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Quest Means Business
Protesters, Riot Police Clash in Athens; Greek Lawmakers Divided on Debt Deal; IMF Says Greece Needs Debt Relief; Conflict Over Who Pays for Greek Bailouts; Greek Debt "Highly Unsustainable"; European Stocks Rise; Obama Defends Iran Nuclear Deal; Businesses Eye Opportunities in Iran; Video Shows "El Chapo" Escaping; Netflix Surges on Subscriber Boost
Aired July 15, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:59:55] (NEW YORK STOCK EXCHANGE CLOSING BELL)
POPPY HARLOW, HOST: Markets on Wall Street taking a late turn for the worse. It is Wednesday, July the 15th.
Tonight, the austerity battle turns violent in Athens. Clashes outside of parliament ahead of tonight's crucial bailout vote.
Also, full steam ahead. Janet Yellen tells the US Congress a rate rise is likely this year.
And Amazon sub-prime. Shoppers not at all impressed with the website's latest offer.
We'll talk about all of it on the program. I'm Poppy Harlow and this is QUEST MEANS BUSINESS.
Good evening, welcome to the program. Tonight, the Greek prime minister faces a rebellion with his own party and on the streets of Athens.
Outside the doors of the Greek parliament, anti-austerity protesters through petrol bombs at riot police, who responded with teargas.
Inside of parliament, lawmakers are preparing to vote on the country's reform plans. Some Syriza lawmakers say they will not support their own
prime minister. The Greek deputy finance minister said she would resign her post rather than vote for more austerity.
(BEGIN VIDEO CLIP)
NADIA VALAVANI, GREEK DEPUTY FINANCE MINISTER: I'm not going to vote for this agreement, and this means that I cannot stay as a member -- I
cannot stay in the government. It's only decent that I surrender my minutes.
(END VIDEO CLIP)
HARLOW: Meanwhile, the IMF warned it may not be able to support a debt deal unless Greek finances are brought under control. It said in a
statement that Greek debt could not be made sustainable without major, major debt relief measures.
Isa Soares joins us live in Athens tonight. Isa, as we look at this, we know that even some of his own members of his party, of the Syriza
party, will not stand by Alexis Tsipras, but does it look like this deal is going to make it through parliament there?
ISA SOARES, CNN INTERNATIONAL CORRESPONDENT: Hi, Poppy. Well, from everyone I've spoken to, pretty much everyone expecting this deal to pass.
Critically, though, will be how many MPs he loses within his own Syriza party.
Like you said, there is huge dissent and pretty much rebellion within his party. We're hearing that perhaps between 30 to 40 MPs within Syriza
will not back it.
We are hearing, though, that the coalition partners with Syriza will support it. That is important. So will the other opposition parties. All
of those that we've spoken to, opposition parties, speaking to CNN the last couple of days basically saying very loud and clear, look, it's not
something we wanted, but we do support it.
Nevertheless, we have heard today in the last, about half an hour or so from the new finance minister, Poppy, Tsakalotos, if you remember, he
took over from Yanis Varoufakis, and he said it was extremely emotional, and the video of him talking about this, it's heartbreaking, where he
basically said "Monday was the worst day of my life."
HARLOW: Wow. And even Alexis Tsipras saying on Greek television on Tuesday that he does not support these members, that they were forced upon
him. How let down do you feel that some members of his party are that so believed in him, so believed him when he told them to vote "no" in the
referendum, so believed him when he said he could get a better deal?
SOARES: Oh, without a doubt they'll be let down. I think that's why you're seeing a bit of a rebellion within Syriza. But I think people
really thinking, as was Alexis Tsipras, to be completely honest with you, that his hand would have been strengthened following that referendum.
I don't think he felt in any way that -- he felt that Europe would actually be listening to what the people of Greece voted and really helping
him with debt relief or maybe easing some of the austerity measures.
In terms of what's the people reacting to his speech -- because yesterday I heard his speech and I wanted to gauge the mood, so I asked
people, are you -- did you believe him? Do you trust him? Are you backing him? And I was astounded they would actually say he was very honest, he
said he tried his best, he couldn't do it, but we're backing him because he's the best option right now for Greece, Poppy.
HARLOW: What about the clashes? It looks there behind you as though they have dramatically subsided. But how intense did the clashes get this
evening there in front of parliament?
SOARES: Look, it started all very jovial, there was music, everyone was happy, we heard no's, a couple of "no, no, no" to austerity. But the
24 hour strike as well, so we saw a lot of workers pass by. No problem whatsoever.
And then, we were able to capture that, and our cameraman was able to capture basically three individuals started throwing Molotov cocktails. We
could see it from our vantage point here. And then the police basically fought back with teargas. And then, obviously, that escalated very, very
quickly.
[16:04:57] As you can see from the shot behind me, there are still a small group of protesters, about 100 or so, they're not making any noise,
but obviously, you can see as well, some riot police just protecting parliament, protecting the area, because parliament has not voted yet,
they're still in the process of voting.
HARLOW: Right. All right, Isa Soares, live for us, late tonight there in Athens. Isa, thank you very much, we appreciate it.
As EU lawmakers work on the third -- this is the third bailout for Greece -- the country is facing a more immediate deadline. It has less
than a week to make a $3.8 billion payment to the European Central Bank. Eurozone finance ministers are still trying to work out where that money is
going to come from for the bailout and also for the bridge loan.
