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Quest Means Business
Saudi King Abdullah Dies, Crown Prince Salman Appointed King; Problems Facing New Saudi King; IMF Chief Remembers King Abdullah; King Salman's Oil Challenge, Saudi Oil Plan; Dow Off 141 Points; European Markets Soar; Germany's Reaction to QE; Lagarde on ECB Stimulus
Aired January 23, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: The market comes to a close at just about the lows of the session, off 140 or so points on a Friday that saw selling
right the way through the session. The gavel has been hit. It is Friday, it is the 23rd of January.
Tonight, Saudi Arabia lays its leader to rest. The new king pledges continuity of policy.
You've had QE, now do reform. Christine Lagarde of the IMF and Wolfgang Schaeuble say now it's time for action.
I'm Richard Quest. It may be Friday, but I still mean business.
Good evening from Davos. Tonight, as Saudi Arabia reflects on the life and the legacy of King Abdullah, the message from his successor is
quite clear: continuity. The king's younger brother, Crown Prince Salman has now acceded to the throne. He's an experienced leader, although there
are concerns about his health.
In a nationally televised speech, the new king pledged to continue his predecessor's policies, and he named the interior minister, Prince Mohammed
bin Nayef as deputy crown prince, putting him second in line to the throne. In Riyadh, thousands gathered to mourn King Abdullah and to pledge
allegiance to their new monarch.
King Salman inherits a kingdom that's grappling with low oil prices and a region that's in turmoil. On its various borders, Saudi Arabia is
facing problems, many of which it's not seen before. CNN's Nic Robertson has our report tonight.
(BEGIN VIDEOTAPE)
NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): Condolences and respect for the new king. The Saudi message for all:
continuity. But never in the desert kingdom's modern history has a new monarch inherited so much regional turmoil.
To the south, Yemen, the government collapsing, rebels running the capital. To the north, Iraq, not just attacks on the border by radical
Islamist ISIS, but growing tensions with the government.
And then, there is oil. In King Salman's hands, the power to shape the global economy. All of it filtered through the prism of Iran. Saudi
is Sunni, Iran Shia, branches of Islam with a fractious past. In 2012, King Abdullah invited Iranian President Ahmadinejad to Saudi. Since then,
relations have only deteriorated.
Iran, seen as the hand behind the increasingly sectarian politics of Shia-led Iraq. The marginalization of Sunnis, fueling in part the growth
of radical Islamists like ISIS. ISIS's own global caliphate aspirations, coveting the king's role as custodian of Islam's two holiest sites, Mecca
and Medina. And in Yemen, Shia Houthi rebels, judged by Saudis to have Iran's backing.
By keeping its oil flowing, global oil prices falling. The Saudi assumption is Iran's economy will tank, ultimately sweeping conservatives
from power. So, as the US eyes a nuclear deal with Iran, calculated to enable moderates, Saudi fears it will do nothing more than give hardliners
what they want: nuclear weapons. Opposing positions now on King Salman's plate to manage.
As for ISIS, in the past year, King Abdullah positioned Saudi as the regional lead, trying to win US backing to deploy 50,000 anti-government
forces to Syria, including international troops. The US lacked appetite for that. The compromise of airstrikes and training not particularly
palatable for the Saudis, either.
But if there is a bad taste in US-Saudi relations, it will be the US response to the Arab Spring in 2011. In Egypt, as the US turned its back
on President Mubarak, the Saudis urged him to stay. For King Abdullah, it served as an object lesson in US loyalty to Gulf allies.
Continuity will be King Salman's guiding principle. But he inherits a far more complicated kingdom than his predecessor.
Nic Robertson, CNN, London.
(END VIDEOTAPE)
QUEST: The IMF managing director, Christine Lagarde, described today the Saudi king as a wise man, and she expressed the hope that the country
will continue to reform. I asked Christine Lagarde about her experiences and her memories of King Abdullah.
(BEGIN VIDEOTAPE)
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: First of all, I really express condolences to the family and to the people
of Saudi. He was a very wise man. And he understood many things. He was very discreet in the way he was trying to engineer reforms.
Nothing was perfect, and that's not what I'm saying, but he was trying his best to reform gradually this country, including the most complicated
issues.
QUEST: Do you have any fears that those that follow will not maintain those reforms or will not continue that progression?
LAGARDE: I very much hope that they do. And I very much hope that they follow the trend of reforms that he had initiated. And I think that
the role of women in Saudi Arabia would benefit from continuous, deep reforms.
QUEST: And that's crucial, isn't it? Because --
LAGARDE: It is.
QUEST: But it has to come from the top.
LAGARDE: Yes, it does.
QUEST: Now, Saudi Arabia, of course, having this turmoil, or at least this transition at this moment when the oil price has dramatically fallen,
collapsed.
LAGARDE: Yes.
QUEST: This is a double-edged sword. There are countries who love it, the developed nations, and there are countries who are going to have a
very difficult time as a result of it. From the IMF's point of view, where do you now stand on this very uncomfortable fence?
LAGARDE: You're right. The exporters are not particularly happy. Less currencies coming in, higher dollar, though. And those that import are
reasonably satisfied, as long as they don't suffer too much from the currency variations.
Net-net, bottom line, we believe that it's positive for the global economy by a factor of anywhere between 0.3 and 0.8 percent additional
growth.
