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QUEST MEANS BUSINESS

Ukraine Protests; Ukraine Divided; Western Reaction; Ukrainian Economy on Brink of Ruin; Tense Standoff in Ukraine; Fed May Change Guidance; US Markets Seesaw; US Economy; Peugeot-Dongfeng Deal

Aired February 19, 2014 - 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)

MAGGIE LAKE, HOST: The final moments of trade on Wall Street. That's the foreign minister of Uruguay helping to ring the closing bell. We'll be hearing from him later in the program. It's Wednesday, February the 19th.

Tonight, Kiev in crisis. The head of Ukraine's army has been fired by the government. We'll have a live report from the capital in just a moment.

The West unites in shock at the violence. Now, economic sanctions may be imminent.

And amid the emerging market volatility, the Fed warns it's keeping a close eye.

I'm Maggie Lake. This is QUEST MEANS BUSINESS.

Good evening. Fires are burning in Kiev tonight, where a tense standoff between government forces and protesters continues a day after 26 people died in fierce clashes. Ukrainian officials are implementing what they call a nationwide security operation to restore order. The bloodshed has sparked international outrage.

The bloodshed has sparked international outrage. US president Barack Obama says the Ukrainian government is ultimately responsible for keeping the peace. The United States and the European Union have threatened sanctions against Ukraine if the violence continues.

Meantime, Ukraine's army chief has been replaced. However, the reasons for the move are not yet clear.

You're looking now at video shot by drones above Kiev this morning. It shows an apocalyptic scene. Large fires billowing smoke in the capital. It's now almost midnight in Kiev. Phil Black joins us from the scene. And Phil, what are you seeing, especially in terms of the protesters? What are their numbers like tonight?

PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT: Yes, still pretty big, Maggie. There are still thousands of them out on the square, but they are a lot more subdued than what we saw last night. Last night followed that day of terrible violence and clashes on the streets of Kiev that killed 26 people.

They were very nervous when they fell back to Independence Square last night. There was a fear that security forces were going to drive them out. That hasn't happened.

Tonight, they are still there. They are still behind those barricades. They've been reinforcing those barricades. They are still lighting fires in front of them. They're still every so often lobbing fireworks in the direction of security forces, who stand in formation a relatively short distance away.

But today, those two different forces have not come together. They have not engaged, there have been no clashes, and the mood among the crowd has just been a little more quiet and thoughtful than what we've seen.

But certainly still nervous, because the question is, what happens next? And what will happen to this crowd given the government's intention to carry out what it describes as this national anti-terror operation, Maggie.

LAKE: And meanwhile, Phil, the head of the army appears to have been replaced, this news not happening long ago. Do we know anything about that?

BLACK: It's hard to say. No. We know that he's been replaced. We know that he's been moved to another fairly senior position in terms of national security. Difficult to assess the significance of this because senior military and security figures in this country, they are not public figures.

We don't know what is going on behind it, but it does happen -- or it has happened the same day as the security services of this country have announced their intention to carry out what they describe as this anti- terror operation against those they describe as radical extremists and gangsters with weapons.

And the key point to know, as they say, this operation will involve internal security forces and defense personnel. As I say, we don't know if the two are linked, but both announcements have been made on the same day, Maggie.

LAKE: And Phil, we know as we got to this point in the evening last night, there was so much violence, so many fires burning. As we approach the same time, any indication from the government that they are prepared to retreat in any way? Is it possible at the last minute we can see dialogue come up, or does that seem like it is just not on the table right now?

BLACK: No, I think the language that we've been hearing through the day has only reinforced the government language that we were hearing at the end of yesterday. And particularly, I go back to the talk of this launch of an anti-terror operation, which the government has announced today.

As I say, they continue to paint opposition members as extremists, radicals, gangsters with guns and ammunition, and they're talking about this massive security operation in order to bring them in line.

There is no sense at all that the government is prepared to be a little bit more forgiving or understanding about the continued occupation of public spaces here in Kiev or in other Ukrainian cities as well, Maggie.

LAKE: All right, Phil Black, live on the scene for us tonight. Phil, we'll check in with you later. Again, thank you so much.

Now, Ukraine is a nation divided. Security officials are labeling, as you just heard Phil say, protesters as terrorists, saying they are responsible for the violence. The opposition maintains the government is using excessive force and is to blame for the bloodshed.

As for the chances of a peaceful solution, Ukrainian foreign minister Leonid Kozhara told CNN the government has made concessions and met protesters' demands to little effect.

(BEGIN VIDEO CLIP)

LEONID KOZHARA, UKRAINIAN FOREIGN MINISTER: The government of Ukraine has implemented almost all the requirements by the opposition, including the dismissal of the government, the cancellation of the laws, which were not accepted by the opposition. And we are ready to discuss the constitutional reform. Unfortunately, it looks like the opposition doesn't want to share their part of the responsibility with the Ukrainian government.

(END VIDEO CLIP)

LAKE: Viewers in Europe can see that full interview coming up on "Amanpour." Opposition leader Arseniy Yatsenyuk told -- today told CNN more compromise is needed.

(BEGIN VIDEO CLIP)

ARSENIY YATSENYUK, UKRAINIAN OPPOSITION LEADER (via telephone): We need to find a political solution in the house, and we need to find this compromise in order to save the country and in order to save the life of very human being in my country, and in order to save this European country. Because I still believe that we have a pro-European future.