The parties are all passing the buck -- or the euro -- around. Greece has maintained from the beginning that the burden cannot fall on the Greek
people. Alexis Tsipras says he doesn't agree with those austerity measures at all in this deal and only accepted them to prevent an economic disaster.
Meantime, the IMF warning that Greece's debt is "highly unsustainable," saying massive debt relief is required beyond what,
frankly, Europe has been willing to even consider up to this point.
The German government says it would consider letting Greece pay off its debt over a longer period of time, but it would oppose any solution
that leads to a so-called "backdoor haircut." Some economists have accused Germany of ignoring its own history. Remember, it wasn't that long ago
after World War II when Germany signed a deal to reduce its own debt payments.
The UK, which doesn't use the euro, insists that it shouldn't be on the hook for bridging a loan to Greece. Speaking in parliament, Prime
Minister David Cameron said, quote, "It is not for Britain to bail out eurozone countries."
A short time ago, the IMF's managing director spoke with our CNN -- with CNN's Christiane Amanpour. Christine Lagarde said the need for
massive debt relief was largely caused by the Greek government's actions over the past year.
(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: We have been arguing this for quite a while, actually. And what is very
disappointing is that while Greece was on the path to sustainability and actually over performing about a year and a half ago, in the last -- in the
last year and a half, there has been a significant deterioration, both as a result of the previous government not doing the things that it was supposed
to do in terms of measures, and the new government delaying some of the measures and also reversing reforms that had been taken -- undertaken by
the previous team.
So, it's the combination of these two over the last 18 months or so which has been quite devastating for the country. Now, we did say that all
along to the Europeans, but clearly the necessary deterioration which has taken place in the last couple of weeks as a result of the bank closure and
the capital control put in place by the Greek authorities has made the whole situation a lot more serious.
(END VIDEO CLIP)
HARLOW: You can see Christiane's full interview there with IMF director Christine Lagarde right here on CNN, "Amanpour" begins right after
this program at 10:00 PM London time, midnight in Athens.
Joining me now from London, Vicky Pryce, the chief economic advisor for the Center for Business. She is also the author of "Greekonomics."
Thank you for being here this evening with us.
Look, this is sort of yet another punch to the gut, the IMF coming out and saying that Greece's debt is "highly unsustainable." You're going to
need sort of very dramatic haircuts or you're going to need an extended grace period. What now?
VICKY PRYCE, CHIEF ECONOMIC ADVISOR, CEBA: It's a very interesting question. It's obvious that the Germans were not very keen to see anything
happen at all, if they could get away with it, on the debt front, but they're going to have to. And I think the IMF making it so clear now also
forces their hand, in a way.
But of course, we've always known that the Greek debt was unsustainable long before the year and a half that Christine Lagarde is
talking about. It was unsustainable when the IMF itself took part in the second bailout for Greece --
HARLOW: Right.
PRYCE: -- in 2012. And a lot of the measures that they imposed were, in fact, pretty negative in terms of growth, with a result, of course, that
the debt to GDP ratio went up so much. So, it's not new. Blaming just what the government has been doing recently and the reforms is not the
answer.
The truth is, something needs to give, and Greece will not return to growth unless the debt itself is looked at again, but also, unless there
are some positive policies that are introduced to ensure that money goes to growth areas rather than just going to recapitalize the banks or pay back
debt.
HARLOW: You know, some have said with Greece being sort of the first country to really default on IMF debt that the IMF's reputation is at risk
here as the lender of last resort. Would you agree with that assessment?
PRYCE: To tell you the truth, I do. I also think the same about the European Central Bank, frankly, which also is owed some money by the
Greeks.
And it's odd to think that these are two institutions that support a country and which also take money from that country, because obviously
there is a certain subscription to the IMF from -- and to the ECB, of course, from both those countries.
[16:10:00] So, they belong to these institutions themselves, so they're part of the structure of it. So, I would have imagined that in
both cases, they would have been much more lenient. But of course, the IMF has a problem in terms of its own constitution. It's very, very difficult
--
HARLOW: Right.
PRYCE: -- for it to accept that it doesn't get repaid. And if that's going to be an issue in terms of its involvement in this third bailout, I
think the IMF board is going to find it incredibly difficult to agree to the IMF participation. And I think that brings it all into question what
will happen next.
HARLOW: Let's remember, here, it isn't all said and done if the Greek parliament says OK to this. You still needs parliaments in Finland and
Germany to sign off on these rescue packages.
And some have said Angela Merkel all along trying to make this hard choice, does she want to be the chancellor that sort of oversees a Grexit
versus what, perhaps the Greek people -- the German people may feel, being really fed up. So, we still have a long road.
PRYCE: We do. And I think, though, we have to wait for Friday, certainly, for when the Germans vote on this. But the IMF intervention
isn't going to be fantastically helpful in this respect, and already we've been hearing noises and people saying in Germany if indeed the debt is
unsustainable, why are we putting more money into this?
I think what needs to happen is a slightly more innovative solution on how you get rid of that debt. If Greece manages to get into a third
bailout properly, and then it's eligible for quantitative easing -- this is the amount of money that the European Central Bank is spending every month
buying up bonds in Europe -- then they can't start seeing this debt being bought up gradually by the European Central Bank, and then hopefully just
parked there.