But it's particularly a window of opportunities. Because this is a time when actually those countries that pay subsidies to their population
without distinction between the rich and the poor can decide to put in place a safety net and withdraw the subsidies to use that public money for
something else.
QUEST: They won't.
LAGARDE: Yes, they do.
QUEST: No, but --
LAGARDE: Yes, they do. I promise you. If you look at those countries that are benefiting from lower oil price, many of them have
decided -- and I really congratulate their leaders for doing that -- they have decided to remove partly the subsidies and to use that money for
something else: education, health, infrastructure. This is the case for quite a number of countries at the moment.
(END VIDEOTAPE)
QUEST: Christine Lagarde. You'll hear more from her later in the program. We talked to her about economic matters in the eurozone. But as
we stay with Saudi Arabia and oil, joining me now again, Majid Jafar, the chief exec of Crescent Petroleum. Now, Crescent is a private oil and gas
company. You're headquartered in the UAE.
MAJID JAFAR, CEO, CRESCENT PETROLEUM: That's right.
QUEST: Now, the Saudi -- the loss of King Abdullah, great as it is for Saudi Arabia, what does it -- where does this leave the oil market? We
saw a spike today, but that sort of reversed.
JAFAR: Sure. First of all, the loss is keenly felt by certainly the business community here in Davos, and particularly those from the Arab
world, and all our thoughts and condolences are with the Saudi people and the royal family.
In terms of oil policy, there's expected to be continuity. It's not the sort of thing that changes rapidly with succession. I think what will
give some calm to the markets, despite the jitters earlier today, is the fact that the succession took place so rapidly and smoothly, not just, of
course, to the king and the next crown prince, but indeed to the second -- to the deputy crown prince, who is the first member from the second
generation of the family.
QUEST: Right. When we look at the people who are now running the country, King Abdullah was an elderly man and he was infirm in recent
months. But when we look at the people running it, will they be the same people who signed up for and signed on with the Saudi policy of no cuts to
raise prices?
JAFAR: I think in terms of oil policy, there's an administration, there's a system, there's a government, with the ministry and with Aramco
and so on. And these things are well thought through. And I think there is a sentiment, including here at Davos, that prices will recover, and a
lot of the US production could come off the market.
But King Abdullah leaves a huge legacy on the economic front in Saudi Arabia. Masses of investments in infrastructure, trying to create more
opportunities for the young people, as well as in foreign policy. He was an active leader, a member of the G20. Plus there's --
QUEST: But was he a reformer?
JAFAR: Yes, I think absolutely he was.
QUEST: Was he -- I mean, Christine Lagarde said to me, one of the things she hoped would happen in the future is that the policy of more
rights and more roles for women in Saudi Arabia. Do you see any shift in that sort of area?
JAFAR: I think there has been a huge shift. And if you talk to anyone in Saudi at any level of society, he was a deeply-loved figure, and
he made a lot of changes in the ten years of his rule and before that, when he played a major role as crown prince.
Women's rights in terms of standing for local elections, voting, as well as opening up opportunities. Despite his age, I think he definitely
was a reformer.
Yo have to understand, of course, Saudi is a very traditional society, a very tribal society. The big outswelling or outpouring of not only
grief, but mu bay'ah, which is allegiance, pledge of allegiance to the new king, is a show of the stability of the system. And I think he -- anyone
in Saudi will tell you that it's a very different country from ten years ago.
QUEST: Good to see you, sir. Thank you very much, indeed.
JAFAR: Thank you.
QUEST: Thank you for coming on the air twice. Twice in recent -- in the cold weather. We appreciate it.
Saudi Arabia's ship of state is run almost entirely on oil, and with oil prices falling, the boat is slowing down. John Defterios will tell us
if a new king means a new course. It's QUEST MEANS BUSINESS, and we are in Davos.
(COMMERCIAL BREAK)
QUEST: With a new king comes new concerns about the world's biggest petroleum exporter. As oil prices have fallen, the kingdom has refused to
cut production. That happened at the last OPEC meeting. The Saudi oil minister Ali Al-Naimi, is the man who drove that decision. And Saudi state
media reports the new king plans to keep Mr. Al-Naimi in place.
The smooth transition helped keep oil prices in check. There was a small spike after King Abdullah's death was announced. But as you can see,
right at the end of the map, that sort of moved back again. Joining me now, our very own John Defterios, our emerging markets editor. Good
evening, sir --
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: Nice to see you.
QUEST: Good evening.
DEFTERIOS: Yes.
QUEST: Now, splendid work over the last day that you've been analyzing this for us.
DEFTERIOS: Sure.
QUEST: So now give us some of your analysis on the oil situation. Now, Al-Naimi has been in the job for decades.
DEFTERIOS: Twenty years as the oil minister, forty years at Saudi Aramco. And in fact, he's 80 years old. Now, they reported this evening
they want to keep him in the job. That's continuity again. But they do have a line of succession. This is interesting. Abdulaziz bin Salman, the
son of King Salman --
QUEST: Now, take this slowly.
DEFTERIOS: Yes. He's the deputy minister. He's the son of the king right now, the deputy minister of energy. If Ali Al-Naimi wants to retire
in a year or so after this transition -- he approached King Abdullah two years ago and said, look, I spent 40 years in the job, I'd like to retire,
and King Abdullah asked him to stay on.
