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Who Will Lead IMF?; BP/Rosneft Deal Collapses

Aired May 17, 2011 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: The question: What happens now? Eurozone ministers meeting in Brussels asking who will lead the IMF?

More of what happens now with BP's deal as Rosneft deal collapses.

And a royal visit to Ireland. Tonight we look at the economic tide binding Ireland and the U.K.

I'm Richard Quest. We have an hour together. I mean business.

Good evening.

As Dominique Strauss-Kahn sits in his New York jail cell around the financial world, in global economics, and in Brussels, European leaders are already jockeying over who will replace him at the helm of the IMF. DSK remains in custody on sex crimes charges. He is being refused bail and even without access to other inmates until his next hearing on Friday.

But as he is in custody in New York, the man is the elephant in the room at the meeting of finance ministers in Belgium. And a crucial juncture for Europe's economy. Austria finance minister is the first to admit that the Strauss-Kahn affair is damaging the IMF's credibility.

Our Correspondent John Defterios is in Brussels for us tonight.

I say the elephant in the living room because they are getting on with all these other issues and there is an IMF representative there. But, John, they are aware because they want a European at the helm, but they can't ignore it.

JOHN DEFTERIOS, CNN FINANCIAL CORRESPONDENT: That is for sure, Richard. And extraordinary day of power politics at the European Union headquarters. I would say that it was about 80 to 90 percent of the time spent on the job of the managing director of International Monetary Fund. And as you know, Richard, the European finance ministers trying to walk a fine line here, mark the seat for a European, but don't mention any names just yet. Here is Didier Reynders, the finance minister of Belgium.


DEFTERIOS: Why do you think it is important for Europe still to have a European candidate leading the IMF?

DIDIER REYNDERS, FINANCE MINISTER, BELGIUM: To have a balanced situation in the world. Because we have the presidency of the World Bank in the hands of U.S., the second position is in the IMF is also of the U.S. And we have organized a new equilibrium in the IMF with the presidency of the LFC (ph), from emerging countries, Egypt, now Singapore. So it is maybe useful to have a balanced situation with the European people on board. And I repeat that we have the first position as shareholders in the IMF, so it is not so evident to let such a position go to another continent.

DEFTERIOS: Who would be a primary candidate from Europe? If you look at it today, who would be a good candidate to put forward?

REYNDERS: We have very good candidates who were discussed at the European Union. I don't want to put on the table different names but first I have asked to keep such a position in the hands of the European Union. And it was the same reaction, I'm sure, from Mrs. Merkel. And I'm hoping that it will be the same reaction for all the Europeans. And then, we will have the discussion about the names.

DEFTERIOS: OK, Mrs. Lagarde is an early candidate for that. Is that something you personally would support? Or would you like to have the job yourself?

REYNDERS: I don't want to say something about candidates. I repeat, I want just to say something about the necessity for Europe to keep, maybe, this position.


DEFTERIOS: Never seen anything quite like it. No official interviews from anyone. Everyone caught on the run. Those names mentioned as potential candidates, like the Finance Minister Christine Lagarde of France, made a quick exit without talking to anyone. We have pictures of her within the meeting, but she didn't talk to anybody at the exit. No press briefing.

And here is the response from Olli Rehn. Again, no interview, we caught him at the end of a press briefing.


OLLI REHN, EUROPEAN COMMISSIONER FOR ECONOMIC AFFAIRS: It is not up to the European Commission to take a position on that. And we have to respect the rule of law. Moreover, the IMF has clearly stated that the execution and continuity is insured. And we are working with the IMF in order to take decisions, as we have taken yesterday and today in order to overcome sovereign debt crisis in Europe.

DEFTERIOS: OK, as a follow up, why is it important to have continuity with the European at the head of the institution? And if that is the case, is there a candidate that is emerging as a potential leadership role?

REHN: This is a matter for the IMF decision makers to decide, but of course, the Europeans have a strong interest on this post, and in view of the European sovereign debt crisis, the IMF place is very important in Europe. But it is too early to go into any concrete decisions in this account. Let's also respect the rule of law and due process in that regard.


DEFTERIOS: So, Richard, the official line is they are calling for due process, but it is very evident now, after the meetings over two days, that due process has a time limit.

QUEST: John, it is fascinating. On the one hand, everybody-nobody wants to talk about it and they are rushing past your camera. But the disingenuoity (ph) of it, because you know the Europeans behind the scenes are plotting and planning to make sure they don't lose the funds.

DEFTERIOS: Yes, that is for sure. And some were saying they want to keep that position because the have the largest shareholding, but they don't want to acknowledge what we have been talking about over the last couple of nights.

QUEST: Right.

