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QUEST MEANS BUSINESS

US Jobs Report; US Economic Sentiment; Dow Gains; European Markets Up; Sochi Ticket Sales; Plane Hijack Attempt; Sochi Opening Ceremony; Winter Economic Games; US Unemployment Benefits

Aired February 7, 2014 - 16:00:00   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 serious bunch of people to ring the closing bell on the day that the Dow put on more than 1 percent. It ends a fairly good week for the market overall. Hit the hammer! It is Friday, it's February the 7th.

When it comes to jobs, it's time to pick up the pace. The US labor secretary tells me more work is needed. There was a weak jobs report in the United States.

Also tonight, as the curtain comes up on Sochi, there's a terror threat in Istanbul. We'll give you the latest in just a moment.

And minding your Ps and Qs in Kiev. A top US official uses some rather fruity undiplomatic language.

I'm Richard Quest. It may be a Friday, but of course, I still mean business.

Good evening. We will have the exact closing numbers from Wall Street in just a moment, and we'll wrap it up into how the week traded. First, the latest diagnosis of the US jobs market is out, and the verdict is growing pains.

(RINGS BELL)

QUEST: It was a disappointing January report, and it has led to renewed worries about the economic recovery. Look at the numbers and make your own judgment up. This is how it's gone from August right the way through until now, 113,000 jobs were added on this month.

Now, that is clearly much better than 75,000 in December, but it was fewer than expected. And you can see why there's been such pessimism if you look at the picture over the last six months. We had really strong numbers, 200,000 -- and bearing in mind, 200 to 250 is the sort of number they suggest you need to bring down unemployment in a meaningful way -- October and November.

But these were bounce-back months, and this is where we got all the optimism and the Fed and tapering and all this sort of stuff. And then you have the bad weather of December and January. Many economists had at least hoped December's weak report would be revised upward. It was barely budged, up just 1,000. In fact, the numbers haven't been this low over a two-month period since 2010.

So, with such a scenario, these were the issues I had to put to the US labor secretary, and the unemployment level, at 6.6 percent, it all sounds like good news. So why is the market so worried?

(BEGIN VIDEOTAPE)

THOMAS PEREZ, US LABOR SECRETARY: Well, actually, what I hear from the economists that I've been speaking to is that the labor force participation has been declining for decades. And last month, again, it went up.

And the principle reason that you see this decades-long trend is demographics. People are aging, and they're retiring. And so, if you look at the trend data going back literally, say, 20 years, you're going to see this unmistakable decline.

And so, there's a lot of other bright spots that we see in this month. For instance, manufacturing was up. It was the largest one-month growth in something like five years since 2007, and it's been up over the last year about 180,000 jobs.

And also, manufacturing is continuing to move along at a steady clip. We've had the best four-year stretch in manufacturing since the 90s. But we have to pick up the pace, there's no doubt about it, and the president would be the first to say that.

QUEST: I can hear some viewers saying, have the best gains on the employment front already happened and what we're now going to look forward and look out towards is this very slow slog, which will some months be just a few tens of thousands of new jobs. Other months it might be a bit bigger, the pickup might be stronger, but that the easy fruit has been picked.

PEREZ: Well, it certainly doesn't have to be that way, and the president has a very aggressive plan for picking up the pace. It starts with passing immigration reform, which the Congressional Budget Office said would grow GDP, would add millions of jobs, and help entrepreneurship, help sustain the social security trust fund.

It continues with the president's investments in infrastructure. We have roads and bridges that are desperately in need of repair and need to be built. Those create good middle-class jobs. The president has a plan to invest -- and he's already invested in manufacturing hubs, and his budget has proposed other investments in manufacturing, and those are, again, good middle-class jobs.

We can pick up the pace of this recovery if Congress will pass the infrastructure bills, which have historically enjoyed bipartisan support, and immigration reform, which has historically --

(END VIDEOTAPE)

QUEST: That's the US labor secretary talking to me earlier. That's the White House this afternoon, live picture from Washington. The Obama administration's keen to point out the overall economic recovery is on track. The problem is the general public doesn't seem to be buying it.

Look the numbers. The unemployment rate has actually improved substantially in the United States since it peaked at 10 percent in 2009. It is now at 6.6 percent, which is a positive success when you think of the eurozone unemployment rate at over 12 percent.

The US deficit is also the smallest it's been. We got numbers from the Treasury and CBO, it was $680 billion in 2013, less than half, and it is scheduled next year to come down, the budget deficit, to around 3 percent. Again, that would be worthy of Maastricht criteria in Europe if the US was part of it.

And a CNN/ORC poll suggests just 36 percent of Americans think the economy's in good shape. That's the highest number since the president took office in 2008. Join me for Julia Coronado, who joins me. How wonderful, Julia, to have you in the studio with me.

JULIA CORONADO, CHIEF ECONOMIST FOR NORTH AMERICA, BNP PARIBAS: It's good to be here.

QUEST: Now, this low unemployment rate, it doesn't mean what it used to mean, does it? But we seem to have now -- or the US seems to have hit a very sticky patch to get it further down.