They've asked him to do the same, but we have line of sight, Richard. Just like the king, the crown prince, now we have a deputy crown prince as
well. It's the same at the Ministry of Energy, Saudi Aramco, we know where Saudi Arabia is going. Although their policy has been very tough as of
late.
QUEST: Do you see any shift -- I was asking Majid this -- do you see any shift in the policy of no cut in oil to try and raise the price? Are
they determined to stick to it?
DEFTERIOS: I think that's why the price spiked up initially --
QUEST: Right.
DEFTERIOS: -- thinking we're going to have some change here. I spoke to the OPEC secretary-general here in Davos two days ago. Richard, he made
it crystal clear on our program, they're not going to change the policy.
They're two months into it. They want to fight for market share -- and this is going to be the next battle, not for six months, not for a year
-- it's the next battle for three to five years.
QUEST: Who have you been talking to here?
DEFTERIOS: I spoke to a number of different oil executives. I talked to a couple of the IOCs as well, some of the national oil company players.
They're all saying we're going to be on the ride for this two to three years before we see $70 to $80 a barrel again.
QUEST: Right, now, one of the persons you were talking to makes the analogy that the oil price, or that the Saudis -- have a listen. When it
comes to the Saudis, they're like the central bankers of oil.
(BEGIN VIDEO CLIP)
FATIH BIROL, CHIEF ECONOMIST, INTERNATIONAL ENERGY AGENCY: Saudi Arabia has been a stabilizing factor in the oil markets. If I may say so,
the central banker of the oil industry. With the change in the Saudi Arabia, I do not expect a major shift in the oil policy, and I hope that
they will continue to be the central banker of the oil industry, especially these days when we are going through a volatile period.
(END VIDEO CLIP)
QUEST: John?
DEFTERIOS: Very interesting. I hope they remain to be the central banker. Basically, we're going to have the trust in Saudi Arabia. I think
that was a very political answer, to be candid with you, Richard. They're hoping that Saudi will be the swing producer again in the future. I think
Saudi Arabia has taken a very different tact, here, and I'll tell you why.
QUEST: Come and join me over -- no you won't.
DEFTERIOS: No, I'll tell you why. Because it goes with the Risk Map.
QUEST: The Risk Map.
(LAUGHTER)
QUEST: Oh, you're so smooth.
DEFTERIOS: I love this stuff.
QUEST: You're so smooth. Look. I think largely, it's obviously been around Syria, it's by Iran, around by Iraq. But also we can add a bit of
Saudi Arabia. What do you make of the way people have gone to this part of the world.
DEFTERIOS: OK. I tell you, when it pertains to oil going forward, Iran gets sanctions lifted, perhaps, in six months. The oil minister told
me two months ago they can get to 4 million barrels a day. Iraq just got to 4 million barrels a day, Richard. In four to five years, they want to
be 8 million barrels a day. Puts pressure, indeed, on Saudi Arabia.
You go up to Russia. Russia's producing 9 million barrels a day. The United States, 9 million barrels a day. So, the world of oil is going to
change radically, and this will be the hot spot: Iraq, Iran and Saudi Arabia going forward --
QUEST: OK --
DEFTERIOS: And I think we have to be very careful to see if we're not going to have conflict going forward. Can they manage without conflict?
QUEST: Well, hang on. What about that conflict that you're talking about? Conflict based around inequality?
DEFTERIOS: Oh, inequality is a huge issue right now. Saudi Arabia's dealing with youth unemployment of 30 percent. The Middle East and North
Africa, the highest youth unemployment in the world. It hovers around 30 percent as well.
King Abdullah invested a half a trillion dollars over five years to try to develop jobs, get women in the workforce. He planted the seeds.
Now they've got to get the roots into the ground. That's what this leadership has to do.
And the fact that we have clear line of sight all the way to the deputy crown prince, that means we have the leadership idea solved for the
next 20 to 25 years. It's a big difference. They have to follow through on reforms.
QUEST: John.
DEFTERIOS: Thanks.
QUEST: Good to see you, sir.
DEFTERIOS: Nice to see you. Thanks.
QUEST: Wonderful to have you in Davos with us.
DEFTERIOS: Yes, good Davos.
QUEST: Now, to the markets and how they've traded. US stocks fell on Friday. The Dow was 141 points. In the first major IPO of the year, the
online storage company Box unboxed its shares at the New York Stock Exchange, and those shares rose 65 percent on the day. Nice if you can get
them, and if you probably can't, well, not to worry. Rose on the day, as you can see on the chart.
The ECB's big bazooka is facing big criticism in Germany. We'll hear from the man in charge of Europe's largest economy. Wolfgang Schaeuble
gave me his views on quantitative easing, next.
(COMMERCIAL BREAK)
(SWISS MUSIC)
QUEST: Oh, you can't beat a bit of Swiss yodeling music on a Friday. I promise you that -- well, that's the cable car that goes up the mountain
somewhere. I can honestly say I've never taken it in all the years that I've been coming here.
European markets are soaring as the feel-good factor from the ECB announcement continues. The Xetra DAX, the Zurich, the SMI, they're all up
sharply as well, look at the numbers. They're up the best part of 2 percent on -- more than for Germany and for Switzerland.
