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Quest Means Business

Ukraine Diplomacy; Tit-for-Tat Sanctions?; Ukraine and the Markets; Ukraine Economy; China's Economic Target

Aired March 05, 2014 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, CNN HOST: The closing bell has rung on Wall Street. The Dow Jones is off just 30 points. The market has held its nerve in very difficult trading circumstances. It is Wednesday. It is the 5th of March. Tonight, Ukraine's foreign minister tells me he's encouraged by what he calls initial steps towards direct dialogue with Russia. You'll hear him in a moment.

In the last half hour, U.S. Secretary of State John Kerry said that he had zero expectations of going into negotiations without a commitment to diplomacy, not confrontation.

And also, Europe offers aid to Ukraine if Ukraine commits itself to reform. We'll hear it all in the next hour. I'm Richard Quest. I mean business.

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QUEST: Good evening tonight. The immediate future of the global economy pins on some very delicate discussions over Ukraine. Russia, European and American diplomats have been meeting without resolving the crisis yet.

In the next hour, we'll be coverage the story from all angles that you'll hear from the political, the economic, the diplomatic. We'll be live in Paris, where the U.S. Secretary of State John Kerry's been holding talks with Russia's Sergey Lavrov and ministers from other countries.

Elise Labott is standing by for us there.

In Kiev, Ukraine's prime minister tells Matthew Chance military confrontation is a road to nowhere for his country. We'll have a live report from the Ukrainian capital.

And in Washington, Goldman Sachs' chief exec Lloyd Blankfein tells CNN to expect a roller coaster ride on the markets. You'll see his conversation with Wolf Blitzer in just a moment.

First, though, the latest from the Kremlin this evening. Vladimir Putin has spoken on the phone to the German Chancellor Angela Merkel. The two leaders discussed possible options for international cooperation in resolving the situation.

And Ukraine's new prime minister, Arseniy Yatsenyuk said he discussed the situation with Dmitry Medvedev, his Russian counterpart, and called for diplomacy to prevail. Mr. Yatsenyuk will be in Brussels on Thursday, where he'll join 28 European Union leaders at an emergency meeting.

In the last half-hour, the U.S. Secretary of State John Kerry has been speaking in Paris. He was giving a report on his meetings with the foreign ministers from Russia, the Ukraine and the E.U. And they said they'd agree to keep talking in the days ahead.

(BEGIN VIDEO CLIP)

JOHN KERRY, SECRETARY OF STATE: Russia made a choice and we have clearly stated that we believe it is the wrong choice: that is, the choice to move troops into the Crimea. Russia can now choose to deescalate this situation and we are committed to working with Russia. And together with our friends and allies, in an effort to provide a way for this entire situation to find the road to de-escalation.

The United States is ready to work with all parties to make that happen.

(END VIDEO CLIP)

QUEST: Now a few moments ago, I spoke to Ukraine's foreign minister Andrii Deshchytsia on the line. He was in Paris, but there was no meetings, direct meetings, between himself and Sergey Lavrov of Russia. And now the Ukrainian foreign minister is on his way to Brussels to join his PM for those meetings that will take place with the E.U. tomorrow.

So with so many meetings taking place in Paris today, I asked him what was gained.

(BEGIN VIDEOTAPE)

ANDRII DESHCHYTSIA, UKRAINE FOREIGN MINISTER: You know, I'm sure you're kidding that there is a little bit good move for us. I should have said a good sign, a small little sign for the greater perspective.

I know that Minister Lavrov met with Secretary Kerry, others, ministers. We did also have a consultation after this meeting, myself had a conversation with them, with foreign ministers. And I believe that now heading to Brussels, to meet my prime minister, who is on the way to Brussels -- and I think we have a sign of positive developments, small step forward.

QUEST: But which way does that positive development, that small step go? Because ultimately, what is it about? It's obviously convincing Russia to leave Crimea. But at the same time, keeping the Western alliance that you're putting together on board and enforced.

DESHCHYTSIA: Yes, but I'm saying there's the small step forward. It means that I understand that there is a chance for Ukrainian government to meet with Russian government, to meet with the representatives of the Russian government, as I said, directly. So I -- as I've been saying all the time, I think that the only way to solve this issue is the dialogue.

So if you find a way how to establish this dialogue with Russian government, then it would be for the benefit of both sides. So and for the benefit of actually Europe and the world.

QUEST: Where would such a meeting take place?

DESHCHYTSIA: Well, I don't know at the moment. Let's decide first on a meeting and then we'll see.

QUEST: And --

(CROSSTALK)

DESHCHYTSIA: So but -- yes.

QUEST: And you received very strong financial support today from the European Union, 11 billion euros' worth of promises. This is money that your country badly needs.

How quickly will you want it?