DEFTERIOS: And that is that move from the G8 to the G20. A lot of the elbows have been flying here, and it was a relative unknown who was the most blunt, that is Maria Fektor, the finance minister of Austria. One other thing they were quite blunt about here, Richard, though, and we should mark it. They put a lot-a lot of pressure on the Greeks around the bargaining table. They want a distinctive plan by the end of next week, on what the next stage is for Greece. And they want specifics about the 50 billion euro, $86 billion dollar privatization plan.

QUEST: John, we'll have to talk about Greece another day. But obviously, that is a pressing issue. Good work getting those few Europeans that would put their head above the parapet to talk about it. John Defterios joining us there. We will deal with Greece further.

To put it mildly, Mr. Strauss-Kahn's position at the IMF is precarious. And thus we have just been talking about it. The speculation is indeed is over who or what will follow on. And these are the names, of course.

First of all, Christine Lagarde, the French finance minister, extremely, unbelievably highly respected. And prominent in the European bailout discussions. And since the IMF job traditionally goes to a European, she would make a first-class candidate, many believe, in Europe. But-what about Kemal Dervis? The emerging markets option, a former Turkish economy minister, central role in the recovery of the Turkish economy crisis. And very much involved in IMF and program work, development work, particularly not enjoy the support of his own government. And that could be a stumbling block there

You've got Tharman Shanmugaratnam for the Asian option, from Singapore's finance minister. Recently elected chairman of the IMF policy advisory committee, so that would be an emerging market, well, besides Singapore and Asian market and Asian solution to it.

And then, of course, a BRIC suggestion, Trevor Manuel, former South African finance minister currently the country's planning minister. Again, a giant in the world of international economics. Trevor Manuel is possibly one of those whose names could be in the frame.

Now, talk of possible debt restructuring for Greece, that we have just been alluding to, did nothing to soothe the European markets. It was more losses of more than 1 percent across he board. And that makes it five straight days of losses for the big three. The DAX took the heaviest hit. Just one company finished the day in positive territory, industrials were hit by falling metal prices.

The worst performer was Deutsche Bourse. And for one reason, the Nasdaq has withdrawn its offer for the New York Stock Exchange. Deutsche Bourse finished the day off by more than 4 percent. So, it looks as if the Big Board will go to the Germans. Because let's face it the other bidder has pulled out.

Alison Kosik is in New York.

Alison, before we do any market numbers, Nasdaq pulled out on regulatory issues. German Deutsche Bourse wins the day, it will seem like. And the market goes down?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Yes, that is exactly right. I mean, let's face it, Richard. You know, that deal that Nasdaq was offering was at a higher premium, you know, than the friendly merger with Deutsche Bourse. And you know, the NYSE shareholders they are going to have a chance to approve the Deutsche Bourse deal at a special meeting later this year.

But you know based on the New York Stock Exchange stock reaction right now, shares are down more than 3 percent. You know, it really looks like some investors are pretty disappointed that the hostile Nasdaq bid isn't going to go any further. You know, at the very least I think, Richard, the traders on the floor were looking for one of those real knock-down, drag- out fights. But they are not going to be able to see that, Richard.

QUEST: They get the New York Stock Exchange after all. Very funny goings on with HP and their results, which had to be released in a shotgun marriage form?

KOSIK: Yes, that is really what has the market down today. You know, HP, given this really disappointing outlook, really weighing on the Dow. You know, the tech giant lowered its sales forecast for both the current quarter and the fiscal year. You know, it is blaming the impact of the earthquake in Japan, weak consumer demand for its personal computers, and trouble in its services division. We are watching shares of HP, right now, drop 7 percent.

We also got Wal-Mart results. They are in the mix as well. They were mixed. They beat profit and revenue estimates, Richard, but sales at its stores declined for the seventh month in a row. Internationally they are doing OK, but the worry is how they are doing here in the U.S.

We also got some weak data from the housing market, Richard. Housing starts tumbled more than 10 percent last month. You know, we're not going to have a fully recovering economy. It is not going to be operating on all cylinders if the housing market really doesn't get out of this slump and we're not getting anywhere near that, Richard.

QUEST: Finally, just briefly, were you surprised that Nasdaq backed out?

KOSIK: What do you think? Of course, I was not. I told you it was going to be Deutsche Bourse the whole time, remember?

QUEST: All right. You have to give her one chance to say, "I told you so."


QUEST: And you took it with both hands.

KOSIK: I told you so, Richard. I told you so.

QUEST: Thank you very much. Oh, good lord!

KOSIK: I told you so. I gave you the finger, but the nice finger.

QUEST: That's enough. Thank you. Alison Kosik is in New York for us tonight.