Meanwhile, the euro, that fell to an 11-year low against the dollar. It briefly tanked under $1.12. It's the biggest drop in three years. A
slight recovery, but of course, nobody seriously expects any major recovery in the value of the euro, not at least as long as QE's around and, of
course, higher interest rates on the agenda in the United States.
And not everyone is feeling this good about the new era of QE. The ECB's decision is dominating the front page of Germany's biggest tabloid
newspaper. "Bild" usually shows pictures of footballers and celebrities.
Today, the headline reads, "Bankers decide on trillion-euro program. This is what's happening with your money. What the big money flood means
for consumers." Populism of a quantitative easing kind.
I spoke to Wolfgang Schaeuble, the German finance minister, and needed to know his reaction to QE.
(BEGIN VIDEOTAPE)
WOLFGANG SCHAEUBLE, GERMAN FINANCE MINISTER (through translator): I believe that the job of the ECB is to guarantee price stability. We have
low inflation now, low inflation prospects. Hence, the ECB took that financial decision, which is its responsibility.
Draghi, though, stated very clearly that the ECB can't manufacture growth. Growth has to come through fiscal and economical politics of the
individual member states. Hence our warning as the German government that the member states should not believe that the ECB could take the work off
their hands which they really have to do themselves in terms of structural reforms.
QUEST: No, the states can't have that responsibility, but the states, particularly countries like France, now need to make those structural
reforms that will make them more competitive and will improve growth. Is that what you now see?
SCHAEUBLE (through translator): That is exactly what we are saying, that countries have to make structural reforms. The only danger coming
with this decision is that the fiscal policy should not be misunderstood in terms of moral hazard.
QUEST: Do you fear that you came too close to moral hazard with this quantitative easing?
SCHAEUBLE (through translator): The ECB does her job very well, and we have to do our job very well also. Some are better at it than others.
If we want growth, if we want to fight unemployment, on that, we have a global consensus. We need structural reforms and a sustainable fiscal
policy which inspires trust in consumers and investors alike.
QUEST: The one thing all the people I've spoken to here -- or many of the people I've spoken to here -- says is that Germany can do more to
increase domestic demand.
SCHAEUBLE (through translator): We do understand that others who might have bigger problems at the moment look towards Germany and say
Germany could do more to help, and the crisis is Germany's fault.
Of course we all know that that is nonsense. We have better growth in Germany and other countries profit from that as well. We are the driving
force. We have the highest consumer demand since years. Hence, these accusations have nothing to do with reality.
QUEST: We are at a very interesting time with the Greek elections. Now, I realize the Greek people will decide their own fate. Democratic
decision. But would you now say that any idea of a debt forgiveness or a debt reconstruction or any form of going back into the negotiation with
Greece is just not on for Germany?
SCHAEUBLE (through translator): Debt restructuring for Greece is not currently the topic at all. What Greece needs is still a reform program.
The ECB decided yesterday that in case, as has been mentioned during the election campaign, Greece wants to leave those reforms behind, Greece then
wouldn't even qualify for quantitative easing.
(END VIDEOTAPE)
QUEST: Now, here we have -- that's the German finance minister, Wolfgang Schaeuble. After the break, we're going to be looking at the Risk
Map. As you can see, it's fascinating where people are going from far west right over to the east. And Christine Lagarde, the managing director of
the IMF will -- where did she go when it came to the Risk Map?
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment, when we'll hear from the governor of the Bank of Japan,
who gives us a crash course in deflation. And he knows a thing or two about that.
And the head of WPP tells us he's not going to apologize for being a success. Sir Martin Sorrell will be joining us. All on CNN, because on
this network, the news always comes first.
Thousands of mourners in Riyadh have paid their respects to King Abdullah of Saudi Arabia, who died aged 90. Bahrain and Jordan are among
the countries who have declared days of mourning. Speaking to me on QUEST MEANS BUSINESS, the head of the International Monetary Fund paid tribute to
the deceased king.
(BEGIN VIDEO CLIP)
LAGARDE: He was a very wise man. And he understood many things. He was very discreet in the way he was trying to engineer reforms. Nothing
was perfect, and that's not what I'm saying, but he was trying his best to reform gradually his country, including the most complicated issues.
(END VIDEO CLIP)
QUEST: The fate of two Japanese hostages kidnapped by ISIS is unknown tonight after a ransom deadline passed earlier on Friday. ISIS have said
they will kill the two men unless they receive $200 million from the Japanese government. The terror group said it would release a statement
about the hostages soon. There's been no word since.
Pro-Russian separatists in eastern Ukraine are rejecting the truce with the government. The leader of the self-proclaimed Republic of Donetsk
says there's no sense in talking peace and that his forces are now on the offensive.
The mystery surrounding the death of a Argentine prosecutor has taken another twist. The country's president, Cristina Kirchner, now says she no
longer believes the death of Alberto Nisman was a suicide. This one was found dead from gunshot wounds only hours before he was due to testify
about the alleged cover-up of a 1994 bombing in Buenos Aires. New evidence this week has cast doubt on the theory that he took his own life.
The IMF managing director, Christine Lagarde, says European countries must implement structural reforms now. Inaction is the biggest risk for
the global economy. It's been just a day since Mario Draghi announced the stimulus package, and I asked Christine Lagarde what she was thinking when
she heard a trillion euros was to be spent.