DESHCHYTSIA: Well, we are ready to -- you know, we have the government and we are ready to use this financial assistance and credit. We have the full-fledged government, all the agencies, actually the situation, the economic situation is terrible after the -- what we incurred from the previous government.

And so we badly needed this money to start reforms. So -- and we are ready to accept this and start the -- all these reforms.

QUEST: Finally, Minister, bearing in mind what happened in Crimea over the last day or two, do you think we are -- or that this situation is moving back from the brink? Or is it still right on the edge?

DESHCHYTSIA: You know, there -- we're just talking about the Crimea. I think it's very important, two things, that we have to make -- to use all the efforts to deescalate the situation there, to put military back to the barracks, back to the bases and to have the international observers there, representatives of the international institutions, to see that this has calmed down.

It very much depends on the Russian side position. And that is why it's -- we are looking forward to establish such a dialogue with Russia.

(END VIDEOTAPE)

QUEST: That's Ukraine's foreign minister, talking to me just before we came on air.

CNN's Elise Labott is in Paris this evening.

Elise, looking at the statements from Kerry in his press conference, and listening to Lavrov and all the -- what came out of today that moved this process any stage further forward?

ELISE LABOTT, CNN CORRESPONDENT: Well, I think, Richard, you didn't get that meeting between the Russian and Ukrainian foreign ministers, but I think it was an important day of diplomacy in the sense that now the Russians are at least engaging on this. And you're not just seeing their answer through what's going on on the ground in Crimea.

You did have the Russian foreign minister meeting with Secretary of State John Kerry three times. He also met with the French, the British, the German foreign minister. And then you also had Angela Merkel speaking with President Putin and now there seems to be some kind of diplomatic state of play.

There's a French-German proposal on the table that would have some elements of that February 21st agreement that ended the standoff with the protesters in Ukraine, which does have some elements that the Russians did want, a return to the old constitution, elections, a national unity government, some of the things that inevitably would have some kind of Russian hand, because there are a lot of people in the country that do bend towards Russia.

So Secretary of State Kerry said today that he didn't get that meeting, but that he would continue the discussions tomorrow in Rome with Foreign Minister Lavrov. So now you do have the beginning, the very start of a diplomatic process and we'll just have to see how it shakes out, Richard.

QUEST: Elise Labott, who's been following events with the U.S. secretary of state in Paris tonight.

Elise, many thanks.

Now one of the areas that has been perhaps contentious, even between the United States and the European allies has been the issue of sanctions and the very threat to introduce sanctions against Russia.

At Thursday's emergency meeting in Brussels, sanctions against Russia will be on the table. But it's not just as simple as the West threatening sanctions against Moscow. Reports from Russia says that the Russian lawmakers are drafting their own bill to allow the Russian government to seize the assets of U.S. and E.U. companies.

So the sanctions threat becomes tit-for-tat. And if that is the case, then this is what you're looking at. Some of the companies, BP, with its large stake in Rosneft; Carlsberg, with its 40 percent of business being done in Russia; ExxonMobil, of course, with its business with Russian oil and gas, Renault Nissan with its AvtoVAZ subsidiary joint venture in Russia as well; PepsiCo and McDonald's obviously vast commercial consumer facing organizations -- all these are just sympathetic of the sort of $500 billion in trade that goes backwards and forwards between the European Union and Russia each year, that is the sort of magnitude. That relationship is one of the most profitable and one of the most significant on international trade.

So we discussed all this. John Defterios discussed all of this with Jean- Claude Trichet. Mr. Trichet is the former head of the European Central Bank, the former president. John Defterios asked him about the likelihood of sanctions against Russia.

(BEGIN VIDEOTAPE)

JEAN-CLAUDE TRICHET, FORMER ECB PRESIDENT: Well, economic sanctions in my opinion would be appropriate, of course, if there is no deal, if there is no accord. And then, of course, we have to draw all the consequences from the absence of possible accord.

My working assumption is that we will have some kind of appropriate solution. Maybe I'm too optimistic. If it is not the case, of course we will have to embark on sanctions.

JOHN DEFTERIOS, CNN CORRESPONDENT: Two times the Russians have shut off the taps for gas into the Ukraine in this sort of desperate cat-and-mouse game that's being played here.

Do you see it happening again? Would Moscow do the same and take that gambit?

TRICHET: I think that it is not in the interest of Russia to signal that they are utilizing an energy supply, oil and gas, as a mean to, I would say, influence, because then it would call all clients to diversify and to avoid being dependent.

So I think, again, the interest of Russia is certainly to be a good and reliable supplier and not to signal this kind of attitude.

(END VIDEOTAPE)

QUEST: Jean-Claude Trichet on the issue of sanctions.