So, I think there are ways of doing it in addition to extending the maturities of the debt that Greece has, as well as extending the period of
grace before which you don't have to pay anything.
It can't be beyond the imagination and the capabilities of the people involved to sort something out that really sorts the problem for the Greeks
once and for all.
HARLOW: As you're saying, perhaps everyone needs to get a little bit more imaginative. I can imagine it's quite hard in such a stressful,
stressful time. Vicky Pryce, thank you very much, live from London for us this evening.
Well, stocks around Europe moved higher as Greek lawmakers prepared for this vote that is going on right now. In Spain and Italy, stocks were
up and bond yields were down. That is a sign that investors are optimistic, pretty optimistic, that the Greek deal is going to stick.
Stocks in Germany rose 0.2 percent, London's FTSE 100 was flat.
Major opportunities, but also major legal obstacles as companies ponder entering the Iranian market. We're going to take a closer look at
what they need to be aware of if they want to do business in Iran.
(COMMERCIAL BREAK)
HARLOW: US president Barack Obama has vigorously defended the nuclear deal with Iran. The president faced the press today at the White House in
the East Room. It happened just a few hours ago. And he said he hoped the deal would be a game-changer for Iran. Listen.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Look, I'm always hopeful that behavior may change, for the sake of the Iranian people, as
well as people in the region. There are young people there who are not getting the opportunities they deserve because of conflict, because of
sectarianism, because of poor governance, because of repression, because of terrorism.
[16:15:01] And I remain eternally hopeful that we can do something about that, and it should be part of US foreign policy to do something
about that.
(END VIDEO CLIP)
HARLOW: Well, several businesses have expressed interest in entering Iran once many of these sanctions from the West are lifted, but many does
not mean all of those businesses. Our Clare Sebastian met with one of the lawyers advising some of the world's top companies on how they should tread
in this market.
(BEGIN VIDEOTAPE)
DANFORTH NEWCOMB, INTERNATIONAL LAWYER: Many of these are what we call secondary sanctions.
CLARE SEBASTIAN, CNN PRODUCER (voice-over): International lawyer Danfoth Newcomb keeps a three-by-four-foot poster in his office listing the
global sanctions on Iran. Now that major world powers have reached a deal that includes lifting some of those sanctions, navigating this list has
become even more complicated.
NEWCOMB: Let me see if I can find the NDAA. Yes, here. There are some sections of that that are going to be lifted and some that are not.
SEBASTIAN: It's a measure of the complex calculations companies face as they consider expanding their market to Iran. Newcomb says his best
advice to clients: move carefully.
NEWCOMB: Hold your breath. It's not yet. Sort it out and get ready.
SEBASTIAN: Oil companies in particular are heeding this advice. Shell and Italian oil giant Eni both held meetings in Iran in the last few
months.
NEWCOMB: It's what I can refreshing your Rolodex. At this point, you can't do very much, either an EU or US company, in terms of deals, but you
can get -- start to prepare.
SEBASTIAN: Eni told us if the sanctions are lifted, Eni would consider investing in the country again. Shell says it's interested in
exploring the role Shell can play in developing Iran's energy potential.
(CROWD CHANTING)
SEBASTIAN: And there's a different kind of energy to tap. A population of 80 million, many seen cheering the deal this week, is
attracting consumer businesses, like Siemens and General Electric. Both told us they welcomed the deal.
And car marker Peugeot, which until the sanctions came in in 2011, produced almost half a million cars a year in Iran, is now in talks to
build a joint venture there. They told us this is the beginning of a new history for us with this country.
NEWCOMB: And it's very intricate.
SEBASTIAN: Danforth Newcomb says his clients have a lot of work ahead, and staying on the right side of the law is just a part of it.
NEWCOMB: You've got to have a product that people want to buy. You've got to have a service that people will need. It's stupid to ignore
the legal piece, but don't let the legal piece drive the process.
SEBASTIAN: Most believe it will be at least six months before businesses can reenter this market. Now is the time to make sure they do
it right.
Clare Sebastian, CNN, New York.
(END VIDEOTAPE)
HARLOW: Well, the chairman of the British-Iranian Chamber of Commerce, Lord Lamont, says that opportunities in Iran go far beyond the
energy market. He spoke today with our Nina Dos Santos. She asked him what this deal really means for international business.
(BEGIN VIDEOTAPE)
NORMAL LAMONT, CHAIRMAN, BRITISH-IRANIAN CHAMBER OF COMMERCE: Yes, I think this is changing the geopolitical landscape. It would be wrong to
think that Iran is going to become an ally of the United States immediately, but I do believe in the longer run, Iran will become closer to
the West.
We've got to give it time, let it adjust. I believe engagement with the world economy, investment, foreigners going there, deals being struck,
I think that will change Iranian society. That is what the hardliners are desperately afraid of. And it will also change Iran's position there.
But you know, at the end of the day, this is a country of 77 million people, with the second largest oil reserves in the world. The idea you
can lock it in a cupboard and just treat it as though it shouldn't be talked to is absurd.
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: But isn't there an argument here for this being -- showing the world that sanctions, economic
sanctions, painful ones, really do work? They get a country like Iran back the negotiating table.
LAMONT: Well, the sanctions did play a part in bringing around to the negotiating committee. But don't forget, the Iranian public played a part.