(BEGIN VIDEOCLIP)
LAGARDE: First of all, I did the math because he was explaining it in a very sort of articulate way and we had to figure out exactly how much it
was. So we did the math, it was more than expected, well communicated, spread over time, and he said if more is needed, there will be more. So
from the monetary policy point of view, he's paying that card extremely well. Not enough because the governments have to do the structural reforms
that they have to do.
QUEST: What makes you think that they will take this opportunity? Some have - Spain I know has as the finance minister here telling me. What
would your call be now to those countries that have still to do more?
LAGARDE: I would say get on with it. Move into action mode. You have a bit of support and comfort coming from the monetary policy. Banks
will be able to better and more lent to households and companies. Now is the time to reform.
QUEST: President Poroshenko standing where you are blamed President Putin for basically everything. You had a meeting with President
Poroshenko. You're prepared to lend him more for longer. What does he have to do in return?
LAGARDE: We're going to submit that to the board. The board of the IMF will decide eventually. What we say is you are committed to reform,
those reforms are going to take longer, they're going to be more expensive over time and the international community as well as the IMF as well as the
world banks should be prepared to help you. All of that will only work if there is stabilization in the eastern part of the country.
QUEST: I want to talk generally now because this Davos has been dealing with some very serious, difficult issues. In many ways six years
ago putting out the fire was tough but everyone knew what had to be done. But as I read, it has been and I would like your perspective, Managing
Director, the global economic situation is perhaps more complicated now -
LAGARDE: Yes,
QUEST: -- than we've ever seen it.
LAGARDE: We have lots of headwinds - geopolitical headwinds. I think from these monetary policies around the world we have low/low, high/high -
low inflation/low growth, high unemployment/high debt in many of the advanced economies. So it's not an easy moment and it's a time when we
have to work hard, get into action mode on trade liberalization for instance, on climate change, on development goals. Those are three big
areas that could actually offer the potential for more growth. But action is needed.
QUEST: Action is needed, but will action happen? Because I get the feeling it's talk.
LAGARDE: That's the big risk as I see it -- a lot of lip service but not enough action.
QUEST: Talking of risk, you elegantly take me to the risk map. Now, where for you is the biggest risk in 2015 and why? (LAUGHTER). Thank you
very much indeed.
(END VIDEOCLIP)
QUEST: So, there you have it -- right the way 'round the world, and the biggest risk according to Christine Lagarde is that of inaction. Now,
over the course of the past week, we've seen the divergence between central banks grow wider. On the one hand, you've got the Fed pulling away from
crisis measures with the possibility that they'll soon raise interest rates. We've been told to remain patient but it's likely to happen sooner
rather than later. In Switzerland, the Swiss Central Bank removed the currency peg. The franc
trades freely against the euro. On the same day, the Indian Central Bank cut rates - a surprise move, then the Danish Central Bank cut rates -
Denmark cut twice trying to hold on to its currency peg. Then Canada threw in too - worried about low oil prices that'll hurt growth. And now the ECB
has announced QE. So, the big fear of course is low inflation - potentially deflation. Haruhiko Kuroda is the governor of the Bank of
Japan. Now he knows a thing or two about deflation, and I spoke to him and asked if Japan will now fully, finally escape deflation.
(BEGIN VIDEOCLIP)
HARUHIKO KURODA, GOVERNOR, BANK OF JAPAN: Yes, I think if deflation is defined by narrative rate re-(ph) inflation probably Japan has already
escaped from deflation. But we aim at achieving 2 percent inflation target. And -- but this stage only 0.7 percent - we're only halfway. So we
have to continue our QE until we reach the 2 percent target.
QUEST: In Japan -
KURODA: Yes.
QUEST: You have very loose monetary policy.
KURODA: Yes.
QUEST: But the prime minister is also moving forward with the structural reforms.
KURODA: Yes, that's right.
QUEST: Do you feel that the two sides are moving together in harmony?
KURODA: I think the - under the so-called Abenomics, the first arrow is monetary easing -
QUEST: (Inaudible).
KURODA: -- and second arrow is children (ph) fiscal stimulus coupled with medium-term fiscal consolidation. We're now doing reasonably well.
And the third arrow is structural reforms. And that would I think help the economy to achieving a 2 percent inflation target -
QUEST: Is it?
KURODA: -- with reasonable economic growth.
QUEST: Is it going fast enough - the structural reform? Would you like to see the government move faster?
KURODA: Yes.
QUEST: Because you can only shoulder this burden for so long.
KURODA: Yes, yes. I think in any country, including the U.S., structural reforms takes time. It takes time before it would have major
impact on the economy.
QUEST: You have been an economist for how many years, sir?
KURODA: I studied economics in Oxford from 1969 to '71.
QUEST: Did you ever in your wildest dreams, when you read the textbooks on quantitative easing -
KURODA: Yes.
QUEST: Did you ever think you'd be doing it?
KURODA: It's a bit difficult question. (LAUGHTER). Because you see for instance U.S. experienced huge deflation during the Great Depression.
But then under the New Deal policy framework, deflation was eradicated.
QUEST: Yes.
KURODA: Now after that most of countries in the world have not experienced deflation -
QUEST: (Except/Exact)
KURODA: -- it was only Japan. Japan experienced deflation starting in 1998 until 2013. So, Japan is a unique case, but now (LAUGHTER), the
world is (my air to breathe) this inflation and some deflation.