Political tension can impact the financial markets as we saw this week with the escalation of the crisis. Lloyd Blankfein is the chairman and chief exec of Goldman Sachs. He tells us, there's a lot of fragility in the markets. You're going to hear him on tonight's program.

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QUEST: Now let's look at this crisis from the economic impact, not only on the Ukraine itself, but also the question of what else might happen, the United States, Russia and the European Union, all of which has an economic implication.

The crisis had investors on edge this week. The chairman and chief exec of Goldman Sachs, Lloyd Blankfein, says the markets are always looking for focus. Just think about how the markets have reacted in the last few days, up a couple of hundred, down a couple of hundred. Lloyd Blankfein spoke to CNN's Wolf Blitzer.

(BEGIN VIDEOTAPE)

LLOYD BLANKFEIN, CHAIRMAN AND CEO, GOLDMAN SACHS: Seems to be stabilizing but it could get -- it could get -- it could get severe. We saw a test of that, an indication of that, a couple of days ago, when you saw the consequences to the international markets, when there was some idea that this could be spiraling out of hand.

Now that it's calmed down, you saw the reaction of the markets was not only to stabilize, but to recover. I think that's an indication of where it could go from here, depending on how bad it gets.

WOLF BLITZER, CNN HOST: Because if there were these sanctions, economic sanctions, there's no, you know, certainty there will be, because a lot of the European countries, they're reluctant.

But those sanctions, they could be pretty painful for Europe and for Russia.

BLANKFEIN: Well, sanctions, you know, actions invite counter reactions. And so I'm sure, if one side to this does something, domestic -- certainly domestic policy will require the other side to do something back. And you can get an accelerating, very -- a very vicious circle.

BLITZER: Because the Russian Duma, the parliament over there, they're already drafting legislation that would confiscate international businesses -- GM has a big plant in Russia, Coca-Cola -- there's a lot of American companies, European companies, that have made major investments in Russia.

And if that were to happen, who knows what the next step would be?

BLANKFEIN: Look, there are lot of considerations that are driving people's activities here, and I'm not suggesting that markets and economics should trump those other very, very important civil and social issues. I just want to make sure that people understand the context and how severe those economic issues would be.

BLITZER: Are we facing a little bit of a roller coaster now with the markets? Potentially one day they really collapse; the next day they made a dramatic rebound. Should we anticipate that over the next few days, weeks?

BLANKFEIN: I think so. I mean, the markets are -- the markets are always looking for a focus. They've found a focus in this. Don't forget, there's a lot of fragility to the markets, even though we're in a recovery, the recovery is slow. People -- it's a little bit -- it has been ambiguous. You'd see the economic numbers have been coming out have not really -- have been good, but not confirming the kind of trajectory we were hoping for this year.

So I think anything that veered -- that causes it to go one way or the other across a tipping point can have an extreme effect.

BLITZER: Goldman Sachs, you have -- I assume you have investments and you deal with Russia, too, right?

BLANKFEIN: Sure. We do.

BLITZER: And so what are the impacts on Goldman Sachs?

BLANKFEIN: Well, we are always navigating situations that are going on like this. You know, our role at the end of the day, we don't make policy as experts. We are -- we always -- in fact, we have the duty to just advise people what the consequence of certain policies would be.

And so, again, the economic -- the economic consequences of any policy decisions vis-.-vis the -- vis-.-vis Russia don't trump, but they will be - - they could -- they'll be important consequences and we're advising what those would be.

(END VIDEOTAPE)

QUEST: That's the chairman-chief exec of Goldman Sachs, Lloyd Blankfein, talking to Wolf Blitzer.

Continuing with the economic impact side of this story, Ukraine has made it clear it needs money and it needs money fast. The deal with Russia, of course, fell apart, the $15 billion.

Now Ukraine says -- the leaders in Kiev say they need $35 billion. Well, today the European Union offered $15 billion in a variety of loans and aid and investment to the EBRD and the EIB. It'll all be spread over a few years. And the U.S., no direct funding, but it's offering itself $1 billion of loan guarantees for loans from other parties, classic loan guarantees.

But the Ukraine is having trouble paying its bills. Gazprom says that it is owed the best part of $2 billion. And Ukraine's indicated it can't pay last month's bills. And on top of that, there's $11 billion that has to be paid to lenders this year, which is growing more expensive all the time.

Most of the loans are in dollars and Ukraine's own currency has fallen steeply against.

So as you look at the way they put the numbers together, it seems it doesn't really add up. What the Ukrainian economy needs now is fiscal and financial discipline in the form of a currency board. That's the view of Steve Hanke, the professor of applied economics at Johns Hopkins University.

He joins me now.

Professor, good to see you as always. You and I have discussed in many troubled zones of the world the need for stability and the way that is achieved. You believed it's by pegging or currency boarding to the dollar or Europe.