(END VIDEO CLIP)

LAKE: Urgent calls for sanctions against Ukraine are intensifying. Foreign ministers from France, Germany, and Poland are heading to the country. Their counterparts from around the EU are due to hold an emergency meeting in Brussels on Thursday. Meanwhile, US president Barack Obama said there would be consequences if Ukrainian officials step over the line.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I want to be very clear that as we work through these next several days in Ukraine that we are going to be watching very carefully and we expect the Ukrainian government to show restraint, to not resort to violence in dealing with peaceful protesters.

We've said that we also expect peaceful protesters to remain peaceful, and we'll be monitoring very carefully the situation, recognizing that, along with our European partners and the international community, there will be consequences if people step over the line.

(END VIDEO CLIP)

LAKE: Western nations are uniting to put pressure on the Ukrainian government. US Secretary of State John Kerry says the US and its allies are now considering sanctions against Ukraine. Kerry said President Yanukovych must choose between compromise or violence.

Swedish foreign minister Carl Bildt tweeted that President Yanukovych has, quote, "blood on his hands." European Commissioner Jose Manuel Barroso expressed shock and dismay and said member states would discuss sanctions.

Ukraine's already crisis-hit economy could be made to suffer even more. The European Bank for Reconstruction and Development says it is scaling back its dealings with the government, and the European Investment Bank says it will cease operations in Ukraine during violence.

(BEGIN VIDEO CLIP)

WERNER HOYER, PRESIDENT, EUROPEAN INVESTMENT BANK: For the time being, the situation is so cruel that it would be politically the wrong signal but also irresponsible vis-a-vis the people we ask to do the job to be active on business in Ukraine.

And I think it would be completely the wrong signal to appear as being the ones who do business as usual in Ukraine while the people on the streets of Kiev, by whom and why ever are being slaughtered.

(END VIDEO CLIP)

LAKE: The threat of sanctions comes as Ukraine's economy is already teetering near default.

(BEGIN VIDEOTAPE)

LAKE (voice-over): A bank burns in Kiev Wednesday morning, a vivid symbol of an economy on the brink of ruin.

ALEXANDER MOTYL, POLITICAL SCIENTIST (via telephone): The industrial production is declining, foreign direct investment is virtually zero, foreign firms that have invested are skittish, possibly leaving.

LAKE: So far, President Yanukovych's November decision to suspend EU integration and accept a Russia bailout has done little to stop the economy's free fall. The currency has declined around 8 percent against the dollar to a five-year low since that decision, despite central bank intervention. And all three major rating agencies have downgraded the country's sovereign debt.

ORYSIA LUTSEVYCH, RESEARCH FELLOW, CHATHAM HOUSE: This will only momentarily give a financial relief to a system of very complicated macro economic situation in Ukraine, which unfortunately cannot be solved by the current assistance from Kremlin.

LAKE: Even before the Russian lifeline, Ukraine was deep in debt. An estimated $9 billion worth will come due this year. IMF loans account for more than a third of that.

CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: Ukraine is a member of the IMF. We have a dialogue. We want to continue to help, and we will do so. But what the Ukraine policymakers have to do is to stabilize the economy.

LAKE: Many in the country, including MP and businessman Petro Poroshenko, saw EU integration as the only way to do this.

PEETRO POROSHENKO, UKRAINIAN POLITICIAN AND BUSINESSMAN: The association agreement for my country is the only way how to modernize my country, the only way how to improve legislation, to remove corruption.

LAKE: Removing the protesters is the government's first priority. Tuesday's crackdown came one day after Russia promised another $2 billion of bond purchases by the end of the week, the second tranche of the bailout. Longterm economic reform may be some way off.

(END VIDEOTAPE)

LAKE: Peter Brookes is former deputy assistant defense secretary. He joins me now from Washington. Peter, I want to start by asking you, although the news just coming a short time ago, what do you make of the fact that it appears that the head of the army has been replaced? How would you read that?

PETER BROOKES, FORMER US DEPUTY ASSISTANT DEFENSE SECRETARY: It's hard to say. I think your correspondent hit it right on the head. We're trying to figure it out. There's a potential that perhaps the president thought that he might be a threat to the presidency, to the existing government.

Perhaps he thought he was going to go rogue and take matters into his own hands and go against the protesters. There's a whole number of possibilities there. I think we're just going to have to wait and see what's really behind that.

LAKE: Does it look like this is a government that's losing its grip on power in any way?

BROOKES: Well, most of the protests are focused on Kiev. If this starts to shift outside of the city into other major cities and becomes, especially in the eastern part of the country, where we're seeing some actually pro-Russia protests, you could -- this country could move in a very destabilized direction.

I think talking about a civil war is probably premature at this time, but this country is very divided. And if that violence and the protests move outside, or there's a major move by the government against the protesters, which causes it to move outside of Kiev, I think there could be real troubles ahead.

LAKE: Peter, we're seeing condemnation come from all parts of the EU, the US, much talk of the possibility of sanctions. Is there any reason for us to believe that that would be effective, especially when Yanukovych can just turn to Russia?

BROOKES: Well, it may be a feel-good gesture. They have to decide about that. I think that the Americans and the Europeans have been on the sidelines for a long time. This isn't a new problem. The violence has kicked up, but the violence has ebbed and flowed since November when these protests -- started and the government made their decision about EU integration.