QUEST: So what's your advice to every government -
KURODA: Yes, yes.
QUEST: -- every central bank --
KURODA: Yes.
QUEST: -- because you're the only one that's done it?
KURODA: Yes.
QUEST: What's your advice for tackling deflation?
KURODA: I think it's much better to tackle at the earliest time.
QUEST: Do it fast, do it big.
KURODA: That's it - fast and big. Rather than wait and see and situation deteriorating to continuous long deflation. Then the economy
would become stagnant and we experience so-called loss decay.
QUEST: Sir, --
KURODA: Yes?
QUEST: -- where are you most worried about in 2015 economically?
KURODA: I think the Middle Eastern situation because after all, this area is the largest provider of oil and if anything happens in this area,
the oil prices would gyrate and the global economy would be affected.
(END VIDEOCLIP)
QUEST: Now, so there we have the mark that he put on our mini map, and now of course it's on our full 'the risk map.' As the rich get richer,
this question looms large over Davos - is inequality hurting global growth? After the break, we've got two heavy-hitters - Martin Sorrell --
SIR MARTIN SORRELL, CHIEF EXECUTIVE, WPP: Little hitters.
QUEST: -- Martin Sorrell, the cold hitter and a big hitter, Angel Gurria -
SORRELL(?): Most valuable player. MVP.
QUEST: This is the problem when you have guests after they've been to dinner. We carry own.
(CROSS TALK)
(COMMERCIAL BREAK)
QUEST: The issue of inequality's been dominating the theme at the World Economic Forum. During a panel today, the chief executive of the
global advertising group WPP, Sir Martin Sorrell, said he makes no apology for the success of his company and he sees the world's growing more equal
not less. Martin Sorrell joins me now alongside Angel Gurria, the secretary general of the OECD.
SORRELL: You were a little more accurate than some other media sources -
QUEST: But did -
SORRELL: I said I make no apology for the success of WPP, at least so far.
QUEST: Right. But you also -
SORRELL: -- we've gone from two people to 179,000 people.
QUEST: But your -- in doing so you're being portrayed as having defended the 1 percent.
SORRELL: Well I'm not defending the 1 percent. What I'm saying is I'm defending success, and we talked about pay and defending pay for
performance - not pay for just being there, but pay for performing well and I think that's important that somebody should speak - talk about people
being raised out of the poverty level, healthcare levels being improved, the Gini coefficients -
QUEST: Right.
SORRELL: -- being improved. But not enough - let's be quite clear - not enough.
QUEST: What's been the big issue - inequality? The 1 percent who are here doing not much about it.
ANGEL GURRIA, SECRETARY GENERAL, OECD: No, it's not about that. It's not about Martin - he earned his success.
SORRELL: Well, I --
QUEST: Oh, stop being nice to him!
GURRIA: Oh, no - let me tell you what the problem is. It is about the differences getting bigger and bigger and it is about the need to
upskill the young, the males - the ones we told go one year, two more years, three more years to universities, no can do, the diplomas cover
themselves from the rain, you know. We are creating a generation of frustrated people because we can't make them move up in capillarity and to
social skill because we're not giving them the opportunity -
SORRELL: Sorry to agree with him - you don't want us to agree, you want us to argue. But we gave -- on that program I gave a six-point plan
which came from the work that Rick Salmons (ph) does here at the World Economic Forum. It included education, it included trade -
GURRIA: Health.
SORRELL: -- including entrepreneurship, health - all the things that - Angel is me (ph). And the point is, Richard, that over time, over the
coming years, those fast growth markets which are so far as to growth for Brits (ph) and next 11, lots more people will be raised out of poverty,
lots more people will be moved into the middle class. Lots - some more health improvements will be made. Is it enough? No. The other thing I
just want to say is Christine Lagarde said, you know, it's equality - more equality will stimulate global growth. What I said was it hasn't been
proven that equality does stimulate growth and e.g., Venezuela. And that's the issue because the reason -
GURRIA: But Martin, we have proven at the OECD that inequality prevents growth.
SORRELL: Well -
GURRIA: And there is a direct relationship and that is - that is measured. A relationship is not intuitive, and therefore the other part
which is that more equality will allow for more growth is clearly something that follows logically.
SORRELL: All I'm saying is -
GURRIA: But -
SORRELL: -- you have to look at the reasons why those inequality - what the - what the Central Bank did in Europe yesterday will not improve
equality. It's going to stimulate greater inequality.
GURRIA: Now that's about growth - that's not about - this is a different thing. Inequality of the fight with specific measures in order
to address the problem of -
QUEST: But what -
GURRIA: -- equality -
(CROSS TALK)
GURRIA: -- it's about the equalities, it's about the inequality of opportunities, not just one type of inequality.
QUEST: Aw, but what the ECB did yesterday -
GURRIA: Not just income.
SORRELL: (Inaudible) system has raised on prices and raised (inaudible).
QUEST: All it's done is make you wealthier.
GURRIA: No, and what it has done --
SORRELL: It's given them assurances -
GURRIA: -- on paper. On paper.
QUEST: Well, it's the same thing.
SORRELL: No, no, no it isn't -
QUEST: Of course it is.
SORRELL: -- because I hadn't realized it yet.