STEVE HANKE, PROFESSOR OF APPLIED ECONOMICS, JOHNS HOPKINS UNIVERSITY: Well, I do believe that. But Richard, that's kind of getting the cart before the horse. Right now you have an unelected incompetent government in place in the Ukraine and before that, of course, you had a series of elected incompetent, very corrupt governments in Ukraine.

And the result has been, of course, an economic basket case that we're observing right now.

So the first thing they have to have is a legitimate government in Kiev, one that's been elected and supported by the people. And if you get the people supporting a government, then you can talk about realistic economic reforms.

QUEST: The problem with that, Professor, is that you may have to put in place some form of debt restructuring or some form of economic aid before you can get that elected government simply to prevent the economy from collapse.

HANKE: Well, it looks like they're moving in that direction. But the Ukraine has sucked up a lot of Western money in the post-Soviet era and it's largely gone either down a black hole or in some pocket that no one really can identify where all the pockets are.

There seem to be a lot of pockets there. But the corruption is just absolutely fantastic. And as far as I heard you speaking about sanctions before -- and we have to go back, if I may, Richard -- the key here is, if I may quote from October of 1982, a speech that the great George Cannon, former ambassador to the Soviet Union made.

He said, with regard to sanctions, "We must immediately and completely stop every type of economic warfare. The attempt to prevent or set back the entire economic development of another people has no place in the policies and politics of a democratic state in times of peace."

Well, that's my position. These -- we're just losers if we're getting into an IMF bailout. We're getting also into talking about sanctions and so forth.

So this is -- this is not an economic game plan that makes much sense.

QUEST: But you've got to do something and you can't necessarily wait until an election is held, maybe in three or six months' time. And you've got to protect the economy from total collapse.

So I put it to you bluntly, Professor. What do you do in the next week or month to protect the economic position in Ukraine?

HANKE: In the next -- the -- you call a timeout and a debt default. That's the first thing. All these monies that you're talking about, you mentioned Gazprom as a several billion dollars by Ukraine. Well, if there's no money, they're not getting paid.

If the aid money comes from Europe and the United States, it's going to be going from the taxpayers in Europe and the United States and into the pocket of Gazprom.

QUEST: Professor, thank you for joining us and that good, robust discussion. We'll talk once that elected government's there; come back and talk about how you can protect the currency, Professor, thank you.

HANKE: Absolutely. We can do that, once we get a legitimate government in place, no question about it.

QUEST: Good to see you, sir. Thank you for joining us.

Coming up next on QUEST MEANS BUSINESS, China's leaders set their growth target for 2014 and say it's a critical year.

Bronwyn Curtis will be with us to tell me how Asia's powerhouse is just being cautious, 7.5 percent cautious. QUEST MEANS BUSINESS.

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QUEST: China's premier says its economy is at a critical juncture at the annual meeting of the National People's Congress in Beijing on Wednesday. The government set a target of 7.5 percent, 7.5 percent for growth in 2014.

It's virtually the same target as last year, and growth actually came out just a smidgen higher at 7.7 percent.

It's a deliberate effort by China's leaders to control growth at a -- what they're calling a sustainable level after it threatened to get out of control. The problem, of course, is moderating the pace of growth can send things in exactly the opposite direction and you could end up with a much harder landing.

Premier Li Ken Jung says the economy can still expand in what he called the medium to high rate for some time to come.

Bronwyn Curtis is the global economist who joined me and I asked her, 7.5 percent, well, if they make that number, there will be some who say it's too little. There will be some who say it's too much. So is it just disappointing to have a 7.5 percent number?

(BEGIN VIDEOTAPE)

BRONWYN CURTIS, GLOBAL ECONOMIST: Last year, the target was 7.5 percent. They turned in 7.7 percent. But this year, it's going to be more difficult to turn in that 7.5 percent because you know, the economy is slowing. You just have to look at the latest numbers, the purchasing managers' numbers, both on services and manufacturing.

Both went down. You know, it's not -- it really is slowing, compared to last year.

QUEST: But the one thing the Chinese economy cannot afford is necessarily more borrowing, if you like, at the -- at the grassroots. We don't really know the full effects or the full amount of debt, bad debt, in the Chinese banking system.

CURTIS: Well, that's right. And of course, the shadow banking system really, it's very opaque what's going on there. And it does worry everyone.

They are making financial reforms. That's one of the big things that they have looked at last year and again this year in the plan. So they want to deregulate interest rates, deregulate the renminbi. And we've seen it, remember, moving up and down recently, not just up, which it always used to do. So they are making steps. But they're very cautious about it.

QUEST: So does China -- pulling all the strands together, does China get to play the role that it should play, if you like, in global growth next year?

It may not be an engine of growth; it's certainly not the United States as an engine of growth. But it has been a backstop of growth.

Does it play that role next year?