So, I think they're a little bit behind the power curve on this. And once again, Ukraine -- we talk about Ukraine, but if you open the aperture a little wider, it's a lot about East and West, Russia, EU, America, even other issues out there, where these countries are thinking about the future cooperation with Russia on such issues as Iran or Syria.

So, there's a lot at stake here, more than just the tremendous challenges that the country of Ukraine itself faces.

LAKE: Traditionally, in this kind of situation, especially with an economy, as we just laid out, that is in absolute tatters, or some people say in free fall. Are sanctions the most effective way? Should these administrations, these government officials, be thinking of something else?

BROOKES: Well, of course, like I said, they're obviously calling for -- there's a lot of political rhetoric out there calling for people to negotiate, calling for people to compromise.

But you're right, as you just mentioned, even if they do target sanctions on the -- on Ukraine, they may go against individuals. I think the US embassy has already pulled some visas of some officials they think may have been involved in the violence or ordered the violence. The Ukrainian government can certainly turn to Russia.

Sanctions -- that's the challenge with them. If' they're going to be really effective, they have to be widely applied. And if there's gaps in those sanctions, then it's certainly going to allow the Ukraine to do what they wish.

And of course, sometimes when you do apply sanctions, which I think is a tool in any foreign policymaker's toolbox, and sometimes an appropriate one. Sometimes it's the people you don't want to hurt that actually suffer.

So there are real challenges there, and once again, I think that Europe and the United States of America probably should have gotten out further in front of this than they have. Now, we're in a real crisis situation where things are looking very, very troubling and it may be difficult to rescue the situation from getting worse.

LAKE: And you're not the only one who feels that way, Peter. Much talk about the fact that this violence has exposed, in many ways, the impotence of the United States and Europe in this situation. All right, Peter Brookes, a former deputy defense secretary. Thank you so much for joining us tonight.

BROOKES: Thank you.

LAKE: Well, still to come on QUEST MEANS BUSINESS, we'll tell you what was discussed behind closed doors at last month's Fed meeting.

(COMMERCIAL BREAK)

LAKE: Policymakers at the US Federal Reserve may loosen the ties they've made between interest rates and unemployment. In the minutes of the of the Fed's latest meeting, members talked about adjusting their forward guidance, which suggests they'll increase interest rates when the unemployment rate is at 6.5 percent.

That's because it's almost at that target already, and the economy's still facing headwinds. Several participants predicted a slowdown in growth. Some said the recent pace of economic growth had been buoyed by temporary factors. And a committee judged that recent volatility in emerging markets was likely to have only a modest effect on the US, although the Fed said it will monitor the situation.

Zain Asher joins us now, live from the New York Stock Exchange with the market reaction. What did people make of the minutes, Zain?

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey, well, you know, when the minutes came out, it took a little while, but then afterwards, maybe after the traders had a chance to digest what was in those minutes, you saw market reaction. But overall, there was a bit of a seesaw session.

The minutes basically revealed, as you mentioned, some disagreement over when to raise short-term rates, and some doubts about whether the central bank should continue reducing the pace of asset purchases, currently set at $65 billion a month.

But another market mover today was really commentary from the IMF saying that risks of turmoil in emerging markets and deflation in Europe could be threatening the global economy.

This morning, we did get housing starts, and this is interesting, because we got housing starts this morning. They showed a decrease in construction of about 16 percent in January, but that didn't really have much of an impact on the market when I spoke to traders, because it was because of the cold weather. So they sort of brushed it off as nothing more than a temporary dip.

And Maggie, just quickly, in terms of some of the market movers, Zale actually rallied 40 percent, the jewelry company Zale. Signet gained 18 percent. Signet said it's buying its fellow retailer in a $1.4 billion deal. Maggie?

LAKE: Still some business getting done. All right, Zain, thank you so much.

Well, Robert Shapiro is the chairman and CEO of the economic advisory firm Sonecon and former US undersecretary of commerce. He joins us now, live from CNN Washington. Robert, thank you so much for being with us. What do you make --

ROBERT SHAPIRO, CHAIRMAN AND CEO, SONECON: My pleasure.

LAKE: What do you make of where the Fed is? It looks like they're determined to continue the taper no matter what's going on, yet trying to also somehow signal that they want to be stimulative. What do you make of it?

SHAPIRO: Well, the fact is, the economy is neither very strong nor very weak. And so the last thing the Fed wants to do in what looks like an uncertain economic environment is take a definitive step which would assume that they knew whether the economy was significantly weakening or significantly strengthening.

Just a few months ago, everyone thought the economy was going to be pretty strong this year. Then we got a couple months of weaker-than- expected numbers. And to me, it still looks like a pause. We don't know what's going to happen.

But we're not seeing any strength coming from Europe, we're not seeing much strength -- the kind of strength we used to from emerging markets. Housing has been one of the bright spots in the US economy. I agree that the January report is not significant, that it's driven by weather. We have to see what's going to happen in February and March.

But the fact is, we are -- I wouldn't say we're bumping along the bottom. We're bumping along at moderate growth, and the fact that we're bumping along means we are vulnerable to shocks. And so, the Fed is trying to keep its powder dry in case events shift.

LAKE: Is it the right decision for them to just get out of this QE no matter what? They seem to be set on tapering, barring any major disaster. Even if we slow down, it looks like they're going to continue. Is that the right thing? Has that run its usefulness, and is it the right thing for them to exit?