Now she did indeed tell us, of course, that the Nasdaq-that that wouldn't get the Big Board. But there is another deal that fell apart spectacularly overnight. BP's deal with Rosneft is dead in the water. What next for the Russian oil giant's international prospects? We'll be talking to one of the members of the board of directors for Rosneft, after the break.


QUEST: BP's Arctic ambitions have been put firmly on ice. The deadline for completing its planned $16 billion share swap and tie up, with Russia's state-controlled Rosneft, last night, as we told you, the deadline was eminent. And it passed without an agreement. BP's billionaire partners in the TNK-BP were the sticking point. They refused to sell their share at the price that was offered. There was no prospect of an agreement in time. The deadline passed. It wasn't going to be renewed or extended.

And if you join me in the library we'll see how this plays out for all the various participants.

First of all, for BP, now the whole thing, it was going to have something with TNK-BP, but Rosneft was the big-was the big enchilada. This was going to be the hallmark of their Arctic exploration strategy. Coming off the back, off the back of Macondo in the Gulf of Mexico, Bob Dudley was committed to doing the Rosneft deed. Now he is saying that they are committed to Russia and TNK-BP and he says that talks will continue. But, basically, he says he hopes that the disagreements can be put to one side.

For Rosneft, well, they are still desperate for the technological advances that will allow exploration of the Arctic, and they now know they can get it elsewhere. So they are going to be shopping around, perhaps, for another-another oil major they can do a deal.

As for TNK-BP, what did they get out of it? Well, the partners, ARA, they are now still BP's partner in Russia. But what sort of partnership can there be when there is such bad blood and disagreement despite Dudley saying that he hopes that they can work together.

Andrey Kostin is chairman and president of Russia's VTB (ph) Bank. He is also on the Rosneft board. Now, Mr. Kostin told me earlier that the collapse of the deal was about private conflicts and had nothing to do with state involvements.


ANDREY KOSTIN, NON-EXECUTIVE DIRECTOR, ROSNEFT: It happened not because of some bad investment environment in Russia. That is factually the issue which should be resolved between BP itself, or BP and its partners with Russia.

QUEST: But you didn't want, or Rosneft didn't want BP's partners, really, as part of the deal, did you?

KOSTIN: I think there was some reasons for these. But originally the deal didn't (UNINTELLIGIBLE) this. So, I mean, the terms which we-the Russian side, the Rosneft, signed with BP actually suggested a different scenario. And as we understand, I am a member of the board, that BP provided all assurances that they would resolve this issue. So, it is unfortunate. I don't think it is the end of the world. I think the project will still go on. What will be-I very much believe in the international partnership on such large projects. So, I think Russia, for Rosneft, will be looking for this. But whether it will be BP or some other company that is still to be seen.

QUEST: So, Rosneft searching for another partner do you think?

KOSTIN: I think it is open for cooperation. And I think, also, always the business-I mean, you should look for the opportunities and possibilities. I mean, if you can't make it with this partner, you can probably find another partner. But BP is a quite comfortable partner for Rosneft. I think it has a very good reputation, a real (ph) relationship with Rosneft. I mean, there is no question about this.

QUEST: And, let me take you into deep waters, if I may? If it wasn't BP who would you like the look of? Exxon?

KOSTIN: Oh, I'm not an expert in-in-in oil.

QUEST: Right.

KOSTIN: So, I don't know what is the best partner for this. But basically what I think Russia is often criticized for being too closed to international investors in oil and gas. I think that is the case, when Russian can actually present that it is completely open for international cooperation, no matter whether it is BP or some other companies.


We'll hear more from Mr. Kostin later in the program on the question of what the new environment for doing business in Russia looks like. The whole deal between Rosneft, BP, and TNK-BP, raised questions about the role the government would play. It had been thought that they would support the Rosneft/BP alliance, in the event they stood on the sidelines.

CNN's Matthew Chance is in Moscow, and I asked him how the government will view the collapse of this deal.


MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, they are going to be sorely disappointed, obviously. This is something that Vladimir Putin, the country's extremely powerful prime minister gave his personal backing to, and so they are going to be extremely disappointed the deal didn't go through.

At the same time, they have been saying all along that they are not going to get involved in commercial disputes. The expectation, of course, was that the Kremlin would at some point intervene and force these billionaire businessmen, partners of BP in Russia, to toe the line and allow BP to do this deal with Rosneft. But they didn't apparently, on the face of it, intervene. And of course we now know the deal did not, in the end, go through, Richard.

QUEST: Right. But, Matthew, did they not intervene for their own reasons, or has there really been a sea change in the way business is being done? A hands off approach?