CURTIS: I think it still will play that role because they will try to hit that 7.5 percent, even if it means that they have to put more money into real estate and, you know, investment in infrastructure. So I think that's important because actually, as you say, the U.S. is slowing; Europe's slow.

I mean, we usually come out of a recession, have 4 percent to 5 percent growth in the U.S. It's nothing like that. So I think they are still a backstop. And we do know that they will be very cautious about all these reforms because growth is important. They've got another 10 million jobs that they're aiming to create. And you can't create those without growth.

(END VIDEOTAPE)

QUEST: Bronwyn Curtis making sense of the situation in China.

Ukraine's prime minister's spoken to CNN. He says what Russia's doing in Crimea is totally unacceptable. We're live in Kiev next.

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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. A day of diplomatic activity aimed at finding a peaceful end to the standoff in Ukraine. The U.S. and Russian foreign ministers met in Paris for face-to-face talks for the first time since the beginning of the crisis. Ukraine's foreign minister Andrii Deshchytsia told me on "Quest Means Business" a short while ago that he saw encouraging little steps towards dialogue to end the crisis.

(BEGIN VIDEOCLIP)

ANDRII DESHCHYTSIA, UKRAINE FOREIGN MINISTER: The only way to resolve the issue is the dialogue, so if you find a way how to establish the dialogue with Russian government, then it would be to the benefit of both sides. So, and for the benefit of actually Europe and the world.

(END VIDEOCLIP)

QUEST: In the trial of Oscar Pistorius, the defense attorney questioned allegations that Pistorius intentionally shot his girlfriend. A second neighbor testified she heard shouting the night Pistorius shot and killed his girlfriend Reeva Steenkamp. As the prosecution took aim at the defendant's character, the testimony from a friend of his who said Pistorius wanted him to take the blame for a separate incident when Pistorius accidentally fired a loaded gun in a restaurant.

Three gulf Arab countries are withdrawing their ambassadors from Qatar. Saudi Arabia, the UAE and Bahrain say Dohar is not living up to an agreement not to interfere in one another's internal affairs. That includes an agreement not to support what the statement calls hostile media.

In Cairo, the trial of 20 journalists, including (inaudible) of the Qatari- based news channel Al Jazeera resumed today. They're charged with spreading false information about Egypt and helping the band Muslim (Brotherhood).

Ukraine prime minister says he has spoken to his Russian counterpart, Dmitry Medvedev and that he demanded that Russia pull out of Crimea and resolve the crisis by diplomacy. Arseniy Yatsenyuk spoke to CNN's Matthew Chance this evening. Matthew's with us live tonight from Kiev. These talks that took place or this conversation significant indeed.

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT BASED IN LONDON: Absolutely. In fact, it's the first time that it's emerged that there's been such high-level contact between the interim authorities here in Ukraine and the Russian leadership who is between us and Yatsenyuk, the interim prime minister here. I sat down with him earlier and the Russian prime minister, Dmitry Medvedev. In that conversation, Mr. Yatsenyuk told me that he told Russia that it was in violation of international laws and called on Russia to use diplomacy to solve the crisis in Ukraine. It was a very strange interview in fact because Mr. Yatsenyuk was under an enormous amount of pressure, he had to stop the interview a couple of times, he's 39 years old, and so it makes him one of the youngest prime ministers in the world. His country is virtually bankrupt as you well know and he's also been invaded by Russia. And so it's perhaps understandable he's under some pressure.

But he did make some powerful points and revealed that. He also spoke about his concern should diplomacy fail. Take a listen.

(BEGIN VIDEOCLIP)

ARSENIY YATSENYUK, UKRAINIAN PRIME MINISTER: We have just two options on the table. The first one is a political option, another one is military. I believe that the right one is to use all diplomatic and political tools to tackle the crisis and to stop the invasion.

CHANCE: Are you saying that if diplomacy fails, the possibility of war with Russia is still on the table as far as you're concerned?

YATSENYUK: I do not support any kind of military force or military actions as for me this is the way to nowhere.

(END VIDEOCLIP)

CHANCE: Yes, so the interim prime minister doing his best not to -- not to rule out any options, but he certainly wasn't taking confrontation with Russia off the table. I mean, how could he? I mean, he's got you know so many Russian forces -- thousands of them -- in that corner of Ukraine in Crimea, and there's almost daily contact of course between them and the Ukrainian forces in Crimea that remain loyal to the government in Kiev. And so it's a very dangerous period here. That's why the negotiations taking place now are so crucial to de-escalate this crisis.

QUEST: Matthew Chance in Kiev for us this evening. We need to talk about this side of the story. Ian Bremmer is the president of Eurasia Group of consultancy that looks at political risk. He joins me now. We're talking about Ukraine's future and how we get out of this. Your view is that the U.S. -- if you like the Western allies for want of a better phrase -- overextended themselves. What do you mean by that?