CORONADO: Yes. So, a lot of it has been driven by people just giving up the search for jobs, not last month, but over the last few years, and that's not usually the sign of health we're looking for.

QUEST: But the -- but the labor secretary says the participation rate has been falling for years and therefore that has to just be taken in its stride and that's not a factor in these numbers. You don't buy it?

CORONADO: Well, Secretary Perez is doing his job, being a politician. But in fact, a lot of the decline in participation isn't due to demographics or trends. It is the result of a very weak economy and a disappointing recovery. And that continues to be the case. Now, I will say, we are making progress.

QUEST: But then -- the low-hanging fruit has gone, in terms of bringing down unemployment. And I'm just about old enough to remember the time when 6 percent was considered to be full employment.

CORONADO: Yes. Yes. And we may be in that world again. We do think -- I think that the frictional unemployment rate is probably higher than it was during the boom years.

QUEST: That was an artificial low unemployment rate.

(CROSSTALK)

CORONADO: It was artificially low, that's right.

QUEST: That 4 percent, the Greenspan 4 percent.

CORONADO: That's right. So we may actually start to see wage pressures once we get to 6 percent. But we're going to have to watch and see that. We're not seeing anything on the wage front yet. No upward pressure on wage growth. Still a lot of people with their hands up waiting for a job.

QUEST: If we look at those other numbers, the budget deficit is coming down to 3 percent.

CORONADO: Yes.

QUEST: Now, admittedly, that was as a result of sequestra --

CORONADO: Yes.

QUEST: -- and all the stuff that happened earlier in the year. But it is down now --

CORONADO: Yes, it is.

QUEST: -- at 3 percent. Is the budget deficit an issue in the United States?

CORONADO: It really isn't an issue. We are definitely at comfortable -- in a comfortable fiscal position. Now, down the road, we have issues. As the baby boomers fully retire, we do have entitlement deficits that are staring us in the face. So, we will have to deal with that. But from a cyclical perspective, we've closed the gap and we're at a very comfortable fiscal position.

QUEST: Just want to read you one news flash that's just come across. The US treasury secretary Jack Lew says US borrowing authority may not last past February the 27th.

CORONADO: Right.

QUEST: So, the treasury secretary is now going into his extraordinary measures.

CORONADO: Yes.

QUEST: We're going to talk about it later on the program. How worried should we be about the debt ceiling again?

CORONADO: I don't think we need to be as worried as we were last time --

QUEST: Oh!

CORONADO: Even John Boehner says we're not going to default on the debt, so that kind of takes away some of the bargaining power. The Republicans are not in a mood to go to the mat again, so we think there's going to be a compromise. Of course, it will go to 11th hour. It always does. But nobody's --

QUEST: You're very relaxed!

CORONADO: -- particularly worried about it --

QUEST: You're very relaxed tonight!

CORONADO: Very unlike me, isn't it?

(LAUGHTER)

QUEST: Yes! On this issue.

CORONADO: Look. The Republicans suffered politically --

QUEST: Right.

CORONADO: Obama's already taking a hit from Obamacare. The Republicans don't have to do anything, they just sit back and let him reap -- bear the burden of Obamacare, and they can be the good guys this time.

QUEST: Good to see you. Have a good weekend.

CORONADO: You, too.

QUEST: Thank you very much for joining us.

CORONADO: Pleasure.

QUEST: Now, Wall Street's reacted to the latest job report. Looking at the numbers this week, Alison, we had the biggest loss of the year, we had the biggest gain of the year --

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Right.

QUEST: And by my rather childish mathematics, we seem to be up about half a percent on the week.

KOSIK: Yes. Let's call it whiplash. What a whiplash kind of week it was. And you look at this jobs report, and many are calling it everything from lousy to disappointing, and then you look at the screen, and there's so much green on it, it's unbelievable.

So, it's that whole bad news is good news thing, at least for today on Wall Street. Investors may believe that this reading could be enough to convince the Fed to slow down the taper, while others say there's no need to stress about this report because it's likely not a trend. Then there's the weather, everybody blaming the weather, Richard.

(CROSSTALK)

QUEST: It's rather nice today.

KOSIK: Do you believe that?

QUEST: It's rather nice today, so I'm not going to make too many comments on that. Alison Kosik at the New York Stock Exchange.

Incidentally, Jenny Harrison will be with us later, because I'm well aware, of course, that where you may be in Europe and parts -- certainly on the western parts of Europe, the weather is far from pleasant, and that rain continues. We'll give you an update before the top of the hour, Jenny Harrison will be with us.

The European share markets, how the bourses closed, up for the second day running. Look and see.

(RINGS BELL)

QUEST: Leading gainers are industrials and mines. Heavyweight steelmaker ArcelorMittal was up 4 percent after forecasting higher profits for 2014. London was -- all four of them were up, the best gains being in the Zurich with the SMI.

Now, the drama has begun in the Sochi Winter Olympics. It happened inside the stadium and out. There was an attempt to hijack a plane that brought security concerns to the fore, and the Opening Ceremony took place. We'll be in Sochi --

(RINGS BELL)

QUEST: -- after the break.

