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Quest Means Business

UK Loses Perfect AAA Credit Rating; UK Economy Downgraded by S&P; British Bank Shares Plunge for Second Day; Cameron: Brexit Negotiations Will Be Complex; Cameron Condemns Post-Brexit Racial Abuse; Merkel: Brexit Process Begins With Article 50; Salmond: Scotland Cannot "Veto" Brexit; EU Leaders Mapping Out Post-UK Future; 11,000 UK Jobs Hang in Balance of Tata Deal; Brexit Vote Creates Uncertainty Over Trade Rules; England Knocked Out of Euro 2016. Aired 4-5p ET

Aired June 27, 2016 - 16:00   ET

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

[16:00:00] RICHARD QUEST, CNN ANCHOR: Another wild day on Wall Street, thank goodness it's over or at least coming to a close. Euro was sharply

down as well as the pound lost considerable ground. And now it's time to bring it all to an end. The closing bell is ringing. Time for the man to

hit the gavel. That's what you call a firm gavel that brings a close to trading. It is Monday, June 27th and Big Ben is chiming nine.

Tonight, down and out. Brexit costs Britain its AAA rating. The market's selloff continues. The Dow just closed off more than 250 points. And

Britain's most complex task in decades. David Cameron picks his team to take Britain out of the EU. Live from Westminster, I'm Richard Quest, and

of course I mean business.

Good evening from Westminster. A two notch downgrade with a negative outlook. The bad news in Britain, frankly, just keeps coming. Brexit has

now cost the U.K. its perfect credit rating from all three of the major agencies. Standard and Poor's calls the U.K.'s vote to leave the EU, in

their words, a seminal event, one that will lead to more unpredictability, less stability, from AAA to AA rating. S&P lists a hosts of reasons why.

The worst economic prospects, the falling fiscal performance, questions over sterling as a reserve currency, on it goes. Threats to constitutional

and economic integrity if there's another vote on Scottish independence. Look at that list. It doesn't get much more serious, much deeper, more

fundamental to the very root of a nation's economy. Diane Swonk is in Chicago, the founder and CEO of DS Economics. Look, Diane, I know that

probably this had to or was going to happen, but less than three days after the vote, does it seem to you a little indecent haste?

DIANE SWONK, FOUNDER AND CEO, DS ECONOMICS: It is certainly fast. And I think, you know, one of the things we don't know, you underscored earlier,

all the uncertainty that we face going forward. There's many people talking about the Brexit could actually end up looking -- U.K. could look

more like Norway and have many of the privileges within the U.K. restored, although not having a vote, ironically, in Brussels on how things come

down. And I think that's where many people are looking now. To make that judgment before it happens is a big leap. That said, the concerns about

Scottish exit now as well are pretty high.

QUEST: All right. But maybe because I'm sitting at Westminster sort of bathed in the light of Britishness this evening, does anybody care that a

ratings agency, who which have been widely discredited in the last few years, does anybody care they've notched you down a couple of notches?

SWONK: We care in Illinois, and we've been notched down a few notches. So you do care, because it's more important when you have across the board of

course. And so one rating agency does not a plurality make. I do think it's an important warning sign. I also think you're right. It is a little

fast when we still don't know when the final outcome of all this will be. We're still in so much uncertainty. I think it's adding insult to injury

at a time when there could be some shifts that not all negative, as we come to terms with what this all means for the U.K. And the U.K. itself tries

to come to terms with what they want to be after this vote.

[16:05:08] QUEST: So with this in mind, Diane, what actually happens next, do you think, in terms of the markets? Today, if we look at the Dow fell

off 250, 260 points. It was off more than 300. But there's no obvious reason for the Dow to tumble at this sort of level because of an event, a

loss of 1.5 percent on the other side of the Atlantic that's not going to have an effect for the next two or three years if at all.

SWONK: Well, it is having an immediate effect already, though, because of the strength in the dollar, which is going to have an impact on profits. I

think the real issue here is the uncertainty about what profits will be going forward and whether or not there will be contagion in the rest of the

EU. There's a lot of hope perhaps, after the Spanish elections, that there won't be as much contagion within the rest of the EU. That may be that was

a response to go against the Brexit. But I think also, more importantly, is just this uncertainty. Markets just hate uncertainty. That's all there

is just to it. I think that's what's dominating more than anything. We don't the profit results, we don't know all of this until it happens. But

I think unfortunately, we're in quite a roller coaster this summer.

QUEST: Do you think that this has now put off any chance of a further rate rise, certainly in the summer, and very likely for the rest of the year

from the Fed?

SWONK: I think it's sidelined the Fed until 2017. I think the issue for the Fed is they don't have much ammunition left. The dollar is getting

stronger, oil prices are falling. These are going in the wrong direction for the Fed. Even though there are some positives as low interest rates in

the U.S. allow yet round for refinancing. It really does put the Fed -- handcuffs the Fed to doing nothing this year.