CHANCE: It-it-it is the key question, isn't it? I certainly think there will be a lot of foreign investors out there who will be on the one hand, you know, skeptical of what they've seen here. Perhaps there is some kind of other deal being done behind the scenes. But there are others, perhaps the vast majority will see this as a positive sign, a step by the Kremlin to show that they are not going to get involved in commercial disputes, as they have done so many times in the past. So, in general, I think it is a positive for Russia in that regard. But it is a big negative of course for Rosneft, the Russian state oil monopoly. We're not even talking about BP for whom it is the biggest negative of all, of course. But Rosneft wants so much to get this Arctic oil exploited, but more than that, they want to be part of a big oil major. And BP, with the share swap, offered them that possibility.

QUEST: And now, as we have been hearing on this program, Rosneft are hinting and courting other majors.

CHANCE: Well, there has been no public statement from Rosneft as far as I'm aware. But certainly that is the reporting that has been out there. That there are other oil majors, possibly Chinese firms as well, that have been spoken to about the possibility of opening up these vast reserves inside the Arctic; 10s of billions of barrels of potential oil reserves underneath that Arctic ice cap in Russian territorial waters. And so that is obviously a big boon for any company that gets involved. That is why BP wanted to be involved.

But of course, what the Russians want as well as the exploitation, as I just mentioned, is a part of a big oil major. They have targeted BP because of its low share price. Because they saw it as being, obviously, a multi-national oil major. Are they going to get the same kind of deal from a Chinese firm, or indeed another Western firm?


QUEST: Matthew Chance in Moscow, with the government's side, in a sense, of looking at how the deal fell apart.

Coming up, there are new fresh faces in the executive suites at My- Wardrobe. Sarah Curran's letting a new member take some of her responsibilities. We'll find out who and why, in what it is all about in "The Boss", next.


QUEST: There are just some things in life you can't control. And that is always true in the world of business. Even for those men and women who are right at the top. Tonight, Michael Wu, in Hong Kong, has rising ingredient prices to deal with, while Sarah Curran is handing over power to a new executive. It is time to see "The Boss."


UNIDENTIFIED MALE: Previously on "The Boss", risk and reward. Michael Wu ignored advice and took a gamble on hospital catering.

MICHAEL WU, CEO, CHAIRMAN & MD, HONG KONG MAXIM'S GROUP: A lot of people said to me, Michael, don't do hospital catering. Because all you get is complaints.

UNIDENTIFIED MALE: An in London Sarah Curran was rewarded for taking a bet on a fashion item.

SARAH CURRAN, FOUNDER & CEO, MY-WARDROBE.COM: Once you get it right the volumes that you can sell are insane.

UNIDENTIFIED MALE: Five years ago she launched My-Wardrobe, early this year, re-launched women's wear, and now, Sara Curran is taking on men's wear.

CURRAN: I think it is a massive opportunity with men's wear. I don't think that the market has really even tipped towards men shifting their patterns for shopping online. So I do believe that the potential for men online is phenomenal.

UNIDENTIFIED MALE: I look at some of the girls, they look great, how can I do that?

CURRAN: Yes, yes.

UNIDENTIFIED MALE: To tap into this market and help drive the business forward, Sarah has brought in Troy Muns (ph).

UNIDENTIFIED MALE: They gave me inspiration, taking it away, mulling over it. Probably researching for anything else, is this actually this is what I want to buy, so.


UNIDENTIFIED MALE: As the new head of men's wear Troy will oversee its direction, tone, and content.

UNIDENTIFIED MALE: I think the thing with men is you don't want to alienate them. It is keeping that, yes, I can wear that. I'm not going to look out of place. I'm not going to look stupid.

UNIDENTIFIED MALE: Sarah will still be calling the shots, but at a more macro level. She has decided that on men's wear she is best to step aside.

CURRAN: I've always believed that it is about understanding your skills. I have a very clear vision of what I want from a men's wear, but I'm not a male shopper. And there is a very different psychology and pattern when it comes to shopping for men online.

UNIDENTIFIED MALE: I like the turtle ones, I think.

UNIDENTIFIED FEMALE: Yes, they're sweet.

CURRAN: I've got to let him do his job. I can't sort of suffocate him, especially in this sort of the first few weeks. What would be the point of me bringing onboard Troy and then basically micromanaging him and telling him what to do?

UNIDENTIFIED MALE: She wants to re-launch men's wear by spring summer of 2012. And she doesn't want it to play second fiddle to women's wear, a challenge, no doubt, for Troy, and for our boss.

CURRAN: I have to trust in what we've seen in him and why he is here. And believe that actually he is the right person for it. So, as difficult as it is to hand over the reins it is something that I've grown to learn to do.


UNIDENTIFIED MALE: Michael Wu is back in Shenzhen, China. This time he is visiting the factor which supplies his bakeries with flour. Right now there is only one pressing concern: the rising cost of wheat.