SHAPIRO: Well, I think the fact is that they're so committed to exiting that the cost of shifting that policy, unless the economy showed significant weakness, the risk of that would be very great. The markets would say we don't know what the Fed's going to do.

LAKE: Right. And there'd be confusion.

SHAPIRO: And this is supposed to a Fed which is supposed to be transparent. And the Fed doesn't know what it's going to do. And so I think they think it would undermine confidence in the Fed, particularly at a time when we have a new chairman.

LAKE: All right, Robert Shapiro, thank you so much, CEO from Sonecon.

SHAPIRO: My pleasure.

LAKE: Great to see you.

Still to come on QUEST MEANS BUSINESS, China makes a major investment in struggling French automaker Peugeot, with Peugeot family split on merits on the deal. We'll bring you the chief executive.

(COMMERCIAL BREAK)

LAKE: The battle between two Peugeot cousins over the future of the family firm is over, and a Chinese automaker is the winner. Peugeot's owners have agreed to sell a $1.1 billion stake in the company to Dongfeng Motor Corporation. The French government will acquire an equal stake in Peugeot-Citroen, and the Peugeot family will remain the third stakeholder with an equal third share.

It's the end of an era for the Peugeot family, which has controlled the company for over a century. Robert Peugeot, head of the family holding the company, had supported the foreign investment, but Thierry Peugeot was opposed to the deal and will now lose his post as chairman.

The chairman and the managing board and departing CEO of Peugeot- Citroen, Philippe Varin, told CNN's Nina Dos Santos the deal will help triple Peugeot's sales in China.

(BEGIN VIDEOTAPE)

PHILIPPE VARIN, CEO, PSA PEUGEOT-CITROEN: We are entering into a new phase in this market in Asia, which is going to account for 60 percent of the growth in the world. And I think it's a very good deal for our company.

Why? Because one, we are going to triple our sales in China to 1.5 million cars. Second, we are going to set up a technology center in China for the emerging market. And three, we are going to export in Southeast Asia together.

So, we'll transfer technology, but each time we transfer technology, there are royalties paid to us, so it's good news for the company, because it will strengthen our research and development capabilities.

NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Is this just the start of a much bigger partnership between your two companies, though? Could one day we see Peugeot-Citroen becoming a wholly-owned Chinese entity?

VARIN: Well, it's clearly not the intent. Our company will remain a French company with brands which have definitely a French touch, which is their strength and a real asset.

And it will remain a French company because the three shareholders, the family Peugeot, Dongfeng, the French state, they've all agreed to cap their share at 14 percent. There is stance still closed for the next ten years.

DOS SANTOS: If we talk about restructuring, here, obviously this will involve a certain amount of restructuring of your French operation. Is that going to be difficult for the French authorities to swallow at a time when unemployment is at persistently high levels? What kind of reaction have you had from the French government for these proposals?

VARIN: Let's look at the facts. We have gone through a real restructuring period, a very difficult, tough one. We closed one plant in Aulnay, we have downsized another plant in Lorraine.

But now, with our union representatives last October, we signed what we have called a new social contract, and according to this new social contract, we'll reduce more capacities in two plants. We don't close a plant, but we just go from two lines of production to one line.

(END VIDEOTAPE)

LAKE: It is a meeting of the three amigos. The presidents of the US, Mexico, and Canada are meeting right now. We'll have more on that when we come back.

(COMMERCIAL BREAK)

LAKE: Welcome back, I'm Maggie Lake. These are the top news headlines we're following this hour.

The chief of Ukraine's army has been replaced in the wake of violent clashes that left dozens of people dead in Kiev. Thousands of protesters remain camped out in the city center. US president Obama has warned Ukraine it faces consequences if it steps over the line in dealing with them. EU leaders are set to meet Thursday to discuss possible sanctions over the handling of the crisis.

Crowds of protesters have turned out in Venezuela's capital to show support for a detained opposition leader. Leopoldo Lopez is due in court today to face charges of murder, terrorism, and arson in connection with anti-government protests.

Former "News of the World" tabloid editor Rebekah Brooks is expected to take the stand Thursday in London in the UK phone-hacking trial. Earlier on Wednesday, an e-mail was read in court from Brooks that said former prime minister Tony Blair had given her advice in handling the case. Blair's office said he only offered himself as unofficial advisor.

New video released today from Sochi appears to show two members of the Russian punk band Pussy Riot being beaten by the city's security officials. CNN has repeatedly tried to contact Russian officials about the allegations. The musicians say they were trying to film a music video that criticized President Vladimir Putin.

The U.S. president has arrived in Mexico for a summit of North America leaders. Barack Obama is meeting his Mexican and Canadian counterparts to talk about security, environment and trade issues. A Mexican official says the three countries are set to announce measures that will make business travel between their borders more straightforward.

U.S.-Mexican relationship is strong but difficult under the Obama administration. The U.S. has deported more illegal immigrants than it has under any other president; however, the numbers crossing the border into the U.S. are in decline.

As Nick Parker reports, there are plenty of reasons to stay in Mexico as the economy reaches a critical turning point.

(BEGIN VIDEOTAPE)

NICK PARKER, CNN CORRESPONDENT (voice-over): Stealing a historic moment for Mexico, President Enrique Pena Nieto signs a bill ending the 75- year-old state oil monopoly. The aim: to attract foreign capital and expertise, to exploit hard-to-reach reserves.