QUEST: Diane Swonk, thank you. Good to have your perspective from that side of the Atlantic.

The British Finance Minister, the Chancellor of the Exchequer, George Osbourne, was up early. He gave a statement at 7:00 a.m. warning it will

not be plain sailing for the British economy. Hours before the news of the downgrade arrived, and just before the markets opened, I guess he was

hoping to try and steady the nerves. He pointed out that with the Bank of England, the financial sector was ready for any turbulence ahead.

(BEGIN VIDEO CLIP)

GEORGE OSBOURNE, U.K. CHANCELLOR OF THE EXCHEQUER: It will not be plain sailing in the days ahead. But let me be clear, you should not

underestimate our resolve. We were prepared for the unexpected and we are equipped for whatever happens. And we are determined that unlike eight

years ago, Britain's financial system will help our country deal with any shocks and dampen them, not contribute to those shocks or make them worse.

(END VIDEO CLIP)

QUEST: And financial breaking news to bring you. Fitch has now joined S&P. Fitch had already knocked it off one notch, but now Fitch has also

joined S&P and downgraded the United Kingdom to AA. I'm assuming it was from a AA+. So two out of the three now have the U.K. at AA, which

incidentally is the rating of France, Germany, Liechtenstein and Luxembourg. Pretty much the only three that still have the AAA. So AA is

still, I would say, on the respectable side of rating, but it isn't the gold standard, and it's certainly perhaps an embarrassment so quickly after

the vote. Lord Bilimoria, Independent Peer in the British House of Lords. Your Lordship, are you feeling poorer more embarrassed tonight because

you're only a AA?

KARAN BILIMORIA, INDEPENDENT PEER, BRITISH HOUSE OF LORDS: The vote "Leave" and Nigel Farage, called the 23rd of June Independence Day. I call

it the day the United Kingdom shot itself in the foot. And here we are in a situation that is so unnecessary. We are the fifth largest economy in

the world. We had a AAA rating. We were doing well. Since the common market was founded in 1993, the U.K. has the single market, the highest

cumulative GDP growth rate, 62 percent versus Germany at 35 percent. We've done really well in the European Union. And now here we are with this

self-inflected trouble.

QUEST: Right, but that was then, this is now. The Prime Minister said today that it was his duty, his obligation, his responsibility to give

voice to the will of the people, to give action to the voice of the will of the people. You were in the Lords today.

BILIMORIA: Yes.

[16:10:00] QUEST: That statement was repeated in turn.

BILIMORIA: And of course it will be there in the will of the people, 52- 48, to change from a fixed term Parliament, The House of Commons has to have a two-thirds majority. This referendum should never have been allowed

to be decided.

QUEST: You're fighting last week's battle, your Lordship.

BILIMORIA: No, this battle is still not over. They were conned. The voters were conned. GBP 350 million a week to be put into the NHS, that

was the gross figure. The net amount that we contribute to the EU is GBP 8 billion a year. Just 1 percent of our annual government spending.

QUEST: So how then from what you heard from your fellow Lords, how do you get out of this? Because the Prime Minister said, there'll be no second

referendum. He's not calling a second referendum. There can't be a veto unless there's a riot and a rebellion by MPs. So how do you get out of it?

BILIMORIA: There's so many things to unfold now. First, the Labour Party has got to sort out its leadership. Next, the Conservative Party has to

sort out its leadership. Next, there could be a vote of no confidence and the government could crumble and the majority will just fold at the moment.

Next, you will have in election later on in the autumn or in the spring. And in the meantime we've got to trigger Article 50. All this time,

businessmen just sit around and wait for all this to happen. And this country relies on inward investment. The highest recipient of inward

investment in the EU, second highest in the world. With the rating falling down, with the pound plunging, with all this uncertainty, our inward

investment is going to suffer and our economy will suffer.

QUEST: You have given an excellent exposition of the problem. But how does the U.K. get out of it? Bearing in mind the PM said he's not invoking

Article 50 until -- or leave it to the new prime minister. You have at least three months until then, probably more until the new cabinet has

decided on its strategy. How then do you believe waters are calmed?

BILIMORIA: The only way the waters will be calmed, first, for the political situation to stabilize, for Labour to sort themselves out, the

Conservatives to sort themselves out, and have some leadership and unit that will now be negotiating on our behalf. Once Article 50 is triggered,

then that two-year window starts. And by the way, then the legalities. This has never happened before. Greenland is a dominion of Denmark, it

doesn't really count, no one has left the European Union before. And wait for this, the European Union itself is worried that it will break up.

QUEST: But you haven't given me a solution. You've merely restated the problem.