WU (on screen translation): I would like to know how much the imported wheat has risen by?

UNIDENTIFIED MALE (on screen translation): The cost has increased by 50 percent.

WU (on screen translation): 50 percent? What can you do about it?

UNIDENTIFIED MALE (on screen translation): Before the price rise.

WU: Wheat is a key ingredient in primarily our bakery business, because we bake breads and cakes. And it is a major component. So, this has a big impact on our cost this year. And we'll have to deal with that.

UNIDENTIFIED MALE: As he gets a tour of the factory Michael wants to know how they are beating the price rise. And more importantly, how he can avoid it.

WU (on screen translation): It's really shocking! How about the price of wheat to customers? Will that go up a lot?

UNIDENTIFIED MALE (on screen translation): We are still selling the old wheat.

UNIDENTIFIED MALE: Once their old wheat has run out the inevitable will happen. Michael will have to pay more for his flour.

WU: Raw materials account for approximately 25 to 30 percent of our costs. So, when we are expecting this year a double-digit increase in food costs it really amounts to a 4 percent increase in our food costs.

UNIDENTIFIED MALE: To counter this, and still turn a profit, Michael will have to increase prices by at least 8 to 10 percent. It is a move he's not entirely comfortable with.

WU: In China, food is a big proportion of consumption, relative to developed countries. And when they get a substantial increase in basic products like bread or rice, they will limit their consumption. And they will source for cheaper alternatives.

UNIDENTIFIED MALE: Michael needs to tread carefully and act fast. Already, he has a plan.

WU: So, this year, we are going to raise prices, but we are going to do this very gradually and in phases. And we'll do this by launching new products. So it won't be as noticeable that we are raising prices. But it is something we have to do.

UNIDENTIFIED MALE: Next week, on "The Boss", Michael Wu cashes in on China's massive spending power.

And in New York, Steve Hindy tells us of the highs and lows of turning a friendship into a partnership.


QUEST: And don't forget, of course, if you have a boss that you would like us to think about featuring in the future and then you drop me an e- mail at That's I'll show you the address again before the end of the program.

When we return, you and I will be talking to the chairman and president of the BTB Bank, who tells us that Russia's economy is addicted to oil.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And on this network, the news always comes first.

While the head of the International Monetary Fund sits in a jail cell in New York, European finance ministers have been talking about who should replace Dominique-Strauss Kahn. The Austrian finance minister is openly calling on Strauss-Kahn to resign. She says he's causing damage to the institution now that he's been refused bail on sexual assault charges.

A skirmish today along the Afghan border. A NATO official says two coalition helicopters came under fire from the Pakistani side of the border and returned fire. Pakistan says two of its soldiers were wounded in the incident that started when a NATO fighter jet illegally entered Pakistani air space.

Suzanne Mubarak has been released after being detained and questioned by Egyptian authorities. She's agreed to give up her assets, but officials say they're still investigating whether she profited illegally while her husband was president.

Hosni Mubarak remains in detention in a Sharm El Sheikh hospital.

It was a busy day for Britain's Queen Elizabeth, on the first day of her landmark visit to Ireland. In a highly symbolic gesture, the queen laid a wreath at Garden of Remembrance in Dublin, which honors those who fought for Irish freedom from British rule. There were some minor scuffles between protesters and police in Central Dublin and a bomb was found earlier in the day on a bus that was headed to the city.

There was a report just a few months ago on the collapse of the BP- Rosneft deal for Arctic oil exploration. The event has put Russia's business practices into a very sharp spotlight.

President Medvedev is trying to clean up the country's image. He has ordered government ministers be removed from boards of firms by the middle of the year.

The Rosneft BTB Bank will be affected by that announcement.

Earlier, we heard from Andrey Kostin, who's involved in both of those companies.

Andrey Kostin if Russia's business climate really is changing.


ANDREY KOSTIN, NON-EXECUTIVE DIRECTOR, ROSNEFT: Either you can't change it in -- in a few months, I think. But the president and the government gave a very clear signals that they will be persistent in their policy to do this. And, of course, there is a whole lot of measures that should be undertaken, including the fighting corruption issue, the one you mentioned.

QUEST: If there's one market that has exhibited volatility more than anything else, more swings and roundabouts, it is your own, isn't it?

KOSTIN: Not so much. I think if you look at the performance of the stock market, for example, in Russia, this year it was the best among all BRIC countries. So I think from this point of view, we still feel that maybe we would like to see more international investors in Russia. But still, there's a quiet support for the market in Russia.

QUEST: And what do you think has to happen in Russia to increase the FDI, to increase the foreign innovative?