If the election had gone against Rouhani, and they'd elected one of his rivals, there would have been no negotiation. Rouhani stood in the
election on a platform of engaging with the West, and the Iranian public voted for that.
So, that was an indirect way in which sanctions had an affect. Sanctions, however, had no effect in curtailing Iran's nuclear program.
They had 22,000 centrifuges at the time of the negotiations. At the beginning, they had something like 3,000.
DOS SANTOS: So, if we look further afield here, oil and gas sector certainly set to benefit. But the big question I have is, will the Iranian
people themselves benefit as much as they expect?
Because a lot of this oil that you're referring to here, some of the fourth-largest gas reserves in the world, is coming onto the market at a
time when the oil price is extremely depressed, and it's likely to fall further. So, Iran won't be making as much money from its oil wells as it
thinks it will.
[16:19:59] LAMONT: Well, that is true. But of course we don't really know what's going to happen to the oil price any certainty. But it
would be wrong to see the Iranian economy as purely an energy economy.
They're also very rich in minerals. They are the largest -- have the largest mineral resources in the Middle East, and I think the third-largest
in Asia. There are huge opportunities in areas like --
DOS SANTOS: But minerals are down as well in terms of price because China's economy is slowing. So, when it comes to --
LAMONT: But Iran is also an industrial economy, and it also has a technology sector. I -- maybe they won't benefit quite as much as if the
oil price were higher, that's undeniable. But I think just opening up trade will have a multiplier effect. And it is ordinary people who most
need to benefit, yes.
(END VIDEOTAPE)
HARLOW: Up next, the drug kingpin known as "El Chapo" still on the run, likely in Mexico, but who knows where he is? We have new video that
captures the moment that he slipped out of his prison cell. We'll show you that next.
(COMMERCIAL BREAK)
HARLOW: New video just released shows drug kingpin Joaquin "El Chapo" Guzman making his brazen escape from a Mexican maximum security prison.
The surveillance video shows him sitting on his bed, putting on his shoes, and then -- I guess that's a bit weird as he was walking into the shower
with his shoes on -- and he bends down, and then he is gone. Guzman slipped out through a hole under the shower and escaped through a tunnel.
The intense manhunt for him has been going on ever since it was discovered early Sunday morning that he had escaped. Our Nick Valencia
joins us now from Amalia de Juarez, Mexico, with the latest.
It's incredible. If anyone had seen, I suppose, Nick, him putting his shoes on to head into the shower, they might thing there was something a
bit odd. But you just emerged from the tunnel. Tell us about it.
NICK VALENCIA, CNN CORRESPONDENT: It was an incredible experience, Poppy. We have for days been trying to gain access to that house where El
Chapo was said to have emerged from the tunnel.
Today, we were allowed inside, escorted by the Mexican military, as well as the Attorney General's office, first ushered into a room that
really wasn't anything to brag about. Essentially, it was a work space, a cinder block room filled with power tools that were still plugged into the
outlets, as if as soon as they were done building that tunnel, they gave El Chapo the notice to escape.
We then saw that hole that led to the tunnel. It was very small, just a couple of feet wide by a couple of feet long. We dropped down with the
help of a ladder about ten feet, walked a few more feet, and then we were - - we met another ladder. There, we went down another 20 feet, and that's what led to the main tunnel.
There, we saw just this magnificent feat of engineering. It was done in a crude way, but a very professional way, from what we saw. On the
ground, Coca-Cola bottles that were empty, an oxygen tank used, because there was no oxygen in there, very difficult to breathe.
On top of the tunnel, just on the roof of it, you could see an electricity line going through, as well as a very thick PVC pipe to provide
ventilation in that area. We also saw that modified motorcycle that El Chapo may have used to ride from one end of the tunnel to the other.
It was a very small space. I stand about five feet ten inches tall. I couldn't stand up all the way or stretch my arms out. But for a man like
El Chapo, who's about five foot six -- that nickname means "Shorty" in Spanish -- I'm sure there was plenty of room for him to stand as tall as he
wanted. Poppy?
[16:25:04] HARLOW: Wow. It's stunning to see, as you're reporting, Nick, we're looking at these images. They still have this $4 million
bounty on his head, but not a lot of people are encouraged, are they, that that's really going to do anything?
VALENCIA: Locals are actually very critical of the government's handling of this. Enrique Pena Nieto, the president of Mexico, found out
about this news while he was on a trip to France. He still has not returned to the country. Locals here say that is an example of his lack of
leadership.
And the press conferences we've heard so far, very little information released. If the authorities here locally know anything about El Chapo's
whereabouts, they're not releasing that information or making it public.
A lot of criticism here, especially among the farming community here. It's a very rural area. We had to walk through a countryside in order to
get to that rural home. And along the way, we had conversations with people, some of which were very scared, the fact that El Chapo's back --
HARLOW: Yes.
VALENCIA: -- out on the loose. Remember, this is the most notorious drug trafficker in the world, a very dangerous man, Poppy.
HARLOW: Yes, that's exactly what I was going to ask you. What about US cooperation? Obviously, the US has said, we will help you in trying to
hunt this man down. They did that back in 2014 when they captured him.
But the US also very upset, because they wanted him extradited to this country, and Mexico said no. Do you see US forces down there right now on
the ground helping in the search?
VALENCIA: We do not. But we hear reports that the US has offered their assistance. Mexico is officially denying those reports. But we know
that the United States has helped in past instances of major cartel bosses. Whether or not they will be helpful in the hunt for El Chapo, that remains
to be seen.