BILIMORIA: No, the solution is it's going to be government's job to sort this out. Business in the meantime has got to roll with the punches. On

the one hand, our exports will help. So COBRA exports to 40 countries. It will help our exports.

QUEST: Now, let's just talk about that briefly. Let's take that. The lower pound is going to help your exports. You obviously have a higher

import bill for whatever you import, probably not that much but you probably do import something. So net/net, you should be better off with

higher exports, providing uncertainty keeps your markets resilient.

BILIMORIA: But what about my domestic market? My domestic market which is reliant on inward investment and stability, and nose dives and we go into a

recession. And my demand over here with every other business drops. So my company here suffers domestically. There's no winning in this situation

until things stabilize. The best thing we have in our advantage is we're an open economy. The entrepreneurial spirit in Britain, which didn't exist

three decades ago, is now phenomenal. We're one of the most entrepreneurial companies in the world. We have some of the best

universities in the world. We have innovation. We have the ability, scientific papers. All of that is going to help see us through this.

QUEST: As we move forward, your Lordship, will you come back each month and tell us how you're doing and give us an idea of how the environment is

shifting for your companies?

BILIMORIA: Absolutely. But we were a big fish in a big pond. I don't want us to become a tiddler in an ocean.

QUEST: Thank you, sir.

The market rout is continuing on both sides of the Atlantic as the size and scale of the task to exit the Union is becoming more apparent. Look at the

major European markets. They're all down 2 percent or so, give or take, on the day. And as for sterling -- the DAX is off 3 percent, 2.5 in the FTSE.

Sterling took another dive, quite a serious one, actually. The 31-year low against the dollar. It's around 1.31 and change 1.32, give or take. But

it did fall quite sharply, a loss of some 3 percent.

Let's dive into those sectors that are having difficulty. The British banking sector is continuing to plunge. Barclays shares had to be frozen.

They fell almost 18 percent on today, on Monday. That follows a 15 percent fall on Friday. So the reason is Barclays -- investors feel Barclays has

the most to lose. Its structure is firmly based around London. It may need an overhaul to access the rest of Europe. RBS used to be known as the

Royal Bank of Scotland, saw trading halted. It's down 33 percent since the Brexit vote.

[16:15:00] Irony of irony of ironies, the biggest loser from that 33 percent is HMG, Her Majesty's Government. They own three-quarters of the

share. It was nationalized during the financial crisis. The future of going back into the private sector is most certainly uncertain. Lloyd's

fell 10 percent. There are worries that Lloyd's is too heavily invested in the U.K. economy. That could be heading for a session, perhaps almost

certainly, judging by what the chancellor said this morning after the vote. Last Friday the Bank of England governor, Mark Carney insisted that British

banks in terms of capital arrangements and in terms of tiered capital to withstand Brexit storms.

(BEGIN VIDEO CLIP)

MARK CARNEY, GOVERNOR, BANK OF ENGLAND: The capital requirements of our largest banks are now ten times higher than before the financial crisis.

And the Bank of England has stress tested those banks against scenarios far more severe than our country currently faces. As a result of these

actions, U.K. banks have raised over GBP 130 billion of new capital. And now have more than GBP 600 billion of high quality liquid assets. So why

does this matter? That substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to U.K. businesses and

households, even during challenging times.

(END VIDEO CLIP)

QUEST: The situation following the banks of course was serious. And it has transmitted itself, those nerves, on both sides of the Atlantic. On

Wall Street, investors were running for safety. The Dow fell 200 at the open and never looked back. It was off 300 at one particular point. Paul

La Monica is in New York. Paul, we know that Diane Swonk talked about the reason or one reason was the rise in the dollar, which is going to make

crucial U.S. exporting companies, their task more difficult. Besides Boeing, which are the other big U.S. exporters that will feel the effect of

this, if we can think about it?

PAUL R. LA MONICA, CNN MONEY CORRESPONDENT: I would have to think most of the industrials, particularly those in the Dow. Companies like Caterpillar

as well, as many other manufacturers, Companies like Gm and Ford. They are all going to be hurt because of the big presence that they have in Europe,

Richard. I think, it's obviously not, as Diane pointed out, just about what's happening in the U.K. It is the contagion fear that we had in 2008.

People are starting to wonder, eight years later, is it happening all over again?

QUEST: And with that, how much, if you like, pressure can Wall Street withstand at this sort of level, with the rising dollar, a falling stock

market, clearly the Fed ain't going to move, before there are questions about the resilience of the moderate U.S. growth?

LA MONICA: That's a great question. I think that right now, the hope is that on this side of the pond, that the U.S. economy will hold up and still

be able to grow, despite all of these headwinds globally. But it clearly is not going to have any sort of growth resembling normal anytime soon,

given the pressures faced not just in Europe but also worries about China. They haven't completely gone away. I think they've maybe gone on the back

burner a little bit, because of the focus on the Brexit vote and what's happening in Europe. But many investors are still nervous that the U.S.

consumer can't hold the entire world up forever.