IAN BREMMER, PRESIDENT, EURASIA GROUP: In the sense that this is Russia's most important national security interest outside of its borders -- in the world, period. I mean, in terms of having their only warm water port in Sevastopol, it's a country that most Russians believe is part of the Russian homeland and it also is critical for energy for transport in their own economy. So the notion that they were simply going to say, OK, we've signed a deal -- the Ukrainian opposition signed a deal with the president -- and that -- and now instead it's going to be part of Europe -- that was never going to fly. And the Americans don't have the ability to get them off that dime. So, we're not going to escalate this to NATO military intervention, we're not going to escalate them -- this -- to cut off all economic support for Russia. The Europeans won't support it -- they're the ones that actually have access to the Russian economy. So we were never going to create a -

QUEST: But you couldn't do nothing.

BREMMER: No, you couldn't do nothing -

QUEST: You couldn't do nothing and once Yanukovych had gone -

BREMMER: Yes.

QUEST: -- and there was in interim administration, what you seem to be suggesting is that it was inevitable that this would have happened.

BREMMER: That Crimea was going to -- yes, I mean, look -- I think that we probably made it a little bit worse by pushing it. When you say we couldn't have done nothing -- in Syria could we do nothing? What have we done? We've done close to nothing. We've certainly complained. We worked with the Russians to get a chemical weapons deal, but the Syrians are still getting killed. Our capacity for doing nothing --

QUEST: Two wrongs don't make a right.

BREMMER: I agree. But, I'm just saying our capacity for doing nothing is relatively high at this point, right? I mean, we certainly would've offered all sorts of diplomatic "we protest"s and we could have not shown up for the G8, but the idea that we're going to push these guys out of Crimea is zero.

QUEST: Look, but you have to resolve this in some way that has some form of respect --

BREMMER: Yes.

QUEST: -- for international law and the territorial integrity of the country. Because as the -- as Secretary of State Kerry said today -

BREMMER: Yes.

QUEST: -- once you start going down the road of not or allowing this to take place, where does it end?

BREMMER: That's right. Hillary Clinton obviously making some statements in that regard as well -- comparing Putin to Hitler. Look, I think that there is a deal to be done -

QUEST: Which is what deal?

BREMMER: -- that deal is you probably facilitate it by the Germans. It is -- you can't get the Russians out of Crimea but you say we're going to have a referendum in Crimea -- autonomy or independence -- the Russians will respect it, Ukrainians will respect it, you'll have elections in Ukraine supported by an IMF and U.S. (inaudible) funding --

(CROSS TALK)

BREMMER: Crimea's not splitting the country, but the fact -- if Ukraine loses Crimea, you're not splitting the country? But I promise you you're not going to get a better deal than that. This is from the Russian perspective. That's actually a loss compared to where they were a month ago or three months ago. And it's a loss compared to the deal that the European foreign minister -

QUEST: Yes.

BREMMER: -- signed.

QUEST: Right.

BREMMER: And that does matter. I mean, that's not as if that was a deal that the Russians just said, 'oh, we love this deal." The Europeans were on the side of that.

QUEST: Does the West continue to provide these billions of Euros and dollars to try and prop up the rest of the Ukraine?

BREMMER: As long as you and I are talking about it on Headline News, yes. As soon as we stop paying attention to it, the Ukrainians are no longer the priority that the southern Europeans are, that the Americans are domestically. So, the likelihood of default goes up, the likelihood that the Russians are able after a deal to buy off -

QUEST: Right.

BREMMER: -- a candidate to become the next president of Ukraine like Ms. Tymoshenko who is going to say she's pro-West, but is massively corrupt and will work with the Russians. It's pretty high. So, let's be clear here, a deal doesn't mean Ukraine shifts its geography, it doesn't mean that Ukraine is no longer dependent economically on Russia. These guys can't move, you know?

QUEST: Leave it there. Good to see you, thanks --

BREMMER: Good to see you, Richard.

QUEST: See you, thank you.

(CROSS TALK)

QUEST: When we come back in just a moment, how many passengers can you get through a tunnel under the English Channel -- more than you can think -- millions more. Eurostar (RINGS BELL) after the break.

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QUEST: Now, as I say, something completely different in our "Business Traveller" update. The Australian governments rejected a request from Qantas for an unsecured loan or loan guaranties. Loss-making Qantas wanted to borrow $2 and 1/2 billion U.S. dollars. The prime minister of Australia says a better way of raising revenue will be to restrict or to scrap the restrictions on foreign ownership of Qantas. They also said incidentally on Qantas when they looked at the assets and the cash that Qantas had on hand, that it would be a going concern for the foreseeable future. Eurostar says it carried more than 10 million passengers for the first time in a year. The high-speed train operator -- 10.1 million people under the English Channel -- that's up 2 percent since the previous. I asked Eurostar's chief exec Nicolas Petrovic whether becoming more aggressive on ticket pricing -- cheap tickets -- whether that was now an important part of the firm's strategy.