But I was talking to some top-ranking officials, both current and former, here in the Mexican government, and they told me that this might
provide a reasoning, or actually a help for the United States to expedite their extraditions. They've wanted to have El Chapo extradited as soon as
he was captured --
HARLOW: Right.
VALENCIA: -- but Mexico said it was their issue to deal with, and that as soon as he was done serving his sentence here, he would be
extradited there. Poppy?
HARLOW: Nick Valencia, thank you for the reporting. Amazing access into that tunnel. Nick, great work.
Some earnings just into us here at CNN, some big earnings to tell you about. Netflix stocks surging more than 10 percent in after-hours trading.
The streaming giant reporting it signed up more than 3 million new subscribers just in the second quarter. That is double the number that
they had managed to sign up just a year ago.
The company now has 65 million subscribers around the world. We will have much more on those earnings with Paul La Monica after the break.
Also coming up, the Fed chief not ducking out of anything. On Capitol Hill today, Janet Yellen sticks to her guns and signals a rate hike could
be right around the corner.
(COMMERCIAL BREAK)
[16:30:12] HARLOW: Hello, I'm Poppy Harlow. Coming up on the next half hour of QUEST MEANS BUSINESS, members of Congress grill Janet Yellen
about the health of the US economy.
And shoehorns, laminators, and colors for cats. Shoppers aren't exactly excited about Amazon's new shopping holiday.
Before that, though, these are the top world news headlines we are following for you this hour. Riot police have fired teargas outside of the
Greek Parliament building as protesters threw petrol bombs ahead of a crucial, crucial vote there.
Greece has to approve a controversial set of austerity measures by tonight in order to secure a third bailout from its European counterparts.
This comes less than two weeks after Greek voters rejected a similar austerity plan in a referendum.
Speaking to CNN, the IMF managing director Christine Lagarde said the situation in the country has gotten rapidly worse.
(BEGIN VIDEOCLIP)
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: Clearly, the necessary deterioration which has taken place in the last
couple of weeks as a result of the bank closure and the capital control put in place by the Greek authorities has made the whole situation a lot more
serious.
(END VIDEOCLIP)
HARLOW: U.S. President Barack Obama has defended the deal that Western leaders reached with Iran over its nuclear program. He says his
main goal was to ensure that Iran could not construct a nuclear bomb.
(BEGIN VIDEOCLIP)
BARACK OBAMA, U.S. PRESIDENT: We gain unprecedented around-the-clock monitoring of Iran's key nuclear facilities, and the most comprehensive and
intrusive inspection and verification regime ever negotiated. Without a deal, those inspections go away and we lose the ability to closely monitor
Iran's program and detect any covert nuclear weapons program.
(END VIDEOCLIP)
HARLOW: Investigators say there's evidence that pro-Russian rebels were indeed the ones who shot down Malaysia Airlines flight 17 over Easter
Ukraine nearly a year ago. A source telling us here at CNN a new draft report also includes the exact type of missile that was used and where it
was fired from.
A German court has sentenced a former Nazi officer known as the `bookkeeper of Auschwitz' - 94-year-old Oscar Groenig was given four years
in prison. He was found guilty of being an accessory to the murder of 300,000 people at the Auschwitz death camp.
And NASA has released historic new images showing the dwarf planet Pluto. You can see a zoomed-in image here of terrain on that planet's
southern hemisphere. This is the best look at Pluto that scientists have ever had. NASA's probe traveled for nine years to reach Pluto and to take
these images.
China's economy looking pretty healthy going by their official numbers released today. GDP in China growing by 7 percent in the second quarter,
slightly beating expectations. It is just where Beijing wants growth to be. The trouble is not everyone is convinced.
(BEGIN VIDEOCLIP)
ANDREW STEVENS, CNN ASIAN-PACIFIC EDITOR: Economic growth in China is the cornerstone of the Communist Party's legitimacy. Economic growth
equals wealth and wealth equals social stability - that's the equation.
So at 7 percent, China's economy is chugging along bang on target. That's a target though that's being filled (ph) by the government. Many
economists says the GDP figure which does measure the overall economic activity, is at best only a rough guide and that the economy could actually
be growing at a much slower rate.
In fact, even the country's economic Supremo, the Chinese Premier Li Keqiang once famously described GDP figures as man-made and for reference
only. That's according to the U.S. cables released by WikiLeaks.
A more accurate guide, say some economists, looks at things like electricity usage, the amount of freight shipped, the number of passengers
traveling around the country, the amount of cargo at seaports.
Capital economics in London produces what it calls the China Activity Proxy. That measures those indicators and this is what they found.
Economic growth since 2012 has been a lot weaker than the official number. The latest comparison to the first quarter of this year has
official growth at 7 percent, the CAP has growth at 4.1 percent. Independent economist Andy Xie agrees.
ANDY XIE, INDEPENDENT ECONOMIST: China does not have an independent statistical (ph) bureau. It depends on local governments reporting the
number from bottom up. And the local governments do have incentives to distort numbers.
[16:35:08] What does it matter? Well it's all about jobs. At its most fundamental, economic growth creates work, and on that front, Xie says
the Chinese authorities can rest easy.