QUEST: Paul La Monica, who is in New York for us.

Uncertainty has well and truly taken hold on Wall Street. You've seen the numbers. You've heard the reaction. You heard Diane Swonk. You've heard

Pau La Monica. So now, CNN's Clare Sebastian spent the day finding out how traders are adapting in this very early post-Brexit world.

(BEGIN VIDEOTAPE)

CLAIRE SEBASTIAN, CNN MONEY CORRESPONDENT (voice-over): if it wasn't for Brexit, trader, Jonathan Corpina, wouldn't have even been here today.

JOHNATHAN CORPINA, MERIDIAN EQUITY PARTNERS: I had a business trip scheduled to go down to Texas for a few days. I spoke to my clients over

the weekend. We both decided that it would probably be best if I stay here. We have everybody in today. All hands on deck. This can really

flip at any given moment.

SEBASTIAN: Here on Wall Street, Brexit is an unknown quantity. And the reality that it could take years to resolve is slowly sinking in.

ALAN VAIDES, SENIOR PARTNER, SILVEBEAR CAPITAL: The quickest, probably, anything gets done is maybe by October when Cameron resigns. It's two

years away, three years away before things finalize.

TIM ANDERSON, MANAGING DIRECTOR, MND PARTNERS: Obviously, the market doesn't know how things will play out. The S&P 500 was within less than

half a percent of an all-time high at the end of Thursday.

[16:20:00] SEBASTIAN (on camera): I can since then that your stress levels are quite high today?

ANDERSON: You know what, it's going to be a volatile week. It's the last week of the quarter.

SEBASTIAN (voice-over): The last week of the quarter means earnings season is just ahead, and one sector is on everyone's mind.

VAIDES: The banks are getting slaughtered over there.

ANDERSON: The banks, you obviously have to watch the banks.

CORPINA: If you look back to 2008, 2009, how the financial sector was hit during our economic crisis, it was pretty significant. We're starting to

see some of those ripple effects starting again.

Sebastian: similar to 2008?

CORPINA: Similar to 2008.

SEBASTIAN: Wow.

SEBASTIAN (voice-over): Outside the stock exchange, similar uncertainty from those on their morning commute.

UNIDENTIFIED MALE: We have to wait and see. We don't know how this is going to turn out.

UNIDENTIFIED MALE: With this incident, it's going to take a while to unwind and correct itself.

SEBASTIAN: The message, wait and see. And in the meantime, get used to the volatile. Clare Sebastian, CNN Money, New York.

(END VIDEOTAPE)

QUEST: You're starting to get a picture, not only of the turmoil and chaos in the United Kingdom, but also how this transmission mechanism in a global

economy is now moving across the Atlantic, and of course into mainland Europe, into the European Union. The British Prime Minister, David

Cameron, made his views quite clear when he came to Westminster to brief MPs on the way forward as he sees it. Will look at that after the break.

It's QUEST MEANS BUSINESS at Westminster.

(COMMERCIAL BREAK)

QUEST: Welcome back to QUEST MEANS BUSINESS. in these extraordinary days. Addressing parliament on Monday, the British Prime Minister, David Cameron,

said Britain will not start the Article 50 process until a new prime minister is appointed. The U.K. needs to first determine the kind of

relationship it wants with the European Union. That can only be done after the new government is in place. However, preparations were made, a new

civil service unit is to be formed that will handle the split from the EU. And the Prime Minister insisted the country's decision must be accepted no

matter what.

(BEGIN VIDEO CLIP)

DAVID CAMERON, BRITISH PRIME MINISTER: It is going to be difficult. We've already seen that there are going to be adjustments within our economy,

complex constitutional issues, and challenging new negotiations to undertake with Europe. But I am clear, and the cabinet agreed this

morning, that the decision must be accepted and the process of implementing the decision in the best possible way must now begin.

(END VIDEO CLIP)

QUEST: The PM says the task facing the civil service is the most complex job they've faced for decades.

[16:25:00] The U.K. trade negotiations will fall largely into the hands of the foreign office or the TTI, which has about 4300 employees. Compare

that with the European commission with nearly 33,000 across it. I spoke to Sir Christopher Meyer, the former British Ambassador to the United States.

I asked him, once the new PM is appointed, Article 50, which is the core article, once they are appointed, how quickly should they invoke, or should

they fire the starting gun?

(BEGIN VIDEOTAPE)

CHRISTOPHER MEYER, FORMER BRITISH AMBASSADOR TO THE U.S.: He or she must take his or her time. The new prime minister has got to be satisfied that

he or she has a negotiating position, a good negotiating team, everything properly prepared to go into battle with the other 27 member states. And

at that point the new prime minister invokes Article 50. Will it be this side of 2017 or will it be next year? Very hard to say.