"This will allow Mexico to generate more energy," Pena Nieto told CNN recently. "It will make it more efficient and will increase the competitiveness of our country."

In recognition of this and other ambitious reforms, Mexico this month became only the second country in Latin America to receive an A grade credit rating from Moody's. According to the government, the energy reform alone will add 2.5 million jobs by 2025.

It's a reform being closely watched north of the border as well.

GOV. RICK PERRY (R), TEXAS: Everyone who had come over here illegally looking for a job to take care of their family has gone back home. And so it's a really fascinating change of immigration policy.

PARKER (voice-over): Illegal immigration has already been declining. The Pew Institute estimates net migration from Mexico is now at zero or less.

PARKER: This is the town of Obelisco (ph), about a two-hour drive from Mexico City. Since the 1980s, it's seen many of its residents leave the country. Most people here have a relative who lives in the United States.

PARKER (voice-over): In the square, there was a generally positive mood towards the energy law.

"It's going to have a big economic impact," this student says. "It's a great initiative from the presidents."

But some are still skeptical.

"It's good for rich people," this woman says, "but for people with less resources, it's just lies. You see it already with small businesses. They have to pay more tax."

Obelisco's (ph) mayor says the number of migrants has already fallen dramatically from 2,000 a year to about 200. He says the energy law will accelerate that trend.

"Obelisco's (ph) going to be one of the first places that will feel the transformation," he says. "Job creation will considerably reduce migration."

But some analysts say it's not just the shift in energy policy at work.

CHRISTOPHER WILSON, WILSON INSTITUTE: It was NAFTA that was implemented 20 years ago finally having the impact that we were hoping for in Mexico. It's the U.S. economy which has downturned. It's increased border security. So there are a number of factors driving these changes in immigration. But all of them added up mean that Mexico is slowly becoming not a sending country to the United States.

PARKER (voice-over): Mexico's reforms have certainly sparked renewed optimism in the country after a year of slow growth. Residents of Obelisco (ph) may have to wait to see the real benefits -- Nick Parker, CNN, Obelisco (ph), Mexico.

(END VIDEOTAPE)

LAKE: While Mexico and the U.S. continue their war on drugs, Uruguay's government has moved to legalize marijuana. The country's president said last week that the U.S. and Europe should consider alternatives to their drug policies. Now you saw the country's foreign minister ring the closing bell just a few minutes ago.

Luis Almagro joins me now from the New York Stock Exchange.

Wonderful to see you tonight, sir. Thank you so much for being with us. Your country is really on the leading edge of this move to legalize marijuana. You say the point is to drive the drug traffickers out of the drug trade.

How will that work?

LUIS ALMAGRO, URUGUAYAN FOREIGN AFFAIRS MINISTER: Yes, I think there is some adjustment between the international conventions on what our people can do. Consumption is allowed. But that nevertheless there is no way that you can reach marijuana if you don't have conduct with drug dealers. That puts you in a -- not in a very safe position.

On security matters, on tariffs (ph) issues, will come to the -- to this -- to this case. But the thing is that if the state regulates this market and provides through the channels of distribution what it can be taken by any consumption -- consumer, then I think we have the solution for this matter. And we fix a black hole that there is there in international regulations.

And as thus, these put in our youth, our young generation, of -- out of reach of traffic dealers.

LAKE: And of course the tax revenue that come from that, not hurting as well, which is one of the reasons so many U.S. states are considering it. We've seen Colorado move to do something similar. And immediately, we saw shortages of supply and price surges.

As you being to implement this program, are there any challenges that you're encountering?

ALMAGRO: Yes, well, it still we need to regulate this new law and the regulation will provide a framework and we'll see how it works. There is no paradigmatic -- dogmatic formulas about this. But what's used before, it was not working. It was not the right thing. We had our youth exposed to criminal gangs. We have our youth dying because of traffic and narco dealers.

So now there is a way that we regulate this market and put this. But we have to keep working on scientific issues, on health issues and on the right agenda. And for that we need some institutions to follow how does it work.

And if there are mistakes in the way, of course we'll adjust the legislation. But let's see. It's a new approach and we hope it will work. And the idea is that health reasons, the right agenda issues and security of our people, are the things that matter in this case.

LAKE: One of the things that's been holding it back, at least here in the U.S., is concerns by opponents, those who don't want to see it legalized, that it will be a gateway drug, that it will expose especially young people to much more serious narcotics, that it'll create a society of stoners, if you will, who will sort of, you know, lack the drive to engage in society.

Are those things that you're concerned about?

ALMAGRO: No. There is a -- these are a way now that you can achieve a certain drug specifically marijuana. The other cases of course are put out and they are not part of this new legislation. In any case, for the future, we expect that this regulation will work eloquently to fix these concerns of the young -- our young generations.

That means that the health conditions will be more properly followed. And we'll need maybe able to avoid these things that the drug dealers do that they tried to engage you in addiction and tried to engage you in harder drugs.

Here, you have a real way to consume something that will not be bad for your health and will not impact badly on the social terms. And that, I think, is the new approach.

The other one, of course, exposed our people to violence, exposed our people to health risks, exposed our people to a social, let's say, nightmare that this one family is affected by a deep addiction.

But now this thing, it tries to avoid all these problems and have a specific concern about these matters.