XIE: The good thing about China is that in prominent pictures (ph), it's very good. Labor force basically has been shrinking for over two
years. There's no pressure for net job creation.
STEVENS: The accuracy of China's GDP figures is certainly not a news story. They've been questioned for years and Beijing continues to defend
its position, the latest response coming on Wednesday. The National Bureau of Statistics said at a news conference that quote, "We don't overestimate
our GDP."
But despite Beijing's best efforts, this is a debate that just doesn't go away. Andrew Stevens, CNN Hong Kong.
(END VIDEOCLIP)
HARLOW: Fed chief Janet Yellen gave her biggest hint yet that the U.S. interest rates will soon indeed rise. Giving testimony in Congress
today, Yellen suggested a rate hike could sometime this year. She told members of the House Financial Services Committee the improving economy
makes an increase appropriate.
(BEGIN VIDEOCLIP)
SCOTT TIPTON, U.S. HOUSE REPUBLICAN: Here's part of the problem when you aren't raising interest rates right now is, what you're really saying
is our economy stinks right now.
JANET YELLEN, CHAIRWOMAN, U.S. FEDERAL RESERVE: I would say we've gotten our economy - our economy is in a much better state, low interest
rates have facilitated it and a decision on our part to raise rates won't say no - the economy doesn't stink, we're close to where we want to be and
we now think the economy can not only tolerate but needs higher rates.
(END VIDEOCLIP)
HARLOW: "Needs higher rates" - those Janet Yellen's words and everyone hangs on each and every word she utters publicly. Even though her
comments were expected, they did move the market - the dollar spiking as soon as she started talking, finishing the day up about a 1/2 a percentage
point against the euro.
Let's talk about Yellen's comments and the impact with Randall Kroszner. He joins us now - he's a professor at the University of
Chicago's Booth School of Business. Thank you for being with us, sir.
The Fed has a dual mandate, and she's very confident that unemployment is going to tick down and she's very confident that inflation is going to
tick higher and closer to the 2 percent sort of target rate. Do you agree with her assessment?
RANDALL KROSZNER, PROFESSOR, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS: Well I think those are perfectly reasonable criteria that she
has.
Certainly we've had improvement in the labor markets, but not as much as they would like and I think if there aren't any major shocks, we should
be on a reasonable path for a more sustainable and sustained job market recovery.
On inflation, I think the jury is still out.
HARLOW: Right.
KROSZNER: We're not really seeing much pressure either in terms of wages or in other goods and services, and so I think there's a question
mark over whether we're going to be moving towards the inflation goal or not.
HARLOW: It's interesting because the IMF has really urged, urged the Fed to wait - to wait until next year to raise rates. And so many people
right now I think are looking at September, pointing to September, and really believe we will see a rate hike in September. Does the IMF have a
strong argument there?
KROSZNER: Well I think it's really going to depend on the data as always, and as Janet Yellen said, we really have to see how the job market
continues to evolve and we have to see if we start to see inflation sort of in a rise towards that 2 percent.
I mean, I think - I think reasonable people can disagree at this point because I think there's just a lot of uncertainty in the direction of the
economy, and, my goodness, with all the international uncertainty, you can see why I think one doesn't want to make a clear commitment at the moment.
HARLOW: But it's interesting you bring up international uncertainty, though, because she's sort of - Yellen in this testimony - really tempered
sort of concerns over that, saying, quote, "Economic growth abroad could pick up more quickly than observers generally anticipate providing
additional support for U.S. economic activity."
And it sort of echoes in a different way what we heard from JPMorgan CEO, Jamie Dimon yesterday -- not overly concerned about Greece, not overly
concerned about China.
KROSZNER: So it may be that these will have no impact on the U.S. or on the rest of the world economy. There's a lot of uncertainty in Europe.
They may be able to kind of power through the challenges in Greece. My guess is there aren't going to be resolved with any particular votes
tonight or in the next few days. And my hunch is there's going to be continuing uncertainty about what the true growth rate is in China just as
you were discussing in the previous segment.
And so I think those are going to be looming out there. The U.S. seems to be on a better -- much better - track than it was before. But are
we fully recovered? Still a question mark there.
HARLOW: Randall Kroszner, defining cautiously optimistic for us this evening.
KROSZNER: (LAUGHTER).
HARLOW: Thank you very much, sir. We appreciate it.
Well it was a narrow trading day on the New York Stock Exchange. The Dow Jones Industrials finishing the day pretty much flat, taking a pause
after four sessions of gains.
[16:40:06] As we told you just a few moments ago, though, the big name right now it Netflix. Just releasing its earnings and they are stellar.
Let's talk about it with Paul La Monica because the company reported earnings of 6 cents a share in the second quarter, beating expectations.
But, Paul, going into these earnings, we were all looking at one thing and that's subscribers.
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Exactly.
HARLOW: How many more subscribers are they going to add? And it's a pretty stunning number.
LA MONICA: It is. They're now at more than 65 million subscribers worldwide, topping Wall Street's forecast. The key really is that the
international expansion has been phenomenal for Netflix and there's more to come.
They've got Japan - they're launching there in the third quarter of this year. Spain, Italy and Portugal later this year as well, and the
company said that 2016's going to be even bigger -
HARLOW: Wow.
LA MONICA: -- they're hoping to get into China. They're exploring that right now. It's not going to be easy, but that's a huge market if
they can obviously get in there.