QUEST: If the U.K. is right to invoke Article 50, the prime minister said it's the country's sovereign right. So when they go into the negotiations,

no matter how much pressure is being put on them to do it, should they give them the diplomatic two fingers?

MEYER: Well I'm going to give them the diplomatic two fingers, because the priority for our national interest is to be ready. When did the United

Kingdom last embark on a negotiation as complex as this? I can't remember, not in my lifetime. So we have to get it right. And that means the

primordial requirement for our side.

QUEST: Does Britain have sufficient negotiators to do this?

MEYER: We probably do not have enough experts in these areas to be able to conduct a negotiation of this complexity. There will be an awful lot of

learning on the job. But it's going to be intensely complex for the commissioners negotiating it as well. I think on each side there will be a

shortage of people who are really veterans, who are really experienced. There will be a lot of learning on the job.

QUEST: What's it like to negotiate at this sort of level trade treaties and air services?

MEYER: When in my career I became involved in trade negotiations, and particularly air services negotiations, they were tough, tough, tough.

They were really very, very hard indeed. So you've got to have people not only with technical knowledge, technical skills in these matters. You have

to have people who have moral fiber, who are tough and are prepared to get down to the wire on these things and not to blink first. So it's going to

be very, very tough.

(END VIDEOTAPE)

QUEST: Sir Christopher Meyer, who knows a thing or two about negotiating an agreement. Robin Oakley is CNN's political contributor, joins me now.

He makes a valid point, whether or not there are simply the people in the civil service with the experience. Yes, they've negotiated Brussels deals,

but if you're dealing bilateral trade and aviation, the U.K. hasn't done that for some time.

ROBIN OAKLEY, CNN POLITICAL CONTRIBUTOR: Not for 20 years or more. Most of those kind of deals have been done by EU negotiators on Britain's

behalf.

QUEST: So Britain can do it would you say?

OAKLEY: Well, Britain can do it, but there's a massive expertise going to be required in this new Brexit team, as Christopher Meyer was saying.

You've got to find the experience. You've got to find the quality. And David Cameron was saying in the commons this afternoon, the very best, the

cream of the civil service are going to be put on this job.

QUEST: And that was fascinating, wasn't it? Let's talk about the future, because the so-called 1922 back benches committee. I'm sure you know why

it's called that but we haven't got time to go into that at the moment. They've set the rules very fast in terms of nomination, closing the

nomination, nominations Wednesday, close of nomination Thursday, early husting next week. First vote the week after.

OAKLEY: I was listening to Andrea Leadsom, one of the Brexit campaigners, being interviewed today. She said, was she considering standing, "Yes, I'm

considering it," she said. Well, she hasn't got very long to consider it, none of them have. The potential candidates for the Tory leadership, who

are potential candidates, therefore, for the Prime Minister-ship of the country. This is a very, very quick contest that we're going to see.

Names in by Wednesday night, positions closed by Thursday. And then a result by September 2nd.

QUEST: The reason it's September the 2nd, is because the last two have to go to the country in a full scale vote. And that will take time.

OAKLEY: That will take time. They've got to do their hustings through August, you know, for the party to have a look at them, those final two.

The odds are that one of them will be Boris Johnson. We'll have to wait and see whether Theresa may emerge as the other. But those are the two

favorites at this point.

[16:30:00] QUEST: In a battle between Boris Johnson and Theresa May, who is the longest home secretary, the longest serving for many a year. Who

will the country prefer?

OAKLEY: I think there's no doubt that Boris Johnson would be the man for the country. What he has shown is an ability to engage with the

electorate. Politics is becoming more about personality and less about policies. Boris Johnson as an entertainer. He's showman. He loves how

clothes have become part of the act. A bit like Donald Trump in the United States. He doesn't care how loud he shouts. He doesn't care how much of a

fool of himself he makes as long as he keeps getting the headlines. But the Tory party will feel he's a winner. He won the London mayor's job.

QUEST: Twice.

OAKLEY: And many people feel that if he had gone with "Remain", as he may have done, rather than with "Leave", and most people think it was a career

decision in his case, if he had gone on the other side, the result of the referendum, many people are saying, might have been different. That's the

strong thing Boris Johnson's got going for him. But he's offended a lot of people and hurt a lot of people.

QUEST: Robin Oakley, thank you. Big Ben behind me is chiming half past the hour. Nice to have your own personal clock giving you an update of

what time it is at any given moment. Prime Minister, David Cameron has never given a less animated defense of the British union. That's not my

words, that's according to the former First Minister of Scotland, Alex Salmond. I'll ask Alex Salmond, what Brexit means north of the border.