(COMMERCIAL BREAK)

QUEST: At the same time as the opening of the Winter Olympics was underway, there was an attempt to hijack a passenger plane en route to Turkey. It's alleged a Ukrainian man claimed he had a bomb and demanded the pilot of the Pegasus Airline fly and divert to Sochi. The crew aboard the Pegasus plane were forced to make an emergency landing in Istanbul.

Ivan Watson is live from Sochi, where it must be now quite late into the night, Ivan, so thank you for staying up late and doing duty. We won't spend too much time on this hijack, because it doesn't seem to have been that -- I mean, it's significant, but not that significant. But what's the gist of it?

(SILENCE)

QUEST: I'm not sure Ivan can hear me. Ivan Watson, in Sochi, can you hear me? No, we appear to be having a few problems with Ivan hearing me. Don't worry, as soon as we can find it, we'll be back with him.

Now, Sochi's Opening Ceremony was breathtaking. But it didn't stop some commenting on the number of empty seats. Our senior international correspondent Nick Paton Walsh has that side of the story.

(BEGIN VIDEOTAPE)

NICK PATON WALSH, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): There may be seven hours left to go here outside the venues, but really, is this it? Not many Americans, not many international fans. Not a lot of bustle ahead of the grand opening.

These three American chaplains, regulars helping out at Winter Olympics, were tempted to buy tickets to the Opening Ceremony, amazingly still available this morning.

UNIDENTIFIED FEMALE: As many Americans as normal when we're here, and we usually are about one day prior to the Opening Ceremony when we arrive, and I haven't interacted with a lot of English-speaking --

WATSON (on camera): People got scared off, or -- ?

UNIDENTIFIED MALE: I'm afraid so. It's unfortunate, but I'm afraid so.

BRIAN PETERS, LUDOS TOUR OPERATORS: Speed skating, hockey --

WATSON (voice-over): In fact, one major tour operator was this morning trying to sell a thousand tickets he'd got to sell to Americans who haven't come. Brian Peters says only about one sixth of their clients are fans. Most are family members of athletes. Normally, it's the other way around.

PETERS: Demand is less than half of what we did in Vancouver. It's probably half of what I would have expected. We've had no shortage of tour clients who had booked full packages, bought their tickets, planned to come. After the bombings in Volgograd, they've changed their mind. They've canceled.

WATSON: And still, security looms large. Without the right pass, no liquids inside the cordon, police showed me in their rulebook. And those who had tickets, Russians, pretty angry. This ticket office not open yet to physically hand people the tickets they've already paid for.

UNIDENTIFIED MALE: Tickets are still Soviet Union.

WATSON (on camera): In what way?

UNIDENTIFIED MALE: In the way that there is a line for everything. There is an internet, there is 3G, there is LT, but you still have to get your paper, you have to wait in line for hours.

WATSON (voice-over): The US embassy still expects thousands of Americans. Putin will hope for some of that to make this moment global rather than local.

Nick Paton Walsh, CNN, Sochi.

(END VIDEOTAPE)

QUEST: So, back to Ivan Watson. Ivan, good evening, can you hear me now?

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: I can hear you loud and clear.

QUEST: Excellent, excellent. And I was saying thank you for doing duty late into the night to talk to us tonight. We just need to really circle around on this issue of the hijacking. What happened? How serious? Or was it sort of a lone wolf rouge that's now got out of proportion a bit?

WATSON: Well, the drama began in the skies over the Black Sea. This was a Pegasus Air flight flying from Kharkov, Ukraine to Istanbul. And at some point in the flight, a Ukrainian national got up, claimed to have a bomb in the cargo hold and demanded that the plane be rerouted to Sochi.

Within 20 minutes, we're hearing from Turkish state media, of a warning alert coming out from the aircraft, the Turkish Air Force had scrambled F16 warplanes to intercept the Pegasus air jet and escort it to Istanbul, where it stood on a tarmac at an airport in Istanbul for some time.

At this point, now, the passengers have all been safely evacuated. Nobody has been injured. No bomb has been found. But a Turkish government official in Istanbul has announced that Turkish security forces had to use force -- no weapons, but he says they had to use force to subdue this Ukrainian hijacking suspect, and he sustained some light injuries. The drama now appears to be over.

We do not yet know the motives --

QUEST: OK.

WATSON: -- of this suspected hijacker.

QUEST: Now, you were there this evening. You saw the fireworks. I don't think you -- I think you were too busy covering the hijacking to perhaps get into the stadium and enjoy it there. Is the atmosphere -- is there now an Olympic atmosphere in Sochi?

WATSON: I think it's safe to say that probably most Russians were glued to their TV to watch this lavish ceremony. I was in a small cafe here in Sochi when it started. It was half full.

But when the Russian national anthem began on the live broadcast, everybody in there, from the patrons to the cooks and the waitresses, they all stood up, and it was clearly a very proud moment for them, some of them singing along. I saw eyes glistening, tearing up. It was a proud moment for the Russians that I saw there.

During the ceremony, we heard an awful lot of Tchaikovsky's Swan Lake, of Borodin's Prince Igor being played. We saw a lot of Russian history being reenacted and a lot of Russian cultural and scientific leaders being celebrated as well.