HARLOW: If they can do that successfully, that could be a game- changer. 3.3 million new subscribers this quarter alone, compared to 1.7 million same time last year. It just shows how rapidly they're growing.
But they do have competitors like Hulu, like in Amazon and they're formidable.
LA MONICA: Yes, definitely. Hulu is backed by several big media companies, Amazon is also a giant tech company that is worth more than $200
billion, so it's definitely something that Netflix has to be concerned with.
I think the big thing though that's in Netflix's favor right now is they really are the streaming video company that people think of first and
foremost, and it's because of the original content now. I
t's not just a place to go and binge watch old episodes of "Breaking Bad" anymore. You've got "House of Cards," "Orange Is the New Black" - a
lot of new shows. "Daredevil" was a huge hit for them in the second quarter.
So Netflix is definitely like a traditional media company now. They're producing their own shows and they're doing extremely well.
HARLOW: Well, the CEO - fascinating, Reed Hastings - and what he's done. Look, they did face some challenges. Remember when they tried to
raise the -
LA MONICA: -- Quickster -
HARLOW: -- prices -
LA MONICA: -- and the Quickster DVD debacle.
HARLOW: Right. So they haven't been totally unfazed. But what do you think, Paul, looking at a Netflix if you're an investor and wondering
what could go wrong - what could go wrong?
LA MONICA: What could go wrong with Netflix - definitely the fact that they are spending a lot on original programming. As any media company
knows, you have hits and you have misses. The thing with Netflix is it's harder to know what's a failure because you don't have Nielsen ratings, you
don't have the ad dollars, but it really comes down to subscribers.
If Netflix doesn't have the content that people want -
HARLOW: Right.
LA MONICA: -- the subscribers start going elsewhere. You've mentioned all that competition -
HARLOW: Yes.
LA MONICA: -- that could be a problem for a stock like Netflix that, let's face it, they're absurdly overvalued even though they're doing well.
HARLOW: Yes, and then Amazon is tied in with so many other things - Amazon Prime products. It's got a very different business model than a
Netflix, so -
LA MONICA: Yes --
HARLOW: -- (inaudible) watch it.
LA MONICA: -- it's not the only thing that - Netflix definitely it's not just worrying about Amazon in that respect.
HARLOW: Exactly. Paul La Monica, thank you very much. Much more of that on "CNNMoney," if you want to look at those numbers.
Well when we come back, Richard delves into one of Emirates' jumbo jets like he so enjoys to show how everyday products get from A to B.
(COMMERCIAL BREAK)
[16:45:17] HARLOW: Well the ink is barely dry on the deal with Iran and already the country is being courted by global powers which once
refused to trade with it at all. France's foreign minister Laurent Fabius says that he will visit Iran to try to rekindle what used to be a very
close trading relationship. And when business picks up, there will be a lot of work for airlines to do when it comes to delivering all of those
products.
So Richard went inside to see how Emirates delivers the goods in this week's "Business Traveller."
(BEGIN VIDEOCLIP)
RICHARD QUEST, CNN INTERNATIONAL ANCHOR AND REPORTER HOST OF "QUEST MEANS BUSINESS" SHOW: Look at the site. It's seen every day at airports -
loading and unloading, goods going out, others coming in.
Don't be confused. This has nothing to do with passengers. This is the part of the plane we're very familiar with - the cushions, the seats,
the blankets. But every now and again you hear a thud, a bang and a thump from down there and you wonder what on earth is beneath your feet?
This is the belly of the plane. Upstairs, all the passengers, down below, one vast space designed for the luggage and crucially the 27 tons of
cargo that this plane can fly.
This is Emirate's Sky Cargo, the air freight division of Emirates at Dubai International Airport.
NABI SOLAN (ph), (_____________): We probably move annually two million tons throughput through this whole facility, so that's almost about
8,000 tons daily that we move. (AUDIO GAP) for us at every single Triple 7 that moves and carries passengers on A380.
We have almost 20 ton worth of cargo that sits in the belly of each passenger aircraft.
QUEST: Cargo is everything the plane carries that isn't the passenger and the luggage. From computers to clothes, flowers to live animals, and
most of us don't even know it's there.
SOLAN (ph): The cargo is an important element for the airline. Contributes almost, you know, 15 to 20 percent of the overall airline
revenue. This is probably something that, you know, the airline depends on (inaudible), you know, be able to make that profit.
QUEST: Here in the terminal there's things literally flying everywhere. Zurich, Tulsa, Kuwait, Bahrain.
SOLAN (ph): In one container you can see probably there's at least seven different destinations that comes in onto one pallet.
QUEST: The incredible part about cargo is that you look at it and you wonder what's in it. And the goods, they run the gamut.
SOLAN (ph): Fashion goods, perfumes, mobile phones, computers.
QUEST: This is the growth area - perishables, food, flowers, pharmaceuticals, high-value goods. They're kept in specialized, cooled
areas.
Wow, it's already cold. In the temperature-controlled area, you'll find the fragile and very valuable goods such as these boxes of anti-
anxiety medications used in surgeries and medical procedures. It's being sent from India to London.
Some products are medical necessities, others are a little more out there. But this is really fascinating - they are broiler hatching eggs.
What does that mean?
SOLAN (ph): They'll - I guess they'll - produce more of the chicks eventually which will become chicken and get sold in the market.
QUEST: Large or small, essential or obscure, the common link here is value. While just 1 percent of world trade is moved by air, it totals 30
percent when looked at by value.
World cargo is expected to double in the next 20 years.
SOLAN (ph): There is a lot of manufacturers and - who - actually rely heavily on airfreight who would their product to be on the shelf.
[16:50:12] Almost every Wednesday and Sunday, they will have to have a brand new product. We had a freighter full of flowers during the
Valentine's Day from Nairobi to Amsterdam, an original Picasso painting from the U.K. from the Royal Museum. This is cargo that's worth millions
of dollars, and there is no room for error, and therefore it has to be done safely, on time, without fail. And that's what we do.
(END VIDEOCLIP)
HARLOW: Next, the expectations in the buildup were big, but so was the disappointment now. We will discuss what has gone so wrong for Amazon
with its "Prime Day" sale.
(COMMERCIAL BREAK)
HARLOW: Well Amazon's big day not going quite to plan. It's so- called "Prime Day" sale this Wednesday has been advertised as bigger than Black Friday. But the event is being panned on social media. Let's talk
about it with CNN's Samuel Burke.
I was - I was running and listening to the radio and I kept hearing these ads this week leading up to it, and so I was expecting a lot. But
why isn't it going well?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Well, its 4 p.m. right now in the U.S. I've been up since 4 a.m. looking for these deals because I
heard the ads the way you did. And I haven't been able to find anything worthwhile, and I thought is just me? And then I started reading - seeing
hashtags on social media -- #amazonfail, #-- instead of a happy prime day - unhappyprimeday.
So I want to just read you some of the tweets -
HARLOW: Sure.
BURKE: -- that we found that seem to summarize what's happened on "Prime Day." So we have Chris Davies here in the United States. He
tweeted the following, "Here's the #PrimeDay spoiler -- the good stuff will be gone before you get it -- the rest will be multivitamins and compression
shorts."
And we have another one from Josh De Jong. He said the following, quote, "I wasn't in the market for a 24" shoehorn, but when I see one at
that price, #PrimeDay."
One last one - "#PrimeDayisthebiggestletdownI'veeverseen." They said they were going to be -
HARLOW: That's a little dramatic.
BURKE: -- well, I think I might even agree. They said they were going to be flash sales, so we know they were always going to be quick, but
you thought there were going to be lots of flash sales so you could find those great items - the $100 flat screen television. It was just very hard
to find.
HARLOW: Right, so, I am going to throw them a little bone here and say, hey, it is the first time, is this a learning experience for next
time?
BURKE: Well, listen, they never promised that this was going - there was going - to be a next time, so they have that easy get-out card.
HARLOW: OK.
BURKE: They said this is the 20th year anniversary sale/special, so I talked to the vice president of Amazon Prime last night and he left either
door open. I think they could only learn from this. If you're going to do this, you have to have sales all day long, and there's still a few hours
left in the day on the West Coast of the United States.
HARLOW: All right, so what is on sale?
BURKE: So, there are those great items like the television set that we mentioned, but let me just give you some examples of why people are
complaining. We have to start out with the thermal laminator. That's just not something that gets you going these days.
Then we have the calming collar cats. I could use that on some of my coworkers.
HARLOW: (LAUGHTER).
BURKE: And then they have nose vents to ease breathing and snoring. I know some people who share a bed who could use some of those for their
partners. And then the 24-inch shoehorn which was referenced in one of these tweets.
[16:55:02] This is just not the stuff that sends people in droves to a site like Amazon. So it doesn't look like it's Chinese Singles' Day,
though Amazon is spinning it - they're saying it was already bigger than Black Friday last year for them.
HARLOW: Yes, but by what metric?
BURKE: They're using a metric called peak order rates. We're not exactly sure what that means - that's not a standard metric it seems like.
HARLOW: Go investigate that -
BURKE: Yes -
HARLOW: -- and let us know.
BURKE: -- exactly. So, they have -
HARLOW: I'm sorry you didn't get your TV.
BURKE: I know. I'm waiting for it.
HARLOW: Sorry, Samuel. Good luck. Maybe you could get it tonight.
BURKE: OK.
HARLOW: I appreciate it. Well a legendary New York store is packing up its toys and leaving. I can't believe this is happening. This is the
end of FAO Schwarz as we know it. More on that next.
(COMMERCIAL BREAK)
HARLOW: It is the end of an era for one famous toy store. FAO Schwarz closing down its flagship store in New York tonight on Wednesday
night. The first store there opening in 1870. It will go down in history for this - the famous Tom Hanks iconic scene in the movie "Big."
(BEGIN VIDEOCLIP)
(ACTORS PLAYING GIANT TOY PIANO BY FOOT)
(END VIDEOCLIP)
HARLOW: Why is it closing? The owners of Toys R Us say the cost of running a retail space on prestigious 5th Avenue have become too high. It
will now try to relocate. I think this is a sign of the times when you have Amazon and so many online vehicles.
All right, before we go, we are keeping a close eye on the parliament session in Athens. The clock has almost struck midnight in Greece. That
is supposedly the deadline for Greeks to agree to new austerity measures to secure that bailout from the European Union.
We will keep a very close eye on that in the hours ahead.
That is "Quest Means Business." That'll do it for me. I'm Poppy Harlow in New York. Thanks so much for watching. The news continues right
here on CNN.
END