GURRIA: It's not about inequality or equality. This is about giving economic agents assurances for a medium or
QUEST: He's wealthier -
GURRIA: -- long term.
QUEST: He's wealthier as a result.
GURRIA: Well yes, indeed.
SORRELL: That is true.
GURRIA: But we're not trying to avoid that, what we're trying to give is make the world economy grow faster.
(CROSS TALK)
SORRELL: On our program today, the last thing Evan (ph) should have done was gone to each of the panelists - Mark Carney, Christine Lagarde,
myself, Shiller, everybody else there - and said 'What one measure would you do?'
QUEST: What would they do?
SORRELL: I would deal with the short-termism. We're going to come to the risk map and I'll give you the key. But I would do the short-termism.
I would put capital gains tax, short-term capital gains back (ph) up sharply and reduce -
QUEST: So you would reduce them to (inaudible)?
SORRELL: -- and reduce long - no I don't know ease - and reduce long- term capital gains tax. So you pay people for holding assets for the long term and stimulating long-term growth.
QUEST: Now you've never sold any of your stock, have you?
SORRELL: No, well except in one circumstance --
(CROSS TALK)
SORRELL: I kept it for 30 years, I kept it.
GURRIA: Skills, skills and the third one starts with an 'S,' ends with an 'S'.
QUEST: Sorrells.
(LAUGHTER)
GURRIA: Skills. This is what is going to allow those young people to move up the scale because - and that is
(CROSS TALK)
QUEST: Gentlemen, please.
GURRIA: Yes, there has to be a better match.
QUEST: Gentlemen -
GURRIA: -- between the skills and the needs of the market.
SORRELL: Well see, we're agreeing and you're not. You're preventing us from agreeing.
QUEST: You're not agreeing. At the end of the day, do you believe with what Draghi did?
GURRIA: Yes, absolutely. It was needed, it was somewhat belated. We talked too much about it, we should have done it earlier, but it's welcome.
SORRELL: It gives us time but it's not sufficient. And you have to have structural change.
QUEST: All right.
GURRIA: The governments are the ones -
QUEST: All right.
GURRIA: -- in charge of structural changes, not central banks.
QUEST: Which one of you wants to come to the -
SORRELL: You go first thank you.
QUEST: Good, come on. Come over here, sir.
GURRIA: What? You want me to go to the map, I don't need to go to the map because that's not the problem. The problem is not in the map.
The danger is getting it wrong and the problem is we've exhausted all the room on monetary policy. The last arrow in the (cream work) was Draghi,
OK?
QUEST: So where do you want to go - where are you - where are you most worried in 2015?
GURRIA: Fiscal policy will run out of money
QUEST: Where are you most worried in 2015?
GURRIA: But I'm more worried that we do not take the structural measures that we should take - it's education, innovation, competition.
QUEST: Oh, look.
SORRELL: What is that?
QUEST: I've no idea.
SORRELL: That is focus on costs. There you are.
QUEST: Focus on costs.
SORRELL: Right. Focus on costs.
QUEST: There.
SORRELL: Capably absorbed. Totally absorbed with costs and not revenue growth. Ah, yes.
QUEST: Focus on costs.
GURRIA: Wrong, that's wrong.
QUEST: Wrong?
SORRELL: Yes. Companies are totally focused on costs because we're living in a low-grade environment with no inflation, no pricing power,
procurement of finance rule.
QUEST: Right.
SORRELL: They have to invest in brands and long-term growth.
QUEST: So says the man who held -
SORRELL: I have no vest - I have no vested interest whatsoever.
(LAUGHTER)
QUEST: -- who says the man - right -- final question, because we're just out of time. A good Davos, a better Davos, a different Davos.
SORRELL: A realistic Davos.
QUEST: You think it was realistic?
SORRELL: Yes. Angel was saying two years ago --
GURRIA: Three years ago everybody was so pessimistic. Last year, everybody said we're out of the woods. I think this year we're much more
sober --
SORRELL: Yes.
GURRIA: -- we're more realistic and instead of being pessimistic or optimistic, we're actualistic (ph) which is what we should be.
SORRELL: Well the action is still to come.
QUEST: Well, (inaudible) Christine Lagarde, sir -
SORRELL: Draghi's action is not sufficient, it's a condition but it's not sufficient.
GURRIA: Governments must chip in with a structural change.
SORRELL: And fast.
(LAUGHTER)
QUEST: Thank you very much.
GURRIA: Thank you very much.
QUEST: Lord, Mr. 1 Percent. No, smart (ph) is 1 percent.
SORRELL: No, no, that's very unfair, that's a low blow.
(LAUGHTER)
QUEST: But a good one.
(LAUGHTER)
QUEST: All right. The IMF calls the U.S. a lone bright spot in a global gloomy economy. The head of a top American bank - Bank of America -
tells me why that's a risk and how growth could be better. It's "Quest Means Business." You'll only hear it here.
(COMMERCIAL BREAK)
QUEST: While much of the attention here at Davos is focused on the woes in Europe, the U.S. has been the quiet star. I spoke to Bank of
America chief exec Brian Moynihan and asked him if the U.S. is getting enough credit for what it's done?