When the cauldron was lit, of course, a huge fireworks display lighting up the sky behind me. And interesting to note that among the former Russian Olympians who carried the torch at some point up to the lighting was Alina Kabaeva, who was a 2004 gold medalist, who's also rumored to be romantically entangled with the Russian president Vladimir Putin.

Of course, many people saying that this has been a pet project for the Russian president, a prestige project, but I think it's safe to say that many Russians were probably proud tonight of seeing the Opening of these Games, a proud moment for Russia when many of the eyes of the world are on it. Vlad --

QUEST: Ivan Watson, who is --

(CROSSTALK)

WATSON: I almost called you Vladimir, Rich -- Richard.

QUEST: Sorry? I'm sorry?

WATSON: I almost called you Vladimir. But you're Richard.

QUEST: Well, I'm pleased you've solved that problem.

(LAUGHTER)

QUEST: I'd like -- I shall put it down to the cold.

WATSON: One problem tonight.

QUEST: I shall put it down to the cold, or maybe you've been enjoying and celebrating. Vladimir Quest.

WATSON: I wish.

QUEST: It has a certain ring --

(RINGS BELL)

QUEST: -- to it tonight.

WATSON: Vladimir Quest.

QUEST: And Ivan Watson joining us. As the Winter Olympic Games get underway in Sochi, Jack Lew is embarking on what could be described as an Olympian effort to keep the US economy from defaulting on its debt payments.

It's all to do with extraordinary measures, and when we talk about extraordinary measures here at CNN, of course, you have to get the cold weather gear on to look properly for it.

Now, the US treasury secretary has reached what he can borrow, the limit, and from here on in, it's these extraordinary measures before Congress raises the ceiling. And until then, just like the athletes, the treasury secretary will have to employ all his skill and agility to balance the accounts.

So, first of all, the extraordinary measures of the United States. Well, he's putting everything on ice. He's delaying payments and investments which can be put off, requiring special accounting maneuvers, more skillful than the quadruple axel jump, or however that would be done.

And just like the ski jumper -- oh, yes -- he'll be looking to create as much head room as possible under the debt ceiling. He does that by robbing Peter to pay Paul. You create head room so you've got money left to spend elsewhere.

And then, the extraordinary measures, what will they buy? They will buy roughly $200 billion worth of breathing space, $200 billion. In other words, he could buy the Winter Olympics in Sochi four times over, if he wanted to.

By the time the Games close, America needs a deal on the debt ceiling. The closer it comes to the danger zone, $200 billion.

Now, all in all, what's the worst thing that can happen? Well, Julia Coronado earlier said she didn't think it was going to happen, but as we know, the worst thing that happens is there's an accident, as any keen skier will be aware.

Now, still ahead on QUEST MEANS BUSINESS, the benefit of business and benefits of benefits. The US labor secretary tells me why Congress shouldn't leave the unemployed in the lurch. And a leading economist tells me no, let them all eat cake. QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: The US Congress refused to renew benefits for 1.7 million long-term unemployed people. I asked the US labor secretary, Thomas Perez, about the benefits block and why the world's largest economy would let some people struggle.

(BEGIN VIDEOTAPE)

PEREZ: America has a long and proud history of not kicking people to the side of the road who are suffering through no fault of their own, and that's the plight of the long-term unemployed. I've met them. They are looking every single day for a job.

I met a woman who wears her hat and her coat in the house because she has to keep the heat at 55 degrees. She's looking for a job every day. She just e-mailed me yesterday to tell me about her latest interview coming up. That's why we need to pass this extension, because --

QUEST: OK, but --

PEREZ: -- we need to help them.

QUEST: I just want to jump in here, because to the economists like Peter Morici from the University of Maryland, who make the argument that by renewing long-term benefits, it actually worsens their situation, creating a culture of dependency, worsening the employment situation. What is your answer to that economic argument?

PEREZ: Oh, that's certainly not what the overwhelming percentage of economists say, and that certainly reflects the fact that he hasn't talked to the long-term unemployed.

Because what the overwhelming consensus is among economists is that when you have these benefits, one requirement of the receipt of these benefits is that the unemployed must continue to look for jobs. And that keeps them attached to the labor force, and that's critically important.

And I'll tell you, I've spoken to many, many long-term unemployed. It is a full-time job that they are spending looking for a job. This notion that they're sitting on the couch eating bonbons is insulting, quite frankly.

(END VIDEOTAPE)

QUEST: Peter Morici is with me now. Peter, we'll hear your views in just a second. I want to just remind the viewer what you said in an article recently. You said "the weight of evidence indicates that extending long-term unemployment benefits helps neither the overall economy nor the unemployed. To argue otherwise is simply to be blind to facts and deaf to reason." That's what you said.

Now, you heard the labor secretary disagree with you and say you are wrong. The unemployed need these benefits.

PETER MORICI, PROFESSOR OF INTERNATIONAL BUSINESS, UNIVERSITY OF MARYLAND: Well, certainly the unemployed need some kind of assistance. What they really need are job opportunities that the economy is not generating.

We can point a lot of blame, but frankly, neither the Bush nor the Obama administrations, both sides have been very good at it for a variety of reasons.