LAKE: Right, shining a bright light on the problem is sometimes the best way to deal with it. It's certainly a brave new world. Luis Almagro, thank you so much for joining us tonight.

ALMAGRO: A great pleasure, thank you.

LAKE: They are the second biggest group of travelers in the world and they like spending big. Russian tourists are growing in number. We'll show you how hotels are trying to win them over.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

(MUSIC PLAYING)

LAKE: Time for our "Business Traveller" update. Russia may have spent $50 billion on the Sochi Olympics. Today the World Travel and Tourism Council says it will have been wasted if visitors aren't tempted back after the Games.

It warns images like these of unfinished hotels could cost Russia tourists in the future. That would be a huge setback for a growing industry.

The council's latest research shows that travel and tourism currently generates 4.1 million jobs in Russia. That's just shy of 6 percent of all employment there. The industry also accounted for 6 percent of Russia's economy in 2012. That is a larger contribution than many industries, including car making, education and chemical manufacturing.

The council says Moscow needs to make it easier for tourists to travel to the country. In the last week, Russia has said it is considering allowing foreigners arriving in the country by train to stay three days without the need for a visa.

Well, the U.N. World Tourism Organization says tourists from Russia are now the world's second fastest growing group of travelers. Rosie Tomkins looks at how the industry is gearing up to lure in more Russian guests.

(BEGIN VIDEOTAPE)

ROSIE TOMKINS, CNN CORRESPONDENT (voice-over): Google the phrase "Russian tourists," and what comes back is not entirely pretty.

UNIDENTIFIED MALE: (Speaking Russian).

Well, the first thing is Russians being rude.

UNIDENTIFIED FEMALE: A lot of people think Russians have so much money they can buy everything.

UNIDENTIFIED MALE: And unfortunately, what looks very rude to us could be just normal to them.

TOMKINS (voice-over): The Russians have been battling an unflattering reputation for some years now, but then who hasn't?

Long have the Germans been teased for hogging the sun beds (ph), the Americans for lacking culture, the Brits for loving their beer and for a lack of cultural sensitivity, as brought to light by Basil Fawlty.

(BEGIN VIDEO CLIP, "FAWLTY TOWERS")

UNIDENTIFIED MALE: When did you start talking about the law?

UNIDENTIFIED MALE: Me? You started it.

UNIDENTIFIED MALE: We did not start it.

UNIDENTIFIED MALE: Yes, you did when you invaded Poland.

(END VIDEO CLIP, "FAWLTY TOWERS")

TOMKINS (voice-over): The Russians say the accusers are the rude ones, flashing their money around.

KIRILL MAKHARINSKY, PRESIDENT, OSTROVOK.RU: There is this perception that they spend a lot, perhaps more than they should do and they're very vocal about it because once they have this European experience, because of this pent-up demand, they never could travel before.

TOMKINS (voice-over): The spirit and enthusiasm is understandable. After all, just 25 years ago, Russians didn't have the freedom to travel. Along with the fall of Communism came new money and a hunger to travel overseas.

UNIDENTIFIED MALE: It's very much a kind of explosion of travel that has happened out of Russia, pretty much dominated by the growth of middle class in Russia.

TOMKINS: The number of Russians taking trips overseas has leapt from less than 8 million in 2006 to more than 35 million today. And that sounds huge until you consider the total population of Russia is 140 million, still just a fraction of them are traveling, which means a huge growing and largely so far untapped market for hotels.

UNIDENTIFIED MALE: What we see in Russia is this is one of the largest outbound markets in the world. It's growing almost as fast as China. So we've invested in the last two years in a new Russian language website, new Russian language call centers.

UNIDENTIFIED MALE: Many news, TV channels, newspapers, you have to start adapting to them. What are their needs? How should we handle them? What type of room do they like?

TOMKINS (voice-over): At the Corinthia (ph), they've started providing Russian-speaking butlers to their opulent suites. After all, the Russian visitor is on average a bigger spender than others.

UNIDENTIFIED MALE: Not all hotels love Russians. They say they might be more vocal, but they spend a lot more money.

UNIDENTIFIED MALE: They are happy people. They like to have their good time. They have to go -- they like to go to the bar.

UNIDENTIFIED MALE: Beverage, particularly, the Russians seem quite fond of a drink. They bring a lot of cash with them and they spend it.

TOMKINS (voice-over): These new travelers may be just what the industry needs. They now make up the world's second fastest-growing group of outbound tourists. Sir Basil Fawlty and his colleagues had better brush up and behave or they'll risk losing on on a huge exploding new market -- Rosie Tomkins, CNN, London.

(END VIDEOTAPE)

LAKE: We want to bring you breaking news just coming in from Kiev. Ukranian President Viktor Yanukovych has announced a truce with the opposition, direct talks with the opposition will begin according to his statement posted on the president's website.

The announcement comes after Yanukovych met privately with some anti- government officials, including Vitaly Klitschko.

Now another breaking news story that's just coming in to CNN, the Department of Homeland Security has advised airlines of a potential new threat on overseas flights to the U.S. It says there is credible intelligence about the possibility of explosives hidden in passengers' shoes. Officials stress there is no specific plot.

Right. Now time to check in on the weather. Jenny Harrison is at the CNN International Weather Center.

Jenny, what have you got for us? Tell us, please, that it's some good news.