(BEGIN VIDEOCLIP)

NICOLAS PETROVIC, CEO, EUROSTAR: It's essentially trying to fill up the trains during the winter season which is usually January or February where people travel a lot less. So, the idea is really to fill the trains all year around at the same level. And also, we open booking horizon for six months in advance instead of four month in advance. Executive (Inaudible) tried to fill up the trains as early as possible with cheaper fares, and then we grew from that.

QUEST: How are your new trains coming along?

PETROVIC: The new trains are still planned to get on line next -- the end of next year, and they're currently being tested in Belgium and France and we've got a first (full train) setting the U.K. actually at our facility in Stratford where you went. So, I think the program is progressing very well.

QUEST: So as you look forward now -- I mean -- the numbers are strong, the trains are being filled, you've got bargain fares to help more of a capacity. What do you now do to increase revenues? Because one of the things about Eurostar -- and you and I have discussed this before -- it's almost a mature business with fairly limited opportunities for immediate new revenue raising.

PETROVIC: Yes, that's right, but I think we -- there is -- even in our core markets there is the capacity to grow with the return of the economy growth, so we'll go for that. We are adding capacity this year for the first time in a few years, especially in the summer time. So there is still a bit of growth to get, and of course as you know -- we discussed that many times -- it's a bit more, you know. Next year we'll go to Yun (ph) as in Yun (ph) (Inaudible) and 2016, we'll go to Holland the hotel (ph) (inaudible) Amsterdam. So, that's where we're going for growth and we're still setting well overseas, i.e., outside of Europe where there is a lot of potential still. So, I see several avenues for growth. It will be -- I would say -- mass (inaudible) but there's still a lot of incremental growth to come for the - - for a good number of years.

(END VIDEOCLIP)

QUEST: Similar sort of stories that many CEOs are telling us and no big bang of growth, but slow, steady incremental change. Jenny Harrison at the World Weather Center. Any big bang weather for us today or slow, incremental changes in the forecast?

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: You know, I think a gradual, slow improvement, Richard, a gradual warm up -- so now that's always good. You don't want a sudden warm up. But, let me start by showing you the satellite across Europe. Because, again, it's very unsettled particularly across the central and southeast Mediterranean. This one area of low pressure very, very slow to move. It is on the move, but look at the rain that's come down in the last 24 hours. In Samos -- in the island of Samos belonging to Greece, we've got 116 millimeters of rain. That's a huge amount in a very, very short space of time, all courtesy of this system. And as I say, it's moving slowly away certainly from Italy.

We've got fairly quite conditions across central regions. Not as good as it sounds. We've h ad quite problem with fog certainly in some of the major airports and another system heading in towards the U.K. This was a picture in Venice actually from Tuesday. The Aqua Alta very high or modest high as we've seen. But it's still high enough to flood the square there, some (inaudible) as you can see. That should improve in fact over the next few days. There are no warnings in place, and the rain, as I say, eventually pulling away certainly from central and northern areas of Italy.

And then some better news too when it comes to what's going on in the U.K. because we have still got flood warnings in place -- 106 of them -- but they are getting better. You remember, for weeks and weeks we've been showing you some of these areas -- Somerset in particular which is rare. That was in red, it's now down to orange, although what we have got for the next few days is this county of Hampshire that has now got a medium risk of flooding in place, but it's getting better. It's getting nice across the south. We've got some very nice warm air I should say. Shouldn't get your hopes up too much, but some warmer weather ahead certainly in London -- the tourists out having their pictures taken. But there is some more rain to come through, mostly across the north. What we have seen is a huge amount of snow up into the Highlands of Scotland. Now, this was taken back in December -- the reindeer up there in Aviemore, but I can tell you -- it's not that different even now.

The (Inaudible) Range Ski Resort -- they've actually had their busiest day this past Sunday, nearly 2,000 people hit the slopes. They've had 59 consecutive days of snow, that is how good it has been -- at one point 6 meters of snow on the lower slopes, 4 and 1/2 on the upper slopes. And they're actually saying right now that if that snow remains, and there's some more in the forecast, it could actually see them through certainly all of spring, maybe skiing even into beginning of summer. There's that fog causing problems -- Munich and Berlin as you can see Thursday, and then also in Prague in the morning hours there. But, never fear, if you really have had enough of this winter weather, well, take yourself off to Sardinia, glorious weekend ahead -- 18 Celsius both days. Good, lovely sunny skies if you want it even warmer than that, there are places you can head to. How about Seville in Spain -- 23 Celsius Saturday and Sunday. A bit more cloud around on Sunday, but it promises to be dry. Very nice weather as well either side of the weekend for both of those locations. These are temperatures for Thursday -- 13 in London, 14 in Paris and as I said, it's getting very nice across much of the north as we head into the weekend, Richard. So good news for a change.