Can the Scots veto a referendum? And secondly, is he salivating at the prospect of his Scottish independence at last?

(COMMERCIAL BREAK)

QUEST: A very good evening to you. I'm Richard Quest. There is a lot more QUEST MEANS BUSINESS in just a moment. I am going to be joined by the

director of UK Steel as Brexit throws plans to save the country's steel industry into some doubt. You'll hear also from the former Scottish first

minister. Alex Salmond will tell me why Boris Johnson would do well to stay clear of Scotland.

All of that still to come but of course this is CNN. On this network, the news always comes first.

Britain's vote to leave the European Union has cost the country its perfect AAA credit rating from all the agencies. Two agencies, Standard and Poor's

and Fitch, have downgraded Britain by two notches to AA. S&P says Brexit may lead to a deterioration of the British economy.

[16:35:00] The Prime Minister, David Cameron, has condemned reports of racial abuse across the U.K. in the wake of the vote. A Polish society was

vandalized with a racist slogan in London, and anti-Polish leaflets have been distributed in Cambridgeshire. Mr. Cameron says hate crimes cannot be

tolerated.

(BEGIN VIDEO CLIP)

DAVID CAMERON, BRITISH PRIME MINISTER: In the past few days we've seen despicable graffiti daubed on a Polish community center. We've seen verbal

abuse hurled against individuals because they're members of ethnic minorities. Let's remember, these people have come here and made a

wonderful contribution to our country. We will not stand for hate crime or these kinds of attacks. They must be stamped out.

(END VIDEO CLIP)

QUEST: The Turkish President has offered his condolences to the family of the Russian pilot who was killed by Turkish forces last year. It follows a

claim by the Kremlin that Turkey had apologized to Russian President Vladimir Putin. President Erdogan's statement says he shares the family's

pain.

The defending champion, Spain, are out of euro 2016 championships after a 2-0 defeat by Italy. The Italians will now face the world champions

Germany in the quarter final. The last round, 16 games between England and Iceland, the English find themselves 2-1 down, and there are 20 minutes

still to play.

Nothing in the U.K. will change until it's invoked Article 50 of the Lisbon Treaty, and only the U.K. can press that trigger. Once pressed, a two-year

countdown actually begins. The European Council will appoint the negotiators and then negotiations begin. The workout of the U.K.'s exit

and future relationships during that negotiation. And then the final deal with put to the Parliament and it goes back to the council for an

agreement.

The U.K. is excluded, of course, when the council is considering that particular deal. All in all, one of the biggest single most important

aspects, the negotiation of access to the single market. The freedom of movement question. The aviation market. And the EU presidency. When you

look at it all and you put it together in this two-year time frame, approving the deal shows there's plenty of room for a spanner in the works.

Think about it. The deal must pass the European parliament. It must get an EC double majority with qualified majority voting in the council of

ministers, 72 percent of the remaining countries, that's 20 in total, representing 65 percent of the population.

The U.K. parliament may also need to approve it, as indeed, and think about the clock ticking, as indeed may 27 states have to approve treaty changes

or various policy differences. So what happens if, as the time moves on, there's no agreement within two years? Then the treaties simply no longer

apply to the United Kingdom. That is unless there's unanimous agreement for an extension. I asked the former First Minister of Scotland, Alex

Salmond, if he thinks the U.K. should not invoke Article 50 until a new PM is in place.

(BEGIN VIDEOTAPE)

ALEX SALMOND, FORMER FIRST MINISTER OF SCOTLAND: Oh yes, but that is the nub of the problem. That means there's a two or three-month vacuum when no

plan arises. I mean when you're asking to do something, it's a good principle if you break it, you own it. If the Brexitiers have broken it,

they've broken the system. Then you would have thought at some point over the last year, when they were planning the Brexit campaign, they would have

had something in hand to bring forward as their plan even before they get into office. This is a really damaged vacuum. That's more important I

think than this delay before the invocation of Article 50.

QUEST: On the question of Scotland, first of all, there seems to be a view that the Scottish Parliament is not legally competent to veto any Brexit,

because ultimately the building behind you is sovereign. So suggestions by the first minister over the weekend that they could veto it or have some

form of veto simply are not valid.

[16:40:00] SALMOND: The first minister didn't say that. What the first minister said is the Scottish Parliament will withhold letter of consent,

that is exactly what she said, I saw the interview. That's not the same thing as a veto. Because you're quite right, Westminster has an override

to be exact in Clause 28 of the Scotland Act, they can say, well, ignoring the Scottish Parliament we're going to go ahead anyway. Of course there's

a political cost of doing that.

QUEST: But you accept that because of that section of that act, that the parliament cannot prevent the Brexit going ahead, because Westminster can

overrule it.