KOSTIN: Oh, I think it's important that Russia would start the problem of modernization and creating an investment economy. There's all possibilities to do this. We have a very highly trained, educated population and the people who can produce really very intelligent products. And I think that there is a -- in the core of the re--- the economic reforms now. It's nice to live in the -- to live in the environment when the price of oil is $100 a barrel. But for Russia, it is -- and the crisis showed it -- it is very dangerous. I mean it's -- Russia is very vulnerable for -- for the swings of the commodity markets.

So we should create a different kind of economy. And that's now where the Russian government is focusing on.

QUEST: And that is really important, isn't it, because...

KOSTIN: Vital.

QUEST: -- Russia...

KOSTIN: This is vital.

QUEST: -- Russia is becoming addicted to oil...

KOSTIN: Absolutely.

QUEST: -- at $100...

KOSTIN: Absolutely.

QUEST: -- plus a barrel.

KOSTIN: It's right, though, I think, for the Russian economy, yes.

QUEST: Because if you don't, then you're not building a real economy, you're just building a...

KOSTIN: Absolutely. I mean we will always be looking in the screen and then watching the commodity price. I mean that is -- that -- that's something we -- we really should change.

QUEST: Next year and the elections for the presidency, who gets it?

KOSTIN: Nobody knows yet. I think it's a...

QUEST: Is it Putin's if he wants it?

KOSTIN: Well, you see, it's -- it's -- I think probably in Russia, you still, the results are much more predictable, definitely much more than in France. You know, you have two specific candidates and I think their -- their policy -- their economic policy is -- is very close. I mean Putin himself once said about himself, Mr. Medvedev, we are -- we are people of the same blood.

And from this point of view, I think investors could be quite calmed down. Russian -- it's important that even this is a big election year, there's still a very basic macroeconomic stability, as we expect the surplus of our budget, so it doesn't mean that -- the government is not spending too much on any social welfare or anything in the election year.

So I think this is a -- that's something which I don't think we should fight investors too much, whether it's this gentleman or that. I think they should look at the major items of the Russian economy or macroeconomics and -- and just continue to be investing in Russia.


QUEST: Macroeconomics will rule the day.

As, indeed, they did and will, Britain's queen made history today simply with this moment of respectful silence in Dublin.


QUEST: Tonight, Britain's Queen Elizabeth is the guest of the Irish people, the first day of her historic visit to Ireland has been Ireland has been rich with the symbols of reconciliation and rife with security concerns.

These were scenes unimaginable until quite recently. The question laid a wreath at Dublin's Garden of Remembrance. Now, the Garden honors those who died fighting for Irish freedom from British rule. In a reminder that violence is still very much a part of the present, a bomb was found on board a bus headed to Dublin. The Irish military diffused the device earlier on Tuesday. The security forces also dealt with at least two other suspicious packages, one of which was a hoax.

The queen met with the president of Ireland.

Now, the question is the first monarch of the U.K. to visit Ireland in a century. And it's been 100 years of turmoil and transformation that have improved the relationship between the U.K. and Ireland.

So let's just look at the relationship as seen in purely economic terms, if you like.

Ireland, as you know, is receiving a bailout from the European eurozone members and the members of -- take the euro and the IMF. Britain, which didn't have to, but on a bilateral basis, has loaned $11.3 billion to the Irish government. According to George Osborne when he announced it, he said it was a loan to a friend in need and it reflects Ireland being a special case.

But this is the real reason it's a special case -- the huge trading relationship between the two countries. Seven percent of the U.K. exports go to Ireland.

Now, of course, to ensure that the Irish can still pay for those exports and still take those exports, that -- of course, that's one of the reasons they gave the loan.

And on the opposite side of the equation, 16 percent of Irish exports are sent to the UK. Interestingly, it is the largest bilateral relationship for the UK.

Ireland is deep in recession. Three years of declining GDP and now, of course, the recipient of bailout cash, it's not surprisingly that Ireland still has some way to go.

We have put this all together, Ireland is hoping that the queen's visit might produce a vital boost to the tourist industry. The economy may be known abroad as a basket case, but as Diana Magnay now explains from Dublin, it's only a fool that writes off the Irish too quickly.



UNIDENTIFIED MALE: Are you asleep?


UNIDENTIFIED MALE: I think someone is looking for her bedtime story.

Is she?


DIANA MAGNAY, CNN CORRESPONDENT (voice-over): The story of Ireland's banking crisis don't make for good bedtime reading, but there is a fairy tale side to the Irish economy. And that's its exports.

The cartoons created by twice Oscar nominated Irish animation studios, Brown Bag Films, one of the more creative examples.