However, when you take -- we all agree there should be unemployment benefits. The question is, how long? When you take unemployment benefits out too long --

QUEST: Right.

MORICI: -- it does create some resistance to accepting employment, and we've had side-by-side studies done by nonpartisan institutes where we look at two counties side-by-side in two different states sharing a border where the equilibrium wage is higher and employers are discouraged to hire in jurisdictions where there's higher unemployment benefits.

Recently -- remember, the long-term unemployment benefits were administered by the states but financed --

QUEST: All right.

MORICI: -- by the federal government. North Carolina terminated them last July, and there was actually a fall in unemployment --

QUEST: OK, but --

MORICI: -- because a lot of these people who said they needed benefits quit looking.

QUEST: You and I have gone backwards and forwards on this in e-mails --

MORICI: Yes.

QUEST: -- and my argument, Peter, has always been, as long as the Fed itself says that unemployment is elevated and is not even at the position when it's going to move towards a more normal monetary policy, surely it's inhuman not to renew unemployment benefit for those long-term unemployed.

MORICI: I don't know that we want to renew these same kinds of benefits. If we're going to have people that are chronically unemployed, and we have many more people that are chronically unemployed than are receiving benefits.

One out of every six men between the ages of 25 and 54 are unemployed. That is an unprecedented level -- oh, I shouldn't say unprecedented --

QUEST: Right.

MORICI: -- not since the forgotten man in the Depression. My feeling is that if we're going to address them, then just doling out the same old unemployment benefits we know doesn't work. We're really going to have some retraining programs on a massive scale where we actually bring these people in and provide support and so forth and actually make sure that they're working. Put them to work. At WPA if you like.

QUEST: Right, but --

MORICI: But just sending these checks in the mail isn't working.

QUEST: Ultimately, I think you and I can find common ground and agree --

MORICI: Oh, I know we can.

QUEST: -- that something -- let's take Europe. Nobody ever wants to see a situation like the fiasco and calamity of the European situation. I think we can agree on that.

MORICI: Oh, absolutely. And my feeling is that there's a lot of things we could do that I've written about and you're aware of to generate jobs in the United States.

For one thing, we can develop our oil and gas resources offshore and become energy independent, which we've refused to do. We could address our currency problems -- yes, I know you don't agree with that --

(LAUGHTER)

MORICI: -- but I think it's very, very important. However, there are -- if -- but let's look at things we can agree with.

QUEST: Right.

MORICI: I think we are now to the point where we need some Depression-era solutions. The old WPA, which was focused on young people, I don't know that sending a lot of these young people to college, sending them to me, is proving fruitful, where they learn things and then they can't get placed.

My feeling is is that we're going to have to start to look for ways of creating public service employment for these people --

QUEST: Yes.

MORICI: -- if we're going to do anything about it.

QUEST: Peter --

MORICI: And I don't mean a stimulus program. I mean a jobs corps.

QUEST: Good to talk to you. Thank you for coming on tonight. Appreciate it. The right story on the right day and the right man to talk about it. Thank you, Peter, I appreciate it.

MORICI: Take care.

QUEST: Coming up, it's -- this time, it's the US that's target of phone hackers. And interestingly, unlike the US phone-hacking situation, whoever hacked the American phones was not embarrassed to release it en masse in all its fruitiness.

(RINGS BELL)

(COMMERCIAL BREAK)

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 Winter Olympics have kicked off in grand style in the Russian city of Sochi. The opening ceremony started at exactly 20:14 local time on Friday evening. Figure skating, skiing and snowboard events will get underway on Saturday.

Turkey's confirmed that a suspected hijacker is in custody and all passengers are safe onboard a plane traveling from Ukraine to Istanbul. Sources say that a passenger declared there was a bomb in the hold area of the Pegasus Airlines aircraft and that he wanted to land in Sochi. Fighter jets intercepted the aircraft which then safely landed in Istanbul.

Protesters in Sarajevo, Bosnia -Herzegovina have set fire to a part of the presidency building on Friday as they rallied against the government. It's the third day of unrest which has seen riot police clash with demonstrators across the country. Civilians are moving out and aid does appear to be moving in to Syria's rebel-held city of Homs. A brief cease- fire agreed upon in peace talks are taking hold. Three busloads of women, children and the elderly have left so far.

So to the crisis in Ukraine as the company's attempting now to support its floundering currency and imposing temporary capital controls. It follows a huge slide in the currency after weeks of protests and uncertainty which have shaken the confidence of investors and left Ukraine firmly between Russia, the E.U. and the United States. So, we have capital controls that are now in place with reserves drying up fast. More than $2 billion has flowed out of the country during December and January. Fitch has downgraded the country to triple C. Now, once you get to triple c, you - it's implying a real possibility of a default. And on top of all that, we have a leaked phone call that is apparently refueled a diplomatic spat over Ukraine between the U.S. and the E.U. And during that phone call, a voice of what sounds like a high-ranking U.S. diplomatic basically talks about the E.U. in a very colorful and fruity language. Put it all together, and what you have is Ukraine very firmly caught between Russia on the one hand, the E.U. and the U.S. on the other, and as this latest diplomatic argument has really blown up, as Elise Labott points out, even now the U.S. and the E.U. are also seemingly not agreeing, as she reports from Washington.