SALMOND: Yes. The parliament can block and tackle. They can obey the instruction from the Scottish people so firmly for remain. But it's not a

veto because Westminster can override. But remember, that vote would then have to go to the floor of the House of Commons, which has got a majority

of remainer MPs. Who then will be asked not only to vote for Brexit which they might have to swallow, but to vote to overrule the Scottish

Parliament, which might give them pause for thought.

QUEST: From your point of view, from the SNP's point of view, I know because you told me last week that you wanted to have the referendum on

your terms and on your time scale.

SALMOND: Yes, indeed.

QUEST: But the moment that the invocation of Article 50 happens, you no longer have that luxury, do you?

SALMOND: No.

QUEST: Because you're also on a two-year time scale.

SALMOND: Correct. Once after the gun is fired on Article 50, there's a two-year time scale. But remember, you must have seen the huge commentary

coming from Scotland, people who voted no in 2014 who are publicly announcing they've changed their view. Most importantly, in my view, one

of my predecessors, the labor first minister, Henry McLeish has publicly announced this is the straw that has broken the Unionist back in Scotland,

and he is now supporting independence.

QUEST: When Boris Johnson says there's no appetite for a second referendum in Scotland on this question at the moment.

SALMOND: Let me give Boris some free advice, I've watched him over the last couple of nights getting booed in Islington. My advice is don't come

to Scotland anytime soon.

(END VIDEOTAPE)

QUEST: The first minister or the former first minister of Scotland, Alex Salmond.

We've heard a lot in the course of the program as the Brexit is seen obviously from Britain, because that in some ways is the locus of where the

decision has to be taken of how to do it. Now of course the story from the European side. Don't waste time. The message from EU leaders to Britain

regarding the split. Chancellor Merkel, President Hollande, Prime Minister Renzi met in Berlin on Monday. The German Chancellor said it's up to

Britain to make the next move.

(BEGIN VIDEO CLIP)

ANGELA MERKEL, CHANCELLOR OF GERMANY: We of course wish to not have a stalemate here. It doesn't mean it's about days, but we have to make sure

that we will not be hanging in the balance. The step has to be taken by Great Britain.

(END VIDEO CLIP)

QUEST: Ivan Watson is in Berlin for us tonight. Ivan, if the Prime Minister, the British Prime Minister, is intending at least September,

because of the new government and the need to put in place a policy, can those three leaders live with September or October? Not that they have

much choice about it since it's the U.K.'s decision, but will they be agreeable to it?

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: You know, Angela Merkel in her statements today has not given a specific time frame. She

didn't say "not a matter of days." but the message that the Italian, French and German leaders gave after their meeting here in Berlin was, it's

time to get this ball rolling, we do have to move, you can't hold the other 27 members of the European Union hostage, waiting for Britain to finally

make this announcement, finally invoke Article 50 and start the ball rolling.

[16:45:00] The other statement that all three leaders made pretty much in unison was that Great Britain cannot begin any informal negotiations until

that Article 50 is invoked, until Britain really formally announces that the divorce will begin.

QUEST: That's fascinating, because there's clearly a view by the British that they would like to see the lay of the land, they want to basically

sound out other governments about how they view the process, what the British are asking for, and all these sort of things. And they pretty much

got the door shut in their face today by those three leaders, didn't they?

WATSON: That's true. And all of them also, you know, it's important to note they expressed regret at the results of the referendum but also said

they respect the choice of the voters. And now it seems very clear certainly that France and Germany, as two founding members of the European

Union, are beginning a process of trying to look forward, of trying to salvage the rest of the European Union, acknowledging that there are major

problems, major challenges within the European Union that have to be addressed, that the concerns of other citizens have to addressed.

And that the European Union has to move forward and start to kind of reinvent itself. So you had the German and the French foreign ministers

putting out a long statement with suggestions to form the first multinational coast guard, for example, to address the external and

internal threats the European Union faces, and most notably, to address the economic challenges that continue to cause misery within the remaining

members of the European Union, Richard.

QUEST: Ivan Watson, who is in Berlin. Ivan, thank you for looking at that side of the story. You already heard about from Lord Bilimoria about how

Cobra Beer is being affected by things. Now we are seeing the first signs that the Brexit vote could impact international investment. A deal for

Tata's steel in Britain is looking ever more complicated. The director of UK Steel will be with me after the break.

(COMMERCIAL BREAK)

QUEST: The second business day since the vote, and international companies are already reconsidering their investments in the U.K. A deal to buy a

major British steel factory owned by Tata is probably in doubt as are indeed the 11,000 jobs. With me is

Gareth Stace the director of UK Steel, good to see you, sir, thank you. It can't be good news for those at Tata Steel. Let's face it, which company

will buy a steel company in a country that's about to leave the single market?