JENNY HARRISON, CNN METEOROLOGIST: Yes, good news, bad news, I think I have got some slightly better news actually this week, Maggie. Things are slowly improving. Here's something, some spring flowers, a little bit early in some cases. But this is actually taken from Worcester in England. Now you might remember this is one of the places it lies along the banks of the River Severn that was very badly flooded.

So nice to see something more positive coming out of there for a change. I'll get onto the flooding in just a moment. And you can see temperatures, look at these high temperatures in the southeast of Europe. Just unbelievable, Belgrade 23 Celsius, the average is 7 for this time of year. Sofia at 21, the average is 6. Very warm indeed, all because of an area of high pressure which has been sitting across this region, one of the reasons, too, of course, the temperatures have been so very warm across into Sochi.

This is the reason, all this very, very warm air, it's actually going to peter off as we head toward the end of the week, quite quiet generally across Central Europe. And we have got that next storm pushing in Wednesday night through Thursday across the U.K. into Northern France as well, but there's a slight improvement here as well. It is still raining. It won't be as heavy as the last few systems. The winds will still be fairly gusty; but, again, not as strong.

But the jet stream is now further to the north. So those systems actually taking a slightly different track. So impacting for example Scotland as opposed to areas further to the south. You can see here another image, Morland (ph) in England. This is in the southwest again. This is actually in Somerset. I mean, just look how deep that water is and it is going to be a long time before the water recedes, particularly if you've got some more rain in the forecast.

This shows you the situation across the southwest before. This is after the flooding and as soon as you see these aerial views, it really just brings it home as to how big an area we're talking about. So there it was before and here it is afterwards. It really had changed the landscape quite dramatically across this portion of the country.

A lot of this is farmland as well, crops and animals have been impacted. This is -- this is towards Bristol, again the southwest, Gloucestershire and Worcestershire to the north. I just mentioned Worcestershire. And you can see here rivers which you weren't even able to detect before.

So again just before and now after. So again, another reason why we've had so much flooding, particularly to towns and villages lying along some of these rivers.

Now the warning storm will remain in place. They have done through Wednesday, will continue to on into Thursday and Friday. And then mostly again into Somerset, we've still got a couple of severe flood warnings out there, but what an improvement on about five days ago.

So now there's just 200 flood warnings in place as opposed to well over 550. That was the case certainly on Friday. More rain, it's been coming in in the last few hours. It will continue to move across much of the U.K., pushing into France, into the Low Countries as well.

But you'll notice the area of low pressure itself. It's much further to the north. SO we're still getting the rain. It just won't be as heavy as we have seen before. It will continue to add up, but a bit of a breather across these central and southwestern areas. Instead of Glasgow, likely to bid up quite a bit for them,61 millimeters. The winds will stay pretty strong, pretty gusty as well.

But again, not as strong as they were. We've moved away from those hurricane force winds. This is a bigger picture in Europe. So a little bit more weather now working its way across central and eastern portions of Europe. But again, at the airports, a lot of the delays have improved, not as many of them and certainly not due to the winds, although Amsterdam could be impacted on Thursday.

Glasgow a lot of that low cloud bringing the rain, well, that will certainly impact possibly your travel plans there. But a lot of green boxes showing up across central Europe. So as I say, it is an improving picture. Even Stockholm with the snow only perhaps 15-30 minutes in terms of a delay.

SO here is what to expect in the way of rain or snow over the next few days, a little bit more snow along the line of the Alps, Scandinavia as well, of course, picking up some snow, Stockholm one of those airports and these are the temperatures still very mild, 12 in Vienna, 15 in Rome and 11 Celsius up there in London.

So you see, Maggie, not all doom and gloom. Not as bad as it was, just not exactly great. But we're getting there.

LAKE: I tell you, Jenny, in the environment we've been in , that qualifies as a good weather report. Thank you so much for it. Good to see you.

Still to come on QUEST MEANS BUSINESS, shares in Spirit Airlines flew in training today after the company reported strong results. I'll speak to the airline's CEO next.

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LAKE: We want to remind our views of the breaking news from Kiev. Ukranian President Viktor Yanukovych has announced a truce with the opposition. Direct talks with the opposition will begin according to a statement posted on the president's website.

The announcement comes after Yanukovych met privately with some anti- government officials including Vitaly Klitschko.

Now share in Spirit Airlines rose in trading after the company posted better than expected earnings. Spirit calls itself the ultra-low cost carrier in the U.S. and Latin America. The airlines said its fourth quarter profit had more than doubled after seeing strong demand and increased capacity. Shares in Spirit Airlines had a very nice day indeed, closing up just more than 6 percent on the Nasdaq.

Well, the CEO of Spirit, Ben Baldanza, joins us now live from Florida.

Ben, good to see you. Thank you so much. Listen, this is a fantastic looking earnings report.

What's going on? Are you just completely undercutting everyone on price?

BEN BALDANZA, CEO, SPIRIT AIRLINES: Well, we're obviously very happy with the result and thank you for speaking with us as well. We're very happy with the fourth quarter we had and the entire 2013. It's a very strong year for Spirit as the year in which we grew 22 percent versus the prior year as well.

And so that was really exciting. The reality is that the customers save a lot of money on Spirit. We have a -- we have a -- almost a Ryanair style kind of model, where we charge a very low price to get on the airplane and then have a whole range of options that customers can pick -- can pick from to maybe make their trip a little nicer, a little better.