(BEGIN VIDEOCLIP)

ELISE LABOTT, WORLD AFFAIRS CORRESPONDENT FOR CNN: On the eve of the Sochi games, U.S./Russia relations hit a major snag. Russia now accused of leaking this private audio recording between U.S. diplomats discussing what to do about the current political turmoil in Ukraine.

VICTORIA NULAND, ASSISTANT U.S. SECRETARY OF STATE FOR EUROPEAN AFFAIRS: So that would be great I think, to help glue this thing and have the U.N. help glue it and, you know, f**k the E.U.

GEOFFREY R. PYATT, U.S. AMBASSADOR TO UKRAINE: Exactly. And I think we've to do something to make it stick together because you can be pretty sure that if it does - if it does start to gain altitude, the Russians will be working behind the scenes to try to torpedo it.

LABOTT: That sounds like Assistant Secretary of State for European Affairs Victoria Nuland telling the U.S. ambassador to Ukraine that they were going to bring in a U.N. envoy to close the deal.

NULAND: F**k the E.U.

LABOTT: That audio, first posted on YouTube with Russian subtitles and tweeted by a Kremlin official, is highly embarrassing for the U.S. Nuland wouldn't confirm the authenticity of the tape, but she didn't deny it either. Instead, this veiled swipe at Russia, suggesting Moscow recorded the call.

NULAND: I'm obviously not going to comment on private diplomatic conversations other than to say it was pretty impressive trade craft - the audio was extremely clear.

LABOTT: Even after NSA revelations of U.S. wiretapping of foreign leaders, the State Department called the publicizing of the call a new low for Russia. The months-long protest in Ukraine to oust that country's president have divided the U.S. and Russia, with both accusing the other in meddling in the volatile situation. Attention now fully on display thanks to a Russian tweet of a YouTube link.

German Chancellor Angela Merkel is calling Nuland's comment about the E.U. unacceptable. But while embarrassing, it doesn't seem to be indicative of a major disagreement. The U.S. and Europe are on the same side with their policy, preferring a Ukraine integrated with Europe over one under Russia's iron fist. Elise Labott, CNN Washington.

QUEST: The corruption scandal that's dogging Princess Cristina of Spain is taking an intriguing new turn. The princess will become the first direct member of Spain's royal family ever to testify in court. At the same time she faces preliminary charges for a crime. Al Goodman joins us now from Mallorca. Al, I - this is a very complicated case, and who did what, and it's all about the husband and it's all about - it's deep into the wheat. But I do wonder fundamentally what Cristina's risk and liability here.

AL GOODMAN, MADRID BUREAU CHIEF FOR CNN: Hi, Richard. We're just hours away here in Palma de Mallorca from this unprecedented testimony expected on Saturday morning in court by Princes Cristina, the youngest daughter of Spain's King Juan Carlos, to your question there already is speculation in, for instance, in one of the main newspapers here - "El Pais" - that this testimony on Saturday morning will be the beginning of the end of this case against her because there's a whole series of legal obstacles that may make this the end. But still, that may be getting ahead of it and this case has posed real challenges for the royal family and has riveted Spain, and we took a look at that in this report.

(BEGIN VIDEOCLIP)

GOODMAN: You don't see Princess Cristina's face in newspapers and magazines like you used to now that she faces preliminary charges for alleged financial crimes.

PILAR MINGUEZ, KIOSK OWNER: (SPEAKING IN SPANISH).

GOODMAN: Kiosk owner Pilar Minguez says the only magazine cover this week of the princess is about the questions she'll get in court on Saturday for alleged tax fraud and money laundering in deals linked to her husband's business.

MINGUEZ, TRANSLATED BY GOODMAN: This woman represents my country, and we're not like that, Minguez says. As a Spaniard, I feel bad.

GOODMAN: Her lawyers say she's innocent, King Juan Carlos' youngest daughter has been excluded from royal receptions like this one in Madrid. She's the first direct member of Spain's royal family to ever testify in court. At this butcher shop, it seems everyone is following the case against the princess.

MARIA TERESA ZUBILLAGA, RETIRED BANK WORKER, TRANSLATED BY GOODMAN: She has enough education to understand what was happening, this woman says.

GOODMAN: And what is happening is a national disgrace. It started with the princess' husband Inaki Urdangarin who also denies any wrongdoing. Newspaper editor Eduardo Inda co-authored this book about Urdangarin. The case centers on Urdangarin's nonprofit foundation which obtained millions of dollars in government contracts to stage sports and tourism events. Urdangarin testified a year ago for allegedly diverting some of that money for private use, including through a separate company he had with Princess Cristina.

EDUARDO INDA, INVESTIGATIONS EDITOR, "EL MUNDO," TRANSLATED BY GOODMAN": They used that company, Inda says, to pocket the public money and also to pay the lowest possible tax and were simply cheat the treasury. In that business, Princess Cristina is the one who signs the annual reports.