GARETH STACE, DIRECTOR, UK STEEL: Well, exactly. You know, where are we today? The vote really wrapped a cloak of uncertainty right around our

sector at a time, as you said, Richard, where we can least tackle it, because really, over the last year, what we've seen is our sector nearly

smothered with the worst steel crisis we've seen in over a generation. But we're in a worse place today than we were last week.

[16:50:00] QUEST: I can make an argument both ways. Let's first of all deal with Tata. Do you think this kills off anybody wanting to buy Tata

Steel because of the uncertainty?

STACE: It certainly makes it much more difficult. That's why we need government right away to say, yes, we're going to reassure the market,

we're going to get the best deal for you in terms of trade, access to the single market.

QUEST: But they can't say that and you know they can't say that.

STACE: If they don't say that, we'll get more and more uncertainty. We have an uncertain future for the steel sector at a time when government was

trying to help us level the playing field on costs like energy costs, business rates, and on trade. And now all bets potentially could be off.

So we need that reassurance from government. And we can't have the excuse that oh, well, this is Brexit, oh, this is tory leadership. We need

government to stand by us. This wasn't our making. This was government's making in terms of Brexit.

QUEST: Longer term, arguably, away from Europe, a steel industry, assuming there's one that's still survived this whole process, could be better off

if the British government took a more robust view about protection against Chinese imports than, say, the Europeans have with quotas and limits.

STACE: Yes, but what we've actually seen is actually the European Commission, believe it or not, is more hard line on Chinese imports than

the U.K. government. The U.K. government doesn't want to go as far as Europe. So actually we could be in a worse place there. But the big thing

for us is certainly trade. We've heard on your program that the U.K. government doesn't even have enough trade experts to fill a small kitchen,

let alone the 300 or more that they're going to need to make sure we get the best deal, not just a deal, but the best deal, so that it's better to

be out than in.

And we as the steel sector are not convinced of that. QUEST: For the five or six steelmakers still in the United Kingdom, on their behalf how worried are you tonight?

STACE: I'm particularly worried at the moment because we haven't seen a real firm plan by this government and the vote leave campaign to say how

we're going to ensure the future of the steel sector that we can invest, grow, and contribute to the U.K. economy.

QUEST: Sir, the bad news just keeps rolling in. Bear with me one moment. Can you just confirm that before I spread a huge amount of grimness? I'm

told -- there it is. You can see it on the screen. As if Brexit wasn't bad enough, England is knocked out of euro 2016. And it was Iceland that

knocked them out. I'm just waiting for somebody to tell me the score. It was 2-1. So what happened was England took an early lead. Iceland

equalized pretty quickly thereafter. Iceland then went 2-1 up, and that's the way it remained for the rest of it.

I'm afraid I don't have a huge amount of good news to bring you tonight. This is QUEST MEANS BUSINESS. but you are most welcome.

(COMMERCIAL BREAK)

[16:55:00] QUEST: Brexit of a different kind. The mood in London is about to get even worse. England has been knocked out of the European

championships by Iceland. Forgive me when I said bad news, it's good news if you're watching in Iceland, but I'm standing in front of Big Ben and

that's pretty grim. Kate Riley is at CNN center, Iceland knocking out England, and Kate, what happened?

KATE RILEY, CNN, WORLD SPORT: Yes, what happened indeed. It all looked very promising for England going ahead just moments after kickoff, Wayne

Rooney with the penalty there. And then those celebrations, Richard, very short-lived. 34 second later, Iceland would get that equalizer, and then

after 18 minutes of action, they would get that winner, that second goal. And ultimately it would progress to the quarter finals.

Iceland, this tiny country of 330,000 people, they now progress to the quarter finals. They will meet France next. England packs their bags and

go home. In fact, fans in Nice this evening chanting, "you're not fit to wear this shirt" at Roy Hodgson's men down in Nice this evening. So huge

embarrassment, but a fantastic win for Iceland, 2-1 is how it ends there. And arguably their greatest result in their history.

QUEST: And a wonderful country it is, Iceland. They will be celebrating in Reykjavik tonight.

A Profitable Moment is with you after the break. QUEST MEANS BUSINESS, good evening.

(COMMERCIAL BREAK)

QUEST: Each time I try and think about what is happened and how everything moves forward, you almost get a headache. Tonight's Profitable Moment the

bad news just keeps rolling on. First of all, the downgrades from Fitch and S&P, the Europeans are making it clear that there can be no informal

negotiations, the Labor opposition is just about collapsing and the Conservative Party, ruling party says the new prime minister won't be in

place until September 2.

But that is the picture that we face tonight, and as Big Ben chimes the hour, that's QUEST MEANS BUSINESS from London. I'm Richard Quest.

Whatever you're up to in the hours ahead, I do hope it's profitable.

END