(BEGIN VIDEOCLIP)
BRIAN MOYNIHAN, CHAIRMAN AND CEO, BANK OF AMERICA: I think it's the best economy in a sense of the size of it and it's growing, which is good
news for the world because the world supplies a lot of goods and services. I'm not sure it's begrudging or not. I think it is dangerous that we don't
have a broad growth in the world because the potential mishap if two or three countries are dragging the worldwide growth - have something not
coming through in those two or three countries - would be - the reversion back to no growth and all the tightening and austerity that comes to that
bank is not good. But I think the U.S. is in pretty sound shape, and that everything we see is constructive. But it's still - remember it's still
growing to what people would like it to grow at. So that's not - we've got a growth issue around the world that we got to create more growth and the
U.S. is maybe the star of the class, but it's not at the top of the class yet.
QUEST: When we look at the President's proposals and the state of the union, we can be cynical about it and say this has absolutely no chance of
getting through bearing in mind the congress that he now faces. But do you think those proposals are on the right line?
MOYNIHAN: The proposals in the U.S. that are going for let's create growth, let's try to create more jobs, let's try to take advantage of the
growth that's coming, let's try to build the infrastructure out, let's try to make sure that the gains in the economy are shared widely - those are
all good things. And so there could be arguments about how they happen, and there could be arguments about the policy to get there. But I think we
may have different points of view, but the reality is I think what we all got to sit down the U.S. is really focused on - we've got to grow the pie a
little bit faster, and we've got to make the investments that will bear fruit for the down the road.
QUEST: Right, but as we go into an election cycle, does anything get done? I mean, that's the real politic of it all, isn't it?
MOYNIHAN: Well, if - you could talk to me about risk management. One of the attributes of risk management is you look at the past to see what it
will tell you about the future and not a lot's gotten done. And so I think there's a real risk that we got to get the people to come together and
whether that happens or not is in the control of the people inside the beltway, and we'll see if it does.
QUEST: Do you think beating up the banks - either the regulators or the customers or whatever - do you think that is finally off the agenda?
Or do you think that it's just waiting to come back to hit another day?
MOYNIHAN: Well, you're asking a banker that question.
QUEST: Exactly.
MOYNIHAN: So, what I think and what I believe I think sometimes we got to keep to our self. But let me tell you - there's an understandable
concern of whether the banks were doing the right thing to help the real economy. So at Bank of America we live a purpose. That purpose is to help
people to live their financial lives through connecting together with what we have in our company and the world. And if we stick to that purpose,
we're doing the right thing. And all the regulatory work that's gone on - all the stuff was really
saying help the real economy, help growth. And that's a good thing. Now, there are individual parts of the policy and stuff we can argue about - was
this exactly right or exactly wrong? But that's not helpful. In the end of the day, the banking system's in very good shape in the United States
and in better shape - in pretty good shape around the world. And we just got to keep it there as the rest of the world comes to - you know, the
economies start to grow again and help them support what they need to support which is the real economy.
QUEST: Fascinating, sir. Will you come and join me at the risk map?
MOYNIHAN: Sure.
QUEST: You can take any definition of this that you like, but the greatest risk in 2015 - where would you go?
MOYNIHAN: I'm going to take growth risk.
QUEST: Growth risk.
MOYNIHAN: OK. And I think that's largely in the European community because if we can get them on track, my view is that'll be a very big plus.
If they do what they're supposed to do - 1 percent growth or so - that's fine. But if they don't perform, that's a real risk for the (inaudible).
QUEST: But are you encouraged? Because that's what it really comes down to. As long as you and I've been coming here and talking about this,
the noises have been good. The inaction has been stunning.
MOYNIHAN: Well I thought you saw some pretty big action yesterday to help continue to push stimulus in the European context and economies and I
think that, you know, hopefully they'll bear out and we'll see some good. We'll see at least what they're supposed to do or more as opposed to having
them disappoint the year - that'd be the best that could happen to the world right now.
(END VIDEOCLIP)
QUEST: That's Brian Moynihan of Bank of America. So we come to the end of our risk map this year. The CNN Risk Map at Davos. And I think we
can pretty much say that it's almost a tie in some senses between the Syria/Iran/Iraq, the oil crisis down in this part of the world and a
combination of European growth and slow growth, ECB and Ukraine and Russia being the risks. Probably, having heard everybody talk about it, I think
that most people went for the safe option here, but there was a fair number that wanted to go to the European. I say probably the Middle East was the
biggest risk on our risk map. We have a "Profitable Moment" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." It's our last program from Davos and time to take stock on what's been in my view a very different
World Economic Forum. Coming into the Forum, I wrote that it had grown up. The theme - the new global context - made sense. We knew what we were here
to talk about. Once I was here, I realized that there was a new seriousness. Perhaps the agenda was overset - there were too many issues.
People walking (out), but in the Congress Center, the looks on people's faces told us this new global context is complicated. The issues are very
difficult to solve. Whether it's the Middle East or it's growth in Europe or it's asymmetric monetary policy. It doesn't matter where we look at the
moment, the policymakers are absolutely up to their eyes in some of the most difficult challenges they've ever faced. And they came here prepared
to engage and discuss. Davos doesn't solve any problems, but it certainly clarifies the issues, and this one was a sober Davos. And that's "Quest Means Business" for this
Friday night in Davos. I'm Richard Quest. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable. I'll see you next year
(SPEAKING TO SNOWMAN).
END