GOODMAN: The royal palace in central Madrid now facing a tough storm as the public reacts to financial scandals in the royal family and the political elite during the economic crisis. Princess Cristina's testimony comes as a new report by the European Commission shows that 95 percent of Spaniards think that corruption is widespread here. College student Mariana Moragrega says the princess' court appearance will be mainly for show.

MARIANA MORAGREGA, STUDENT, TRANSLATED BY GOODMAN: It's great they're finally bringing preliminary charges, Moragrega says. And considering she's the king's daughter, she'll be very protected and won't go to jail.

GOODMAN: It's another challenge for the royal family in this case to prove that all Spaniards are equal under the law.

(END VIDEOCLIP)

GOODMAN: Richard, there are hundreds of journalists accredited here from many different countries. There are also hundreds of police officers to protect the princess and some protests against her and the royal family are expected. Richard.

QUEST: Al Goodman in Mallorca tonight. Al, many thanks. Now, in a moment take a look at this video. I want you to look very closely - a man on the right is shooting his iPhone with a rifle. It's an act of revenge. We'll tell you what inspired it when we come back in a moment.

(COMMERCIAL BREAK)

QUEST: Bitcoin has plunged in value after one of its biggest exchanges said it was forced to start withdrawals. Look at how the price has moved for Bitcoin - I mean it really is like the Swiss Alps there - hitting a high of just over 920 back in January. And it keeps trying and trying and trying, but the inextricable push is lower -- right the way down to here where we are down under 767. Today, the exchange site MtGox said it was having technical problems due to the number of people taking Bitcoins out. The currency fell more than 20 percent. It stabilized at around $750. It still has some very passionate advocates as this video now shows.

(PLAYS VIDEOCLIP)

QUEST: Now this is a clip uploaded to YouTube showing one Bitcoin user shooting his iPhone with a rifle. It's supposedly it is a protest at Apple's decision to withdraw a Bitcoin app from the I-Store. Apple removed a blocked (inaudible) on Wednesday for what they described as 'unresolved issues.' Bitcoin users have now threatened a boycott. When it comes to the whole issue of boycott, money laundering, secrecy - everything about Bitcoin it seems to be controversial for the established and traditional regulators. Cyrus Vance is the district attorney for New York. He was at a series of public hearings last month investigating Bitcoin's role in the digital economy. I asked the district attorney what his gut feeling was about this virtual currency.

(BEGIN VIDEOCLIP)

CYRUS VANCE, NEW YORK DISTRICT ATTORNEY: From my perspective, I'm really interested in one aspect of virtual currency - Bitcoin or others. It needs in my opinion to be licensed as money transmitters in the state of New York because what we have seen is digital currency is a interesting and valuable trend and I have nothing against digital currency. But we see digital currency being used in the commission of money laundering, credit card theft, identity theft and other crimes. And what we need to do I believe is provide a regulatory framework so that people who are conducting virtual currency exchanges in the state of New York, we are able to identify who the customer is and other basic anti-money laundering provisions, because it's essentially moving value through the internet.

(END VIDEOCLIP)

QUEST: That's the New York district attorney, Cyrus Vance, talking to me earlier. Coming up, it's a big weekend for Beatles' fans and from Liverpool to Los Angeles, we're celebrating a very special transatlantic anniversary. (RINGS BELL).

(COMMERCIAL BREAK)

QUEST: Now Amazon has released the top 100 books that you must read before you die. "Pride and Prejudice" is there of course, so are the authors Jack Kerouac, George Orwell and J.K. Rowling. These are the page- turners, the bodice rippers, but they've inspired business leaders and politicians for 200 years. So, what can we tell you? Well, the British prime minister David Cameron, he likes a bit of Charles Dickens and received the gift of "Great Expectations" from a ministerial colleague back in 2012. Orwell's classic "1984" was an inspiration for Steve Jobs as he unveiled the Apple Mac in the famous Super Bowl at - you guessed it - 1984. Some of the books on Amazon's list tell us all about business. There's "Moneyballs" by Michael Lewis - looks at using stock market techniques to transform Major League Baseball teams. The film of the book starred Brad Bitt. It was nominated for six Oscars. And then you've got "Kitchen Confidential," a face you'll be familiar with from this network. CNN's only Anthony Bourdain exposes the restaurant industry and makes the list as well.

As for "The Power Broker," a biography of urban planner Robert Moses, shows how he was the master builder - Robert Moses, the master builder of the 20th century New York. As for our next story tonight, I claim absolute no impartiality. After all, I was born in Liverpool in Childwall at the height of Beatlemania. Fifty years ago this weekend four lads from Liverpool - they touched down in New York for the first time. It was Beatlemania and it was born state-side. All right, the accent's not as good as it was when I was growing up, but popular culture would never be the same and neither would their home city. Jim Boulden explains.

(BEGIN VIDEOCLIP)

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Musicians still perform on Mathews Street, perhaps taking inspiration from its past. A statue of John Lennon stands respectfully nearby. Mathews Street was home to the original Cavern Club. It's where the Beatles performed 292 times in just two and a half years. It's where fans lined up for hours to cram into a deep underground arches, and it's where in 1973 authorities tore down the building above and filled in the underground arches.

