead.
QUEST: OK, move - let's look ahead then. I'm afraid if we look ahead, Minister, it doesn't look too cheerful either because by every definition, there's going to be a very brutal recession now in Cyprus, worse than you've experienced. Some suggest up to 80 percent of GDP over the next 12 months. How ready is Cyrus and your people for this effectively depression?
GEORGIADES: Well, yes, indeed. We are in for a rough ride and nobody can be prepared really for such an unprecedented correction, this shock therapy that we are undergoing. So I will not try to present a rosy picture -
GEORGIADES: -- of the situation. We are as I have said in for a rough ride.
QUEST: For many Cypriots the bailout was no cause for celebration. Our correspondent Ivan Watson was in Nicosia.
(LIVE BAND PLAYING)
IVAN WATSON, CNN'S SENIOR INTERNATIONAL CORRESPONDENT BASED IN ISTANBUL, TURKEY: It was Independence Day in Cyprus today - not for Cyprus itself but for the republic's big spiritual brother Greece. On the morning after failing Cypriot banks received a last-minute bailout from Europe, Monday's holiday was not a happy one. This is supposed to be a celebration of (inaudible) pride. Instead, many Cypriots are traumatized by what some have described as one of the worst weeks of their lives. There is anger at the tough terms of the billion dollar bailout. Cyprus, they are selling you these young men chant. Cypriots have watched and worried as the economic crisis forced banks to stay closed for more than a week. The island republic's economy has hovered on the brink of utter collapse.
STELLA DROUSSIOTIS, CYPRUS RESIDENT: I was six years old when there was a war here in Cyprus in 1974 and things to remind me of how things were back then - the insecurity of people.
WATSON: Mario and Stella Droussiotis fear they just lost a big chunk of their savings in a single night.
MARIO DROUSSIOTIS, CYPRUS RESIDENT: Last night the tide was to keep our country alive, not to go bankrupt, and I think we succeeded on that. And I hope that in the future we'll (inaudible), but everybody lost a lot of money overnight. If this happened to the state, I don't - I can't imagine what would happen.
WATSON: The bailout deal effectively ends Cyprus' days as an attractive tax haven for foreigners. It basically calls for the closure of Laiki, one of the country's biggest and oldest banks, and calls for higher taxes and an investigation into allegations of money laundering. Everybody including the Cypriot top diplomat knows times are about to get a lot harder.
IOANNIS KASOULIDES, CYPRIOT FOREIGN MINISTER: I cannot say that we rejoice about the agreement, but if this is the only possible way, then I want to assure you that the Cypriots are a very resilient, and we will restart our economy, we will rebuild again.
WATSON: Do you feel humiliated by the European Union right now?
KASOULIDES: We feel - well, we feel that we have not been treated with dignity as we ought to have been treated.
WATSON: At an independent state church service, worshippers tried to keep a stiff upper lip. They finished prayers with a full (throated) performance of the national anthem, a show of patriotism during a time of deep fear and worry. Ivan Watson, CNN Nicosia.
QUEST: Greece, Ireland, Portugal and Cyprus - four Eurozone countries that have now received a full bailout. What happened in Cyprus fueled the old contagion fears - who's going to be next? Was the cry across the Eurozone. Slovenia's (inaudible) jumped on concerns that Slovenia would be the next to require financial help. The prime minister told us those fears were overblown.
ALENKA BRATUSEK, SLOVENIAN PRIME MINISTER: I believe that we can and we will solve our problems ourselves. First of all, our economy is export- oriented, our debt is lower than the E.U. average and we already made a few reforms last year. So I really believe that we will solve our problems ourselves.
QUEST: I agree and understand that Slovenia is not Cyprus. I can see that, but there are issues with the banking sector which are causing concern. The markets are worried about your country's banks.
BRATUSEK: Slovenia absolutely not Cyprus. Our banking system is smaller than Cypriot banking system, our banking system is even smaller than E.U. average banking system. So, I believe and once again we can and we will solve our problem ourselves. We know how and we will.
QUEST: In just a moment why this book was on everyone's reading list - "Green Eggs and Ham." I'll explain.
TED CRUZ, JUNIOR UNITED STATES SENATOR FOR THE STATE OF TEXAS, REPUBLICAN: Do you like green eggs and ham? I do not like them Sam I Am, I do not like green eggs and ham. Would you like them here or there? I would not like them here or there, I would not like them anywhere. I do not like green eggs and ham, I do not like them, Sam I Am.
QUEST: One of the more bizarre moments of the year and perhaps one of the most surreal indictments of the U.S. budget crisis. The Republican senator Ted Cruz on a 21-hour senate floor marathon, reading from "Green Eggs and Ham." It was all part of his attempt to defund President Obama's healthcare reform. Mr. Cruz went on for 21 hours, something even I would struggle to do. Although I did have a little go on my on potted version. And since it's the holidays, here it is again. Tonight's "Profitable Moment." I do not like the budget fight, not in the day, nor late at night. I would not like the bitter pill, the one that comes from Capitol Hill. I would not like the spreading blame, I would not like the selfish games. From Democrats or GOP, it certainly would be hard to see. The Congress leaves things far too late, from coast to coast, from state to state. It's not a joke, it would be bad and soon drive economists mad. They would not, could not dare to think to kick up an almighty stink. Would you? Could you at this time? While the recovery is just in its prime. I would not like it trading, stock markets, the market would be on the rocks. In fact, I'd say to Uncle Sam I'd much prefer green eggs and ham. And that's it for this special edition of "Quest Means Business," I'm Richard Quest. Whatever you're up to in the year ahead, (RINGS BELL) hope it's profitable. I'll see you next year.