QUEST: Yes, I do, I like your weekend selections.

HARRISON: Yes.

QUEST: Your weekend retreats.

HARRISON: That's good.

QUEST: Book me a ticket to Seville, I'll see you there with some oranges. When we come back after the break, we're going to set our attention on the looking at Moscow and the question of sanctions. If they are imposed, what will it do to the lifestyles of Russian's ex pats in one of the major markets like London. We'll have that after the break. (RINGS BELL).

(COMMERCIAL BREAK)

QUEST: In the past few moments, Russian president Vladimir Putin said the crisis in Ukraine may have negative consequences on the customs union of Russia, Belarus and Kazakhstan saying Ukraine's a key economic partner for the Eurasian Economic Council. Mr. Putin called for discussions on a framework for further cooperation with Ukraine. Interesting. There are concerns in London that any economic sanctions against Russia will only hurt the British economy. Lavish spending by Russian ex pats have become a feature of life in London. Isa Soares takes a look at the role of Russian in the U.K. economy.

(BEGIN VIDEOCLIP)

ISA SOARES, REPORTER AT CNN INTERNATIONAL: The Yevgeny Chichvarkin was only meant to come to London for ten days. He's been here for five years now and has even set up shop. And how much is that one?

YEVGENY CHICHVARKIN, OWNER, HEDONISM WINE: $98,000.

SOARES: This Russian millionaire now sells the world's finest wines to the global elite. And his clientele, naturally, includes the wealthiest Russians, a number that's growing.

CHICHVARKIN: When we came it was about 200,000, and now it's nearly doubled. I think quite bigger wave will be very soon because our Russian president is completely crazy.

SOARES: Yevgeny is one of more than 45,000 Russian-born residents here. They've made such an impact that the capital's nickname has become Londongrad. There's even a reality series about the city's super rich Russian residents.

Male: Welcome to the revolution.

Female: Meet the Russians.

SOARES: Well, Mayfair is a favorite location for wealthy Russian ex pats.

GARY HERSHAM, BEAUCHAMP ESTATES: Values in London have only increased.

SOARES: Gary Hersham who runs a private luxury estate agency tells me Russians are some of his most important clients.

HERSHAM: People come here and buy their properties here knowing that their asset will never be taken away, knowing that there won't be some form of political upheaval, and the worst that can possibly happen in London is a slightly change tax regime.

SOARES: According to estate agent (Inaudible) Frank (ph), Russians accounted for 9 percent of all London home sales that cost more than $1 and 1/2 million last year, and in 2013, 27 percent more Russian children enrolled in private schools than the year before. They're attracted to political stability, low taxes and investment opportunities. Just this morning Lenta, Russia's second largest hypermarket chain, floated on the London stock exchange. The company's one of at least three Russian retailers to open here -- attracted by bullish IPOs.

ASHARF LAIDI, CHIEF GLOBAL STRATEGIST, CITY INDEX: There are around 30 companies listed with a total market (de/re-)capitalization of $450 billion U.S. dollars. So, that's around 13 percent of the total market cap in the London stock exchange. So that's a lot of money.

SOARES: Despite talk of Russia facing economic consequences for its actions, there are fears that Russian money, too crucial for the British economy according to the Bank of International Settlements, British banks have more than $19 billion in loans in Russia. And that basically means that if there were to be any sort of sanctions on Russian businesses, then British banks could suffer huge losses. But not surprisingly, the British government may want to focus on hard diplomacy rather than on anything that may affect jobs and growth. Isa Soares, CNN London.

(END VIDEOCLIP)

QUEST: Now, a bit of "Profitable Moment" after the break.

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QUEST: Tonight's "Profitable Moment." There is perhaps an irony in today's decision by the European Union to offer up to $15 billion in aid to Ukraine. It was those similar sort of sums bandied about last year that the Europeans refused to lend, and that refusal pushed the then-president Yanukovych to towards the arms of Russia, who opened up the checkbook, seemingly gladly. Now, of course, things are very different. Eleven billion euros from the Europeans, a billion euro -- a billion dollars -- from the Americans, the IMF will come in with billions more. The truth is no question of whether transparency and corruption and reform will come along. It will come along in the fullness of time, but the reality is the Europeans and the Americans, the IMF and the ECB, they're all in this now whether they like it or not. So they can do their best to get the assurances they seek. But the truth is, the only thing they have to do now is get the checkbook out and write.

And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BILL) hope it's profitable. I'll see you tomorrow.

END