CATHAL GAFFNEY, MD, BROWN BAG FILMS: There's a very tech savvy culture here. You know, people are really into technology and they adapt very well and, you know, even for animation, I mean the -- it's -- I don't know what the secret sauce is about Ireland, but it -- but it definitely, you know, there is a secret sauce there and it does differentiate us in a way that, you know, you can't put into a very tight business term. But it -- but it works.

MAGNAY: A secret sauce that's generated Irish entrepreneurs like Gaffney, but which has also pulled in a huge number of U.S. multinationals like Internet payment company, PayPal, who set up their European headquarters on the Emerald Isle.

LOUISE PHELAN, PAYPAL: Because we can get the talent, we can get the skill set and we can get the technical savvy here.

MAGNAY (on camera): PayPal has been here since 2005, but already back in the '80s, you had huge tech giants like Microsoft, Dell, HP and Intel investing in Ireland. And now you have this new wave of social media companies like Facebook, like LinkedIn. And there's also talk that Twitter might set up its European headquarters here in Dublin.

And not only do these companies create thousands of jobs, but they're pretty much Ireland's only lifeline for growth right now.

(voice-over): One huge draw for foreign investors is the low corporate tax rate.

Barry O'Leary heads up IDA Ireland, which tries to encourage more companies to invest here. He says pressure from some European countries to raise the Irish corporation tax goes against the spirit of the union.

BARRY O'LEARY, CEO, IDA IRELAND: It is, after all, the sovereign right of each country to assess its own corporation tax. And we respect the right of Germany, of France to provide whatever type of subsidies, which they do, to their industry through various ways. We respect that. But it's up to them to determine their industrial policy in the same way as we expect them to respect Ireland's move in relation to corporation tax.

MAGNAY: There are around 1,000 foreign companies investing in Ireland, employing some 150,000 workers. No doubt, the domestic economy is temporarily crippled by the magnitude of its debts. But there's still a fair amount to smile about, given the strength of its export-led twin.

Diana Magnay, CNN, Dublin.


QUEST: Philip Lane is professor of international macroeconomics at Trinity College, Dublin.

The good professor joins me now from Dublin Castle.

Philip, we never want to overstate the -- the -- the bilateral relationship on economic grounds, but the fact is, the U.K. and Ireland have historical and crucially important economic relationships.

PHILIP LANE, PROFESSOR OF INTERNATIONAL MACROECONOMICS, TRINITY COLLEGE, DUBLIN: That's right, in both directions. So Ireland is a big export market for the UK. In fact, that is more important than -- than Irish exports to Britain. Ireland really exports to many countries, including the UK. But what's striking is -- is that the U.K., you know, has a really big, important role in retail, in many sectors of the Irish economy.

QUEST: If we put this into the current economic position in Ireland, Philip, we know the bailout, we know the ghost towns.

Is there any sign that things are going to turn -- are turning around at all?

Or is it still mired deep in the dirt?

LANE: So it's important to emphasize that, you know, after three pretty bad years, 2011, I think the economy is going to be about stable. So there is still going to be a decline in the local sectors, but it's going to be offset by the export sector. And if you add all of that up, it's going to be a growth rate of, you know, maybe plus 0, .5 of 1 percent -- one percentage point.

So as in your clip, the export sector really is doing a lot for the Irish economy.

One reason, you know, we hope the queen's visit this week will be helpful is tourism is a big export factor. It's a sector that employs a lot of people. And if the coverage on CNN and elsewhere helps that sector, it's going to be a big payoff from this visit.

QUEST: Oh, that much I -- I'm sure. But I do wonder, if you look at the Irish economy, still -- it is one of those classically that is tied to the fact that the euro and the ECB and the rise in interest rates that's taking place in -- in Frankfurt.

So there must be some alarm to that extent.

LANE: Sure. The fact that the European Central Bank is on an upward stretch in the interest rates, you know, is not that helpful. But at the same time, you know, the rate increase so far has been tiny. Interest rates are still very low in terms of historic averages.

The big concern here is not what the ECB interest rate is, it's the fact that the local banking system is still in trouble.

And so, you know, the banking system, if you're a small business, it's still, you know, pretty tight on credit.

So the ECB interest rates, you know, is not the big story here. It's fixing the local banking system, getting more and more businesses back on track here in their local economies.

QUEST: Let's just, finally, then talk about, obviously, with a banking system that is moribund and a -- a new government, but a royal visit, Philip, is there an opportunism -- I mean I know the Irish have irrepressible optimism to see a silver lining in any dark cloud.

But do you get the feeling that there is an optimism?

Or is it still (INAUDIBLE) today?

LANE: Well, I think there are two levels. One is that with a new government, there does seem to be a -- a new energy, maybe, in -- in policy-making. There are various new initiatives and so on. So it's a -- so I think that is welcomed.

