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Quest Means Business
Ex-Ukraine Envoy First to Testify in Impeachment Probe; Four People Killed in Knife Attack at Paris Police Headquarters; Thirty Four Dead and Thousands Injured in Violent Protests Across Iraq; Lagarde Is Leaving The IMF And Preparing To Take Her Role At The Helm Of The European Central Bank; U.S. Representatives Start Hearing Testimony In The Impeachment Inquiry Against President Trump Today On Capitol Hill; U.S. Puts Tariffs On European Goods. Aired 3-4p ET
Aired October 03, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:15]
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: We have 60 minutes to go before the closing bell on Wall Street and what a day. Very
sharp 300 point losses early on, middling recovery and then a strong afternoon. When I say strong, compare that to where that was earlier in
the day and it puts it all into perspective. And with those markets, these are the reasons why.
As Christine Lagarde leaves the IMF and heads to the ECB tonight, our interview with her on trade, impeachment and European monetary policy. We
have new concerns that America's manufacturing is slowing down, and that's spilling over to the rest of the economy. And as the U.S. puts tariffs on
European goods, E.U. leaders plan their response. Dreadful day weather in New York. Look at live from the world's financial capital, I promise you,
New York is there somewhere, but it is, it's Thursday. It's August the third. No, it's not -- we're well and truly into October. Not sure how
that came along. I'm Richard Quest, of course, I mean business.
Good evening. It is October and you are most welcome. Tonight, Christine Lagarde says the European experiment needs to be nurtured and she feels
it's her duty to help. Lagarde is leaving the IMF and preparing to take her role at the helm of the European Central Bank.
Now, this is a pivotal time for the global economy and for Central Banks. Christine Lagarde is on record. Firstly, the trade war between the U.S.
and China, the direct and indirect impact on the economy. The impeachment of President Trump, how it will change the view of the U.S. abroad and what
happens at home. Does it paralyze economic growth? And fractures in Europe. Why she feels it's her duty to help to the backlash and the
stimulus, how she'll deal with dissent within the ECB.
And after eight years atop the IMF, the legacy that she leaves behind. These are the issues that we'll be talking about. Christina Lagarde's
career of course spans the decades and just puts her at the thick at the heart of global developments from her time as an intern on Capitol Hill
during Watergate, to leading the IMF through the Greek debt crisis.
(BEGIN VIDEOTAPE)
QUEST (voice over): Christine Lagarde has had a seat at the top table for years, and when she becomes the first female President of the European
Central Bank, she will be continuing a tradition that has followed her throughout her career.
In 1999, she became the first female chair and managing partner of the largest law firm in the world, Baker-Mckenzie. A few years later, she
returned home to take over as Finance Minister of France, at the height of the Eurozone crisis. She is the first woman to hold that job in any G8
country, and that remains true today.
Then in 2011, Christine Lagarde headed to Washington and the IMF, where she took over after the tumultuous scandal of the Strauss Kahn affair. She
navigated the Greek debt crisis and Argentina's bailout.
Throughout it all, she has taken a measured approach to economic development. And even though she does not have an Economics degree, she
has been successful because she builds consensus around momentum.
(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, OUTGOING INTERNATIONAL MONETARY FUND MANAGING DIRECTOR: Everything is better with butter. Everything is better with growth.
(END VIDEO CLIP)
QUEST (voice over): Christine Lagarde puts in place a sort of insurance policy for you should downturns.
(BEGIN VIDEO CLIP)
LAGARDE: Make sure that your house is in order, prepare for the next crisis when it comes.
(END VIDEO CLIP)
QUEST (voice over):As Europe grapples with economic uncertainty, trade wars and of course, Brexit, Christine Lagarde is ready, but hopes that she'll
never have to use those words that her predecessor did in rescuing the Euro, whatever it takes.
(END VIDEOTAPE)
QUEST: Now, Christine Lagarde takes on her new role at the ECB, new risks are coming to the fore. From the trade war to an Impeachment Inquiry that
could hit the U.S. economy and thereby the global economy and it could roil markets. I put it to her the uncertainty especially around trade is now
coming back and making her agenda that much more difficult.
(BEGIN VIDEOTAPE)
LAGARDE: That is absolutely true. Two things. U.S. versus China and generally U.S. trade policies are having direct effect on the consumer
prices, on the volume of import and export. If you go and buy a cell phone, if you go and buy a fridge, if you go and buy a TV set, it is going
to cost you more simply because of the tariffs that no manufacturer in his mind would ever pick up for himself, he will pass it on to the consumer.
[15:05:19]
LAGARDE: So that's impact number one. Impact number two, because you don't know what the tariffs are going to be, you don't know how you are
organizing your supply chain, you don't know whether you're going to be able to tap into such and such markets, you just sit back and you don't
invest.
So it's a combination of the direct and indirect impact of those trade policies and trade uncertain future policies that are creating this impact.
QUEST: We can see both sides of Pennsylvania Avenue. As one side, the top bit looks to impeach; the other side, the bottom bit -- don't worry, it's
not a political question -- how worried are you that this - the gridlock is going to get worse, and that's going to transmit itself to a complete lack
of decision making economically and leadership, such as the U.S. hasn't already seeded elsewhere?
LAGARDE: You know, I lived through Watergate, and I was actually working on the Hill as a little intern of a member of the House Judiciary
Committee, Bill Cohen. And I could see in those days, how much energy, focus, brainpower was actually spent on the Watergate issues.
If this is going to be the same again, I can only imagine how much more energy, brainpower and, and focus there will be on those purely political
issues, which will be a complete distraction from focusing on the economy producing values, the wellbeing of people.
I respect what is going on, and I have no opinion and no view because I'm not an American. But from an economic point of view, and from the global
economic point of view, it could very well create massive disruption, and I think it would undermine the U.S. leadership.
QUEST: What will you miss when you leave here? You're packing up next week, and you're putting a tea pot into the tea chest and movers are
coming. What will you miss?
LAGARDE: I'll miss my friends. I'll miss staff, Board members, people that I have worked with at the IMF. I'll miss the city. There's always,
you know, complaints and concerns and criticism about Washington. But it's been extremely hospitable and nice to me for the last eight years and I'm
just grateful to the United States of America.
QUEST: You constantly say fix the roof while the sun shines.
LAGARDE: Yes.
QUEST: Where you are going -- it's not bad.
LAGARDE: It's not bad. It's not raining here, right? But the sun is not really shining either -- yet.
QUEST: And where you're going, arguably there are more rain showers. Arguably, a lot more rain showers in Frankfurt, ECB, Eurozone, Brexit. So
we figured you'd need this. We figured you need this. It is your own umbrella. But despite the fact it is dark outside in your world, it is
always sunny.
LAGARDE: Being optimistic has a lot to do with inspiring confidence and that's what we are very short of at the moment. Thank you. Thank you,
Richard.
(END VIDEOTAPE)
QUEST: Christine Lagarde with the sunny umbrella talking to me on the roof of the IMF, where we were overlooking Washington on a very hot and humid
day.
Now one of the first storms that that umbrella may well come into is as Lagarde needs to confront the ECB, and that is dissent within the governing
Board over how much to stimulate the economy.
You'll be well aware the German of course, the German representative has left early, resigned early as a result of Mario Draghi's decision to
restart quantitative easing. Well, Christine Lagarde told me she welcomes debate.
(BEGIN VIDEO CLIP)
LAGARDE: There's a lot of uncertainty. There is a lot of questioning going on at the moment. What actually works, what doesn't work, what are
the good transmission channels? So I think to have the debate is very healthy and very good and there should be room for dissent.
(END VIDEO CLIP)
QUEST: Room for dissent, but how far dissent and that's our discussion with Christine Lagarde. More on that in just a minute and why she feels
that duty to serve that you can.
Now, U.S. Representatives have started hearing testimony in the impeachment inquiry against President Trump today on Capitol Hill. The former U.S.
Special Envoy to Ukraine, Kurt Volker appeared for his deposition before three closed committees of the House. He is named in the whistleblower
complaint.
Meanwhile, the President himself is in Florida where he is signing Executive Orders on Medicare. But before he left, he publicly called upon
the committees to investigate and the Ukraine and to China to investigate the Biden's. The Democratic front runner gave a forceful response to Mr.
Trump's attacks Wednesday saying you're not going to destroy me. Lauren Fox is with me on Capitol Hill. This is getting nastier and nastier, isn't
it? He says he is beating up on the Biden's and wants China to investigate and the committees continue doing their work.
[15:10:12]
LAUREN FOX, CNN POLITICS U.S. CONGRESSIONAL REPORTER: That's right. And Volker is still behind closed doors as we speak, Richard. This has been
going on for several hours since this morning. We're now nearly at four o'clock in the afternoon, and it is still going on.
But what I will tell you is that Republicans coming out of this meeting, saying, look, there's nothing that Volker has told us so far, that, you
know, reaffirms the Democrats' impeachment push.
Democrats, on the other hand, they're not talking about what Volker is saying, instead, what they're arguing, is that what the President said
earlier on the South Lawn was inappropriate.
We heard from Adam Schiff, the Chairman of the House Intelligence Committee, and he told us once again, you have a President of the United
States suggesting, urging a foreign country to interfere in our presidential elections. He said that Republicans and Democrats should be
united in admonishing that kind of behavior -- Richard.
QUEST: Lauren, is there any evidence that the Biden's had anything to do with China that's investigative worthy? We know that the -- we know that
the investigations by the Ukraine, several of them in the past have turned up nothing. But why throw China in?
FOX: Well, I think that, you know, the President clearly is peddling debunked conspiracy theories out there, and that has been what Democrats
are arguing is part of the problem here, the President goes out and publicly makes comments that are completely unfounded, and that's very
troubling for Democrats, and it's sort of adds more fuel to the fire when it comes to their Impeachment Inquiry -- Richard.
QUEST: Okay, so the inquiry continues, and eventually, one assumes they will have to decide whether or not to pull together or to draw up Articles
of Impeachment. Is there any doubt that they will draw up Articles of Impeachment?
FOX: Well, if you listen to Speaker Nancy Pelosi, what she has been telling them is that they need to be deliberate. They need to be very
clear about what they're doing, and they're going to follow the facts.
So leadership is not getting ahead of this investigation. They say that all of these depositions they're doing behind closed doors, testimony that
they're hearing, all of that is going to be considered.
So there are no guarantees. This is an Impeachment Inquiry - that does not mean that there's going to be Articles of Impeachment on the floor for
sure. Nancy Pelosi says they need to investigate they. Need to get to the bottom of this. And of course, political pressure is mounting, and a lot
of folks who are part of the base want Democrats to move forward with this.
QUEST: And on that point, is there an unofficial deadline beyond which they really shouldn't go bearing in mind, of course, next year as an
election year? Is there sort of being spoken, we really shouldn't go beyond the end of the year or we shouldn't go beyond the conventions or
whatever it might be.
FOX: In my conversations with Democrats, there is an expectation and a hope to move as quickly as possible, and a formal deadline of course, would
be perhaps Thanksgiving. But there's no hard and fast deadline. Of course, like you said, there's an election coming up. Many Democrats are
going to be running in places that the President won in 2016, that's a difficult lift for some of them. So the sooner they wrap this up, the
easier the political considerations would be -- Richard.
QUEST: Excellent. Lauren, thank you so much. Lauren on Capitol Hill. A new report about the U.S. service sectors causing concern. Investors are
worried it could be a sign of coming recession. Also, a fight over planes has now reached Europe's farmers. What's French wine makers, Italian
cheese mongers, and British sheep sheers -- whatever have they got to do with airplanes from Airbus? I promise you, the link maybe tenuous, but
it's there, only it's Donald Trump's tariffs.
(COMMERCIAL BREAK)
QUEST: Very strange down on Wall Street, markets bounced back and it was a very sharp, early fall. Look at that. That's the graph of the day. Now
let's talk it through with Matt Egan.
So Matt, what happened here? What happened right at the beginning of the day that took the market down the best part of 300 points?
MATT EGAN, CNN BUSINESS CORRESPONDENT: Right at 10:00 a.m. New York time, there was confirmation that this manufacturing slowdown which is being
driven by the trade war is starting to spill over into the rest of the economy. The service sector, which is really the bulk of the economy grew
at the slowest pace in three years, and that's a big deal. That's the ISM Service Sector Index, it felt to a three-year low. That's very concerning.
Employment is also slowing in services. And so it's some evidence of a real slow down here.
QUEST: All right, but go back to the chart. If that was the evidence of the slowdown, why did the day continue to recover? I mean, within the
hour, it's gained and is positives, and went 62 up. What's changed?
EGAN: I don't think that there's an obvious trigger. I think that one thing we're seeing is people are really in real-time trying to figure out
what is going on here? Is this a slowdown? Or is this the beginning of a recession? The other thing is, if you look at the rate cut dots - that has
really changed just in the last few days. The chance of an October rate cut has gone up to about 88 percent. That is up from just 12 percent a
week ago or so.
And so I think that what that is showing, though, is that markets expect that the Federal Reserve is going to come to the rescue. I don't know,
though, that we can say that that's necessarily the way to solve a trade war, right? I mean, a quarter point rate cut doesn't really do anything.
QUEST: But hang on, hang on. At what point does the -- we always talk about inflationary expectations or market expectations? At what point does
the market expectation of 80 percent to 90 percent of a rate cut become a self-fulfilling prophecy that the Fed has to fulfill?
EGAN: Well, I think we're there. If the Fed going into a meeting has a 90 percent chance of a rate cut, I think that they're going to basically have
to act because if they don't, it actually means that they're effectively tightening policy, and that can hurt markets and eventually spill over into
the economy.
QUEST: But the markets are basically demanding a cut here.
EGAN: They are demanding it. They're clamoring for more easy money, because there's a serious worry about a recession. But I just don't know
that we can say that a rate cut is going to do anything for a manufacturer who is worried about tariffs or for a restaurant owner who has no longer
got the factory workers to eat at their restaurant.
QUEST: No, but I suppose the argument would go, it's better than nothing. And you know, I mean, if the house is on fire, even if somebody turns up
with a bucket of water, that's better than nothing at all, maybe not, I don't know.
EGAN: I think it's probably better than nothing. Although, as you know, the Fed doesn't have all that much ammo left. So you wonder whether or not
it wants to spend some of it now, but even if you want to say sure they want to lower rates just to take out some insurance, they can do that. I
just don't know that we should expect it to have a real impact other than on the interest sensitive side of the economy, like housing and autos,
where maybe it'll help.
But for manufacturing, I don't know that rate cuts is -- that's really going to solve what really is the problem, which is the trade war.
QUEST: So to those people who are wondering at what point will we get clarity on a recession versus a slowdown? Now, I know, of course, the NBER
who judge recessions, they tend to do it years afterwards. And they'll tell you, you were in a recession three years before you even thought you
were, but at what point will it become clear? Will it be just GDP numbers?
EGAN: I think that we're going to have a better sense in the next quarter, too. I think we need to pay really close attention at tomorrow's jobs
report. If there's real evidence of a sharp slowdown in hiring - that will cause some serious alarm here and we have to keep an eye on the signals
that the bond market is selling because the yield curve inversion can also sort of telegraph those recession concerns.
[15:20:13]
QUEST: Good to say you, sir.
EGAN: Thank you, Richard.
QUEST: Thank you. Now, I think I was in small trousers in school when the battles between Airbus and Boeing began. Decades old, well, maybe not
quite, but you get the idea.
It's about that battle between Airbus and Boeing is about to hit a host of European producers that have got nothing to do with making planes. For
instance, French wine, Italian Parmesan cheese, scotch and Irish whiskey, British wooly sweaters could all soon going to be subject to a 25 percent
U.S. tariff after the W.T.O. gave U.S. permission to impose those tariffs as payback for legal European subsidies to Airbus.
The E.U. says it will defend itself and likely retaliate in the future. It's got its own case pending for the moment. Anna Stewart is in London.
And how concerned are they at the end of the day? Twenty five percent on any product, particularly say a rather nice cheddar cheese or a fine French
wine - that sounds quite a lot.
ANNA STEWART, CNN REPORTER: It is. Because when you look at some of these products, Richard, some of them are made by really small businesses, very
niche industries, whether it's cheddar cheese, salami, olives, French wine, German waffles, you name it -- all of these are being hit with a 25 percent
tariff, and it's really going to hurt, some of them for instance, Parmesan.
Parmesan is a business that exports a fifth of all of its exported cheese to the United States. Can it afford for prices to rise? Can it afford for
consumption to fall in United States? Perhaps not.
And most of them are very non-plus. We had reaction actually from the European Dairy Association today, let me bring that up for you. He says,
"I cannot see any reason to make basically the U.S. cheese aficionados pay for the aircraft battle, since they would have to pay the high prices for
the dairy products from the E.U. member states involved in the Airbus project." And this is the reaction we've had all day. Why me? Why my
business? Why am I being hit? This is a dispute that's 15 years old about planes.
QUEST: So 25 percent, up to $7.5 billion, does that mean that -- I mean, I'm trying to work this out logically and logistically when these tariffs
go on, these are consumer products. I assume in the fancy salons and shops that they will have to add on that or eat difference themselves.
STEWART: Yes, and I think it's going to fall actually on the importers in the United States. I don't think many of the European businesses will be
able to absorb that cost. And that will be why you could see consumption dipping.
I'm not sure whether you, Richard, will be able to buy all of these things, you know, they will be getting that bit more expensive. Of course, there
will be retaliation here. Come next year, there is the parallel case with Boeing. The W.T.O. already ruled that Boeing also received illegal
subsidies from United States. The E.U. has had this case again, for 15 years, there will be retaliatory tariffs and we also have that list ready
to go.
We know the longer list of what it could be. It includes things like raisins, playing cards, you name it. So this is a tit-for-tat battle that
can continue, I imagine for many months.
QUEST: I assume you'll be taking a bottle home just for medicinal purposes on tariffs.
STEWART: Quite.
QUEST: Before the night is -- absolutely, I would, if I were you. Homework. Absolutely. And the waffles and the cheese, for an extra
homework as well. Thank you. Rana is here, Associate Editor of "The Financial Times," and CNN's Global Economic Analyst. The rum business
though, why would you tariff, all of these -- and the list was very specific, German chees or French, whatever, why would you tariff these
instead of tariffing something engineering?
RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: Well, because we have the White House that we do and the President that we do. I think that these
are political statements. They're targeting specific sort of iconic products from certain countries. And it's also, let's remember coming at a
time when the President would very much like us to be distracted and to be thinking about something aside from his impeachment issues.
QUEST: The Boeing -- I was saying, the Boeing and Airbus dispute has been going since - well, I think since you and I were at school.
FOROOHAR: Absolutely.
QUEST: Does it feel like it's coming to some sort of resolution? I mean, it's almost like not quite ditente, but it's almost just, let's start
firing.
FOROOHAR: You know, you wish but actually, I think that what you're going to see is Europe next summer, when they have a chance, probably taking on
the U.S. issues with tax subsidies of Boeing. I don't think this is going away anytime soon.
The question, really, I mean, we know that Donald Trump is going to keep moving in this direction, but the question is posed to 2020. Are you going
to see whatever administration may come next, be it the Trump administration or another one, taking on these issues in the same way? Are
we really moving to a kind of a bipolar, tripolar world in which trade conflicts like this are just the new normal?
QUEST: Okay, so, to viewers to understand this, because this is real stuff.
FOROOHAR: Yes.
QUEST: The tariffs that are going on.
FOROOHAR: Yes.
QUEST: The $7.5 billion, does that mean in reality that at the point of import, somebody has to pay a 25 percent fee for that? And then that could
get passed on which will be quite considerable on a few nice cheese slices.
[15:25:11]
FOROOHAR: Yes. And I agree with the analyst earlier who said that that this is probably going to hit U.S. consumers. And by the way --
QUEST: But will they notice?
FOROOHAR: Well, that's the question, in the past, if you'd asked me that question 18 months ago, we're talking about relatively rich people here. I
would have said probably not. But actually, if you look at what's happening at the upper end of the market, luxury properties are going down.
You know, corporations and the C-suite are feeling a bit tight at the moment.
I actually think the luxury consumer is becoming a little more sensitive than you might think. I also think, frankly, at a broader level, the U.S.
consumer is what is standing between the U.S. and recession.
And so if you start to put pressure on the U.S. consumer, and we're going to see more about that tomorrow, you might be in trouble.
QUEST: But it was -- when push comes to shove, it's always the consumer. You know, when going gets tough, the U.S. consumer goes shopping.
FOROOHAR: I don't -- you know, I see people trying to pare back debt. I see them trying to save money on gasoline. I don't think the U.S. consumer
is going shopping anytime soon.
I'm going to be very curious about the jobs numbers tomorrow. I think if they're dismal -- I mean, I already think that we're in something that
feels very much like a recession. I think we could soon be an official recession.
QUEST: It's a technical recession. Yes. All right, so this is what I've always been talking about, but it's very different, very little difference
between plus a half a percent and minus half a percent. Both feel like a recession.
FOROOHAR: Right. That's absolutely right. And I mean, a lot of people haven't felt the recovery, you know, over the last couple of years.
QUEST: Isn't that the most worrying part about this? That since the GFC, we got to 3.5 percent, but it was fake 3.5 percent.
FOROOHAR: Exactly.
QUEST: It was promulgated by cheap money that led to asset preservation. Now we're really seeing what the true economy looks like, would you think
so?
FOROOHAR: Hundred percent. And I think some of the things you're seeing, like the trouble in the repo market, for example. That's --
QUEST: Now why would there be trouble in the repo market?
FOROOHAR: Well, I think it's -- to put it in simple terms, it's about the distortions that have been created over the last 10 years by that easy
money, by the Fed, with all good intentions, but papering over a recovery that wasn't really a recovery. We will more of that, by the way.
QUEST: What?
FOROOHAR: We're going to see more of that by the way. We're going to see all kinds of interesting distortions that people wouldn't have predicted
because of 10 years of low rates and easy money.
QUEST: They are not seeing any cheese or wine on this desk.
FOROOHAR: I'd drink to that.
QUEST: We couldn't afford it. Thank you. Good to see you, as always. Thank you.
FOROOHAR: You, too.
QUEST: The ECB President-elect says, she is not afraid of a little conflict. Christine Lagarde steps into a new role. She may find plenty of
it. She tells me why she feels she's called to serve the E.U. In a moment.
(COMMERCIAL BREAK)
[15:30:00]
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, a lot more QUEST MEANS BUSINESS in a moment. Christine Lagarde tells me how
she'll deal with dissent when she's president of the ECB. And a fresh criticism for the bank -- the head of Europe's biggest insurer says easy
money policies are multiplying risks.
As you and I continue today, this is CNN, and here the facts always come first. The first witness in the Trump impeachment investigation has been
testifying behind closed doors before three house committees. The former U.S. special envoy for Ukraine apparently had documents delivered to the
committees ahead of his deposition.
Kurt Volker resigned on Friday after the release of the whistleblower complaint in which his name appeared. At the police headquarters in Paris,
a 45-year-old IT assistant went on a rampage with a knife, killing four employees, the attacker was shot dead at the scene. French officials say
it's not clear whether the attack is connected to terrorism.
In Iraq, 34 people have been killed and 1,400 injured as deadly crashes erupted on the third day of mass protests. A curfew is now in effect in
major cities, the internet access has been shut off by the authorities. The people are protesting against unemployment, corruption and access to
basic services.
The British Prime Minister Boris Johnson has presented his latest Brexit proposal to parliament. It says it represents a genuine attempt to bridge
the custom between the U.K. and the EU on the issue of the Irish border. Opposition parties have called them unworkable. The Irish Prime Minister
says they fall short and the EU said the plan contains problematic points.
Christine Lagarde says she welcomes healthy debate inside the European Central Bank. She's preparing to take over from Mario Draghi next month,
and she inherits an ECB with a board that is deeply divided. There's been unprecedented revolts against the latest policy of the bank's new round of
stimulus. The decision to restart the printing presses to reinvigorate and go with quantitative easing.
So, the heads of the French, the Dutch, the Austrian Central Banks have all come out against the measures. It got so bad that Germany's representative
on the ECB board even resigned over them. However, Mario Draghi; the current president who will do whatever it takes is credited with saving the
euro at its most dangerous and uncertain days.
Back in 2012, now, the euro looked to be on the verge of collapse, and that's when Draghi made his famous promise.
(BEGIN VIDEO CLIP)
MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Please, another match that I want to tell you today is that within our mandate, within our mandate,
the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.
(END VIDEO CLIP)
QUEST: I'm not sure whether it was the -- we will do whatever it takes or believe me, it will be enough that actually convinced everybody, but it
did. And Lagarde has signaled that she supports Draghi's strategy at the headquarters of the IMF after -- on her final day, Christine Lagarde told
me despite the challenges, she believes she can help and she feels it's a duty to serve.
(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, ECB PRESIDENT-ELECT: We are in a world where you have hostility and visceral discussions, trade war, discussions about currency
and protectionism and all the rest of it. Europe is that unique place where for the moment there's no protectionism between countries, there's
discussions about patriotism and attachment to culture nation, cuisine and languages.
But where people look at what they have in common, more than what the differences are. And I think that is a very precious good that needs to be
nurtured, that needs to be helped along the way. If I can do that, I will.
[15:35:00]
QUEST: You're joining -- I mean, your unique set of skills honed as a lawyer, a senior lawyer, mastered as a senior politician in France and
perfected here at the IMF in terms --
LAGARGE: Chattering will get you nowhere, but go on.
QUEST: That's it. It's worth a try.
LAGARDE: Yes.
QUEST: But now you're really going to be tested, aren't you? Because you're going into an economic field and really what this job now requires
is not a PHD in economics, it requires somebody who can pull this whole thing together, isn't it? Who can keep this -- who can keep this train on
the tracks.
LAGARDE: Yes, keep the train on tracks and drive that monetary bus in the direction of stability and cohesion. And I will do the best I can to do
that job.
QUEST: Do you worry that you can be bamboozled by the economists?
LAGARDE: They've always tried to do that with me, you know. When I joined as minister of finance, they all said at the time, oh, she's a lawyer.
Well, I can listen, I can absorb. I've eaten a lot of files and tried to understand a lot of concepts. I don't master them and I'll never be a PHD
in economics, let alone macro -- you know, macro-economic or econometrics.
I've had it at the IMF as well. You know, it's a fantastic institution which is largely dominated by economists. They probably all thought at the
time, well, she's a lawyer, she was a finance minister for a little while, but she's just a lawyer. Well, again, I can listen, I can absorb, I can
learn from everybody. I'm sure the same thing will happen to me at the ECB. We'll see.
QUEST: The ECB is -- the dissent is more restrained and elegant, but within the governing board, it's well and truly there at the moment. And I
can't decide whether Mario Draghi did you a favor by easing policy before you got there or left you a poison chalice, which is it?
LAGARDE: I think he has always -- ever since he was head of the ECB, he's done his best to secure the euro as a currency, to maintain stability and
to try to reach the objectives. I'm not privy to a lot of the information that they at the ECB can actually master, understand, analyze, dissect and
decide policy upon.
I don't have that at the moment, but I trust him and I'm sure that he has done the right thing. When you have huge big clouds on the horizon, you
just want to take all precautions and all the right measures in order to stop the clouds from opening up and draining the place. And I think that
that's what he has explained very clearly.
QUEST: But does it concern you that the board you're about to lead is split? For example, the German representative has just resigned early.
It's a far -- the Bundesbank is not your principled -- it's not at one with the rest of the board. Does that worry you at all? Are you going into the
lion's den here?
LAGARDE: You know, it's -- I think it's good that there are different opinions. And if it was unanimity consensus, there would be none of that
debate which is so necessary and productive. Because who has the ultimate gospel on economics, on monetary policies. There's a lot of uncertainty,
there's a lot of questioning going on at the moment.
What actually works, what doesn't work, what are the good transmission channels? So, I think to have the debate is very healthy and very good.
And there should be room for dissent. I think what I'm most concerned about, and it's been my life and my DNA is to bring people together and
once the decision is made to actually live with it and speak to it, because it's been the decision of the group.
QUEST: Is that -- is that even possible on something like the ECB?
LAGARDE: We'll see, we'll see. As I said, debate, dissent, arguments, all of that is necessary and is healthy. Once a decision is made, there should
be a landscape where we're all in it together and we'll move forward.
QUEST: Finally, we have to always come back to fixing the roof while the sun shines. And the -- you've done a lot of work on structural reform here
at the fund, but countries have done nowhere near enough. It's even worse in Europe where a certain element of structural reform has been done, but
the move towards single digital market, all the other things that the ECB has been calling for are still there. Do you have great hopes for success?
LAGARDE: I will certainly advocate and do my part in order to help deeper and better structural reforms to just unleash the potential of European
enterprises, households, entrepreneurs, because there's a richness there that in many instances is restricted or refrained by too much bureaucracy,
not in off-mobility, not in off-flexibility and fluidity. So, I will do the best I can in my field.
(END VIDEO CLIP)
[15:40:00]
QUEST: Now, to understand where Christine Lagarde will take the ECB, you must look at where she's taken the IMF. Join us tomorrow as we look at her
inside view of the European and Greek crisis, and what frustrates her about the EU's decision-making a process.
As Christine Lagarde prepares for the ECB, there's criticism about the bank's stimulus policy and lack of structural reform -- in a moment, after
the break.
(COMMERCIAL BREAK)
QUEST: New criticism for the European Central Bank tonight as Christine Lagarde prepares to take over. Now, the IMF, she was an advocate for
fixing the roof while the sun shining, in order words making reforms during the economic good times, and she's promising to bring that mantra to the
ECB.
(BEGIN VIDEO CLIP)
LAGARDE: I will certainly advocate and do my part in order to help deeper and better structural reforms to just unleash the potential of Europeans'
enterprises, households, entrepreneurs because there's a richness there that in many instances is restricted or refrained by too much bureaucracy,
not enough mobility, not enough flexibility and fluidity.
(END VIDEO CLIP)
QUEST: Now, the head of Europe's biggest insurer says that the ECB's current easing money policies have actually increased risks in the economy.
It springs of financial times and the Allianz CEO said the reason why we're not doing fiscal reforms is because you're making it easy for people to
spend money they don't have.
Now, from Frankfurt, Carsten Brzeski is the chief economist at ING, Germany. Do you agree with that assessment that it is -- that much of the
problem -- the risk that now exists is because of ECB easy money?
CARSTEN BRZESKI, CHIEF ECONOMIST, ING GERMANY: No, honestly, not really because the question is how would the world -- how would the European world
look like without what the ECB has done over the last couple of years to be honest.
It's always very easy to blame the ECB especially from a politician's point of view. If -- when politics don't do the trick because right now, yes,
you can argue monetary policy, the ECB is what has come to the limits of what it can do. But the big player right now would be fiscal policies. We
need more investment, we need these --
QUEST: OK --
BRZESKI: Low interest rates to increase, and this would work.
[15:45:00]
QUEST: I mean, it is astonishing that some countries particularly Germany, obviously Austria and other do have fiscal hedge room do not take
advantage, not only of dwindling their services, but also barring these historic low rates.
BRZESKI: It is, and it seems to be a cultural thing and also seems to be a thing that they do not see the necessity which really, you know, it
struggles me why they don't see the necessity, especially when you look at Germany. It's an economy which is flirting with --
QUEST: OK --
BRZESKI: At least a technical recession. It needs more investment. So --
QUEST: So --
BRZESKI: Actually, there's so much head-room even without going into deficit, they could use it.
QUEST: So, you're in -- you're at ING, you're in Germany. One imagines you get to Hobnob and you meet those sort of politicians and policymakers.
What do they say when people like you say to them, hang on, the answer here is fiscal now, start spending, what do they say back to you?
BRZESKI: Well, one answer is Germany is an ageing economy. There will be future costs due to ageing coming from the pension system, from the
healthcare system. So, it's better actually to have a surplus right now, to be prepared for the -- I would say for the worst times to come. That is
their argumentation. The other argumentation would be, no, in Germany, we just agreed on this green package, the green deal a couple of weeks ago,
and right now, they don't see the urgency to agree on some short-term or on fiscal stimulus.
QUEST: So, this is -- I mean, this is cultural, isn't it? I don't want to make too much of this. But when you have a preponderance of policymakers
at the IMF, the OECD, the World Bank, uncle Tom Cobley et al, all saying that there should be greater stimulus spending. And yet some countries
don't, there couldn't be any other reason.
BRZESKI: It is culture, I would also call this stubbornness to be really honest, and it's very short-sighted. And then I think this is the biggest
problem that somehow they still --
QUEST: Right --
BRZESKI: Deny to see the necessity that especially Germany has so much big investment gap. They have to catch up in terms of digitalization in terms
of infrastructure. They have a manufacturing sector, which is really in the meltdown over the last 12 months. So, if not now -- plus, you have
negative interest rates on German government bonds. So if not now, when then?
QUEST: So, on this question, negative rates and repos and easy money, Rana Foroohar was discussing how the U.S. repo market is going to be -- is being
distorted by the inability of central banks to set policy rates that hold throughout. Are we going to see that -- are we seeing that in Europe? What
is the plumping effect of more QE?
BRZESKI: I think moving, the plumping effect is that there will be more pressure, more burden on the financial services, on banks, on insurance
companies because it's not only negative interest rates, but it's also a very flat curve on the interest rates. And this is clearly putting burden
on the banks and the financial system.
The funny thing is, you need the banks in Europe because the banks are -- more as 80 percent off of blending goes through banks. We're not a market- driven or a market-funded economy in the entire eurozone. So, somehow, you need banks which are able to play the role as a transmission mechanism, and
this is the problem that the ECB and also Miss Lagarde will be facing.
So even lower rates, even more QE would probably not do the trick. Mrs. Lagarde will need governments, she will need fiscal policy if she wants to
see growth coming back and also inflation coming back.
QUEST: Well, if anyone can grab it out, so they having been a full policymaker on the political side, it will be her. Good to see you, sir,
thank you, much appreciate your time where I know it's late in the evening for you, thank you. Now, European stocks finished on Thursday, and they
mixed in the U.K., the FTSE fell for the fourth-straight session, it's now only 5 percent of this year.
German markets were closed, it is a holiday. Boris Johnson's Brexit proposal is getting a lukewarm response from Europe. The two sides now
have less than a month to reach a deal? Can they? Will they? Should they? In a moment.
(COMMERCIAL BREAK)
[15:50:00]
QUEST: U.K.'s parliament and Britain's EU neighbors have given a lukewarm response to Boris Johnson's Brexit proposal. The Prime Minister said if it
doesn't lead to an agreement, the U.K. will leave the EU with no deal. Ireland is at the heart of the conflict and Leo Varadkar says the latest
proposals fall short.
(BEGIN VIDEO CLIP)
LEO VARADKAR, PRIME MINISTER, IRELAND: The proposals that have been put forward by the U.K. are certainly welcome in the sense that we now have
written proposals that we can engage on. But they do fall short in a number of aspects.
(END VIDEO CLIP)
QUEST: Twenty eight days left to find an agreement. Bianca is with me, Bianca Nobilo joins me from London. Not exactly an overwhelming response
of approval, but then that was to be expected. The real question is whether there's the kernel of an agreement in this deal?
BIANCA NOBILO, CNN CORRESPONDENT: I think what we're starting to see, Richard, is that Boris Johnson may have the opposite problem that Theresa
May had. Where upon Theresa May agreed this withdrawal agreement with the European Union, but then parliament wouldn't back it.
There were indications today primarily because the DUP support this Brexiteer, support this -- there was some conciliatory noises from some of
the Labor MPs in Westminster that perhaps Boris Johnson could get a slender majority to get this deal through Westminster. But then will the EU agree
to it? They have legitimate concerns about the fact that this leaves so much up in the air for the transition period.
This hugely vague sections that this surround customs checks, and as you rightly point out, even listening to Varadkar there, I mean, that is hardly
a ringing endorsement.
QUEST: Well --
NOBILO: He basically said you gave us the bare minimum.
QUEST: Do you understand the proposal? I read the U.K.'s explanatory document on it and I'm more bewildered about this idea of a two-party and
then the zone and then the compliance and I didn't really understand it.
NOBILO: Yes, I mean, I'm sort of with you there, Richard. I had a bit of a confusion moment. You know, he says as the sea, knowledge grows, so just
a sure of our ignorance. So, I get -- I get what you mean. Essentially, instead of having that hard border between the Republic of Ireland and
Northern Ireland, that would either be a regulatory border down the Northern Irish sea -- along the Irish sea or it would be --
QUEST: Right --
NOBILO: A border for customs checks, but it would be away from the physical infrastructure of a border, checks being done in warehouses and
businesses all electronically. But as I said, all that is to be flushed out in the transition period --
QUEST: Right --
NOBILO: Which doesn't exactly provide any certainty to people concerned about this border issue.
QUEST: Why would the DUP go along with this? Because to me, this package, this -- the Northern Ireland remains in regulatory alignment with the
south. You've got these weird checks that nobody knows we're having. But de facto, those checks are a border.
NOBILO: Important for the DUP in this is the principle of consent that's mentioned in regards to this proposal. It's the fact that the Northern
Ireland executive will essentially have a veto of whether or not --
QUEST: Right --
[15:55:00]
NOBILO: To continue this arrangement. They'll have to approve it the first time, and then they'll have to approve it every four years. That's
also an issue because Stormont; that executive assembly hasn't been functional since 2017. The DUP --
QUEST: Right --
NOBILO: Are the key players when it comes to their assembly at the moment. So, it also may be a recognition that the alternative for the DUP is worse.
If Boris Johnson's government collapse and another government configuration is in store which is led by --
QUEST: So --
NOBILO: Jeremy Corbyn is perhaps --
QUEST: So --
NOBILO: In favor remain, all good for them --
QUEST: So, how likely is it that the Europeans -- I mean, deals are done at the last minute. Once they can --
NOBILO: Yes --
QUEST: Once they are pretty certain that this will pass parliament, will throw Ireland under the bus.
NOBILO: Well, that's the tricky thing. Because what Boris Johnson really had to exhibit to the EU today was that those considerable momentum behind
this, that there would be a good reason for the EU to approve this deal and then continue working --
QUEST: Right --
NOBILO: On this throughout the transition period. But then, Richard, we have to ask, what is the point for the EU to agree to this? When if they
just allow parliament to force Boris Johnson to delay, more likely than not, they will get a better solution as far as the EU is concerned.
QUEST: All right, Bianca, thank you, we'll see more of you for the brief in just over an hour or so from now. Thank you. In a moment, we will have
a market look just after this short break. Look at it, not too bad, it could have been worse.
(COMMERCIAL BREAK)
QUEST: Moments before the end of trade, and what the difference a few hours make. Down 300 just after turn on some economic news about supply
managers. And then up we go and nearly the best of the day. Not quite. But it could be a triple-digit gain when the closing bell rings in just
over a minute from now.
That's the way the markets are looking. I am Richard Quest, of course, whatever you're up to in the hours ahead, the bell is not working, I hope
it's profitable. Jake Tapper and "THE LEAD" of course is next.
JAKE TAPPER, HOST, THE LEAD: Welcome to a special edition of "THE LEAD", the White House in crisis, I'm Jake Tapper, we begin with breaking news and
the politics lead today with an impeachment inquiry already raising issues of an abuse of power. President Trump today continues to shock the
political system by openly pushing both Ukraine and now China to open investigations into Joe Biden and his son.
Despite there being no evidence of wrong doing, which the former Ukrainian prosecutor and president have said publicly.
END