And but the combination is that the total price customers pay on Spirit is almost every case lower than what they would pay on a competing airline. So our planes are full and customers love saving money.

LAKE: They love saving money, but you are notorious for charging for absolutely everything, the on-time rate could be better. You're at some point worried that customers will just get fed up with the sort of lack of service? I'm sure you're going to take issue with that, but that those things will start to matter and eat away at your performance?

BALDANZA: Well, you know, there's some truth. But you know, we -- our view is that being a little late is better than being canceled. And when we look at our version of reliability, we don't look only at on-time, we look at our completion factor as well, which is the number of flights that we fly versus cancel. And a lot of our competitors will cancel a flight because they may have a flight in a few hours that they can put you on. Since our schedule is fairly thin in most cases, we only fly once a day, between any two cities, we tend to run the flight a little later versus canceling it. So our view is better late than canceled, while we certainly would like to get the on-time up a little better.

And in terms of the extras or in terms of the extra charges, in all cases those are optional things, and we give our customers way to do it for free.

So for example, if you self-serve, you don't pay; but if you use someone, you use a Spirit team member or ticket counter, then you might pay. If you carry a lot of bags, you pay more than if you carry a few bags.

So it ends working for most customers in a way that they can save a lot of money and that their total price is less.

LAKE: And we've talked before; you've been -- you have aggressive expansion plans. You have been expanding into Latin America. It's -- is that still the focus? Or are you looking more at domestic routes, and which ones?

BALDANZA: Well, it's not only -- it's -- the international markets that we serve from the U.S. which are principally in the Caribbean, Central and South America, are still a very strong part of the network. But we're growing both domestically and internationally. We tend to think about our growth as to where can we make the most money for our investors and where can we get a positive return on our assets.

And the reality is the U.S. market has been a very target-rich environment, if you will, over the last few years because fares have gotten higher in the U.S. And the number of competitors have shrunk through consolidation. And that's created more opportunities for a carrier like ours to bring back the flyer that has been priced out of the market and give them that low fare option.

So the domestic markets have created a little more opportunity in the near term, but both international and domestic U.S. flying is important for us and we'll continue to grow in both arenas.

LAKE: Yes, the best comment I heard today from an analyst was that you're like a honey badger, saying other airlines are better off leaving you alone when you're coming into the market.

Ben, we've got to leave it there. We have breaking news. Good to see you as always. Thanks so much.

We're going to go back to that breaking news from Kiev right now, Ukranian President Viktor Yanukovych has announced a truce with the opposition, Victoria Butenko joins us now on the line from Kiev.

Victoria, tell us, how did this come about? It looked like we were facing another showdown. And has the news trickled down to the protesters yet?

VICTORIA BUTENKO, CNN CORRESPONDENT: Well, a lot of it came as in felt people been outside on the streets for so long. And all the while in Kiev we were able to bear reports and see this create for the last 20- something hours. And also a lot of the pressure from the West and quite harsh statements from a lot of the head of the diplomatic missions and also something to be remembered, a lot of the foreign ministers, European foreign ministers are expected to come to Ukraine in the next 24 hours.

LAKE: Victoria, do you think that people will believe in this? We've heard a lot of skepticism; we've seen dialogue fall apart before. Any reason to believe this time will be different?

BUTENKO: Well, they've announced a number of times it is tried and basically the cease-fire at the moment but overall this protest has been going on for about three months. And people have no trust in the president with him on his word because they've been defeated so many times before.

And that's why one of their demands is to reload a sovereign and new people, new people coming in, system power to (ph), the system of power and the changes in the power as well. So there is no trust to the word; there is no concrete results on negotiations by the cease-fire. But still there -- that would take the level of these -- they would deescalate the level of the conflict, at least outside in the streets. As it begins, clearly, those, the police and the trajectories are very much hard after a long, long, difficult hour.

(CROSSTALK)

LAKE: (INAUDIBLE) very difficult and of course 26 dead.

Victoria, will -- do you get the sense that this will cause the protesters maybe some of them to leave the square? Are we going to change -- see a change in the Geneva (ph) -- or could this embolden them and they'd feel like they've won if the government is backing down?

BUTENKO: Well, there are definitely no feeling of victory at the moment. And also it will not make any of the protesters leave the square. They are very much determined. They've experienced a lot of it since Monday. They've come across some very harsh anti-protest mobs so they protested against. A lot of the -- a lot of the people are detained now. They did in court decisions. They've given two months detention. A lot of basically according to local legislation, any of the person out in the square can be charged, criminally charged. And we had very harsh statements from the prosecutor general, the president, the acting humanitarian and been calling them excellence, calling them radical groups. And they're announcing charges of property has been made disturbance after 17 years of previous, which are going among the same people get for killing someone in this country.

So of course the protester are afraid to leave the square. They are very much determined to stay. They would not even agree to treatment in the hospitals because the police are there and they're afraid they might be taken to the detention facility, which they prefer to being treated --

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LAKE: Right.

BUTENKO: -- onto your doctors --

LAKE: All right. Victoria Butenko with us live on the scene in Kiev after the breaking news that there will be a truce this coming posted on the president's website, Ukranian President Viktor Yanukovych announcing a truce with the opposition. We will of course have much more on this breaking story.

I'm Maggie Lake in New York. This is CNN.

END