But I think it's very much the case that the view here is, you know, Ireland will do as much as it can, but it is still hostage to European policy decisions about how to deal with the European periphery, how to deal with the debt crisis. All of those issues are much bigger than Ireland. The Irish political system can only do so much. And, you know, essentially we're waiting on -- on the top level of the European (INAUDIBLE)...

QUEST: Right.

LANE: -- to come up with a -- a road map for the future of Europe.

QUEST: Yes. Well, I'm sure there's one industry that's probably boomed and that's the fashion industry, Philip. All those ladies buying big hats and outfits for the queen's visit. I'm sure that's certainly given a -- a benefit.

LANE: Sure. And, of course, there's many local degarniers (ph) in Ireland. And I -- I would hope they are benefiting.

QUEST: Philip, many thanks, indeed, for joining us tonight.

We thank you for that.

We'll have more QUEST MEANS BUSINESS after the break.


QUEST: Now, welcome back.

Lots of flight delays tonight from Europe and elsewhere to in the United States.

Guillermo is at the World Weather Center -- Guillermo, what's gone wrong?

GUILLERMO ARDUINO, CNN METEOROLOGIST: There is a low pressure center here. You see how it's spinning around and that's spreading, also, lots of electrical storms and we have winds that actually are going to get better with the time. But we have to wait for a day or so.

You know what in Canada, there are fires, too, and in Alberta. And the winds are going down, as well. So that's good news for Canada.

So I'm going to talk about this. Also, I'm going to talk about Europe. I don't know if you noticed -- well, probably you haven't noticed yet, but the temperatures are going down now and through Monday, we will see that change. So the temperatures are going to continue to go down, not only here for Britain, but into the east, as well.

But you know what?

They're going back to average and also we're going to see nice conditions in London, I think, for the next three days, especially closer to the weekend you're going to notice that.

Quite chilly. If you're coming to the States, we are 10 degrees below average in many states, as you see. But that area is shrinking a little bit. So we will still be dealing with the delays in the Northeast for one more day. But temps are improving here for the South and also for the Northeast and Mid-Atlantic States, Washington, Philadelphia, Baltimore, New York. Still chilly, but it's going to get better. And temps go down in the desert areas. So if you're going to Vegas, you're going to notice that.

Richard, look at your monitor. Look at all those cities -- Washington, DC, that's Mid-Atlantic; Baltimore, Mid-Atlantic; Boston, Northeast; New York, Newark and new New York, we have delays. JFK also, it's that area of bad weather. Philadelphia, Toronto, Canada, too.

But it is the worst right now. Tomorrow it's going to be much better.

Dallas with winds. New York still dealing with delays on Wednesday, as I said, but getting better. Phoenix, windy and also cold.

And if you hear and if you see a lot of coverage on the floods in the United States, you, as a traveler, need not worry if you are not coming to any of these cities along the areas where we have flash flooding. It doesn't mean that we are going to see terrible weather conditions. But we are going through the floods with the Mississippi River. So despite the fact that the weather may be nice, there are cities that all the way until June will be dealing with floods.

But remember, put it into perspective. It is not that -- if you are not coming to these cities, you're not going to be impacted by it. It's a weather story that we're covering. It's a -- a flood story that we're covering here on CNN.

Back to England. I think that London, the closer we get to the weekend, the weather is going to improve. But remember, temps are going down, so we see this area of cold conditions that is embracing that huge area of the map. So in the morning and at night, Richard, it will be five, six, seven degrees, eight, nine, not like in Central Europe, where it is cooling down, but still holding up a little bit and things are a little bit more comfortable.

The cold air is spreading all the way east, as well. And we're not talking about terrible conditions. You see, you look at the -- the satellite and the radar and you think oh my god, the world is coming to an end. No, we see some rain showers developing, also, into Spain and Portugal. But that's about it. And we're not dealing with significant delays, either.

And I go telling you that in Dublin, we have some spotty rain showers for the queen, but it's not going to be that bad.

QUEST: Oh, well, she's got an umbrella.

ARDUINO: Oh, many. I hope so.

QUEST: Well, if she hasn't got one, somebody else will have one for her.

ARDUINO: There you are.

QUEST: All right, many thanks.

ARDUINO: Thank you.

QUEST: Guillermo at the World Weather Center.

Now, Q&A on Thursday is when Ali Velshi and myself go head to head.

What would you like us to debate and discuss?

You can e-mail me to That's Or you can Tweet it to @richardquest.

The subject that is on your mind, we will be happy to hear your views. We go head-to-head and then we answer questions. And so far, I seem to be winning more often than he does. @richardquest is where you can also following what happens on this program.

When we come back in just a moment, it will be time to consider BP- Rosneft and A