JON KEATS, DIRECTOR, CAVERN CLUB: They were going to build ventilation shaft for the underground railway system and it was forced to close which was of course outrage in Liverpool at the time. They never went on to build the shaft.

BOULDEN: The new Cavern Club is just a few doors up from the original entrance. This new club opened in 1984 and it occupies about 60 percent of the old Cavern. So now along Mathews Street, add the Cavern Pub, the Beatles Souvenir Shop, the Fab 4 Pizza Parlor. There are now plenty of reminders of the Beatles here on Mathews Street, some of it genuine, some of it re-creation and some of it, frankly, attempts to cash in. But the truth is when the Beatles left Liverpool, the city moved on and it's only been in the last decade or so that it has been a concentrated effort to recognize the importance of the Beatles to Liverpool. One of those efforts is on the corner of Mathews Street - the Hard Day's Night Hotel. It opened in 2008, the year Liverpool was the European capital of culture. This independent hotel is full of Beatles photos, music and memorabilia.

MIKE DEWEY, GENERAL MANAGER, HARD DAY'S NIGHT HOTEL: I think there's been a level of inverted snobbery in Liverpool. However, they wanted to push culture and architecture and history. And it -- for me it's only in the last two to three years that they've actually realized that the (attack) brand is the Beatles and all of that other nice stuff tucked in behind them.

BOULDEN: The Beatles last played the Cavern in August 1963, six months before playing their first gig in America. Mathews Street has had to do with look-alikes and memories ever since.

DEWEY: That was in the original Cavern and that's one of the surviving pieces from the late 60s. I think there was a backlash in the 60s -- you know there absolutely was, but you know you're too close then - it's like any period in history I think when you're so close to it, you know, but we don't think Liverpool appreciates its gifts - what the peoples have done.

BOULDEN: Not that the Cavern Club is a museum. It has three live stages.

DEWEY: When Paul played this stage he was actually closer to where the original stage - the original stage is approximately over there.

BOULDEN: London may have been the Beatles' springboard to the world, but Mathews Street was the springboard to London. Jim Boulden, CNN Liverpool.

(END VIDEOCLIP)

QUEST: And interestingly, if you read the book the "Outliers," I'm sure you - the Malcolm Gladwell book, the "Outliers" - it makes some very interesting comments about the Beatles and put it into perspective why they were so good. And it really had nothing much to do with Liverpool, it actually had to do with that tour of when they went to Hamburg in Germany where they performed for five or six hours a day in some beer cellar. And that gave them the necessary 10,000 hours of practice. Anyway, just thought I'd pop that in. But you're not going to find anybody from Liverpool who was like the Beatles, and we'll defend them 'til the last possible moment.

One other little bit from entertainment to bring to you tonight - the comedian Jay Leno signed off for the last time. "The Tonight Show with Jay Leno" has entertained Americans for more than two decades. A chap called Jimmy Fallon will replace Leno. Jay - he's made millions over many years, so there's probably room for some tears.

(BEGIN VIDEOCLIP)

JAY LENO, HOST OF "THE TONIGHT SHOW WITH JAY LENO": This has been the greatest 22 years of my life.

(AUDIENCE APPLAUSE)

KIM KARDASHIAN, TELEVISION PERSONALITY, SINGING: So long, farewell --

OPRAH WINFREY, TELEVISION HOST, SINGING: You'd buy them all a car.

BILLY CRYSTAL, COMEDIAN, SINGING WITH OTHER GUESTS: Goodbye, goodbye, goodbye. Everybody. Goodbye.

(END VIDEOCLIP)

QUEST: Before we say goodbye tonight, you need to look at the markets and see how your wealth has checked out. This is what happened in New York. The Dow Jones Industrials were up 165, a gain of 1 percent on the day. Let me factor that in to you for how the week went overall. Because we had on Monday that 300 point drop, we then had 186-point up midweek, so we had the largest fall and the highest gain over the course of the year. And if you want to know - totting it all up together - you ended the week in New York just about half of 1 percent. Europe also had a volatile week - volatility seems to be the name of the game. We will have a "Profitable Moment" after the break. "Quest Means Business." (RINGS BELL).

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." As you'll know from watching this program, the United States Congress has refused to renew the benefits for the long-term unemployed - those over a couple of years out of work. Well, tonight on this program, you heard a very strong debate on exactly that point. On the one hand the U.S. Labor Secretary who makes the argument that people are looking for jobs and they can't find them and it's heartless not to give them benefits, it's almost inhuman. And then you have Peter Morici, the professor of economics who says no, there's a culture of dependency which is made worse by long-term unemployment benefit. Where do you stand on this?

When I read Morici's views, I thought they were somewhat of the Victorian era. But the more you look into it, you realize, yes, traditional economics does say long-term unemployment benefit does breed a culture of dependency. Except we're not in normal times. The Fed had admitted unemployment levels are elevated in the U.S. - they're draconian levels in the Eurozone. So I'm left wondering is it right to deny people unemployment benefits over the long-term or economically does the big picture count, and actually it's the right thing to do to cut it back? You have your thoughts, not Richard Quest. Because that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you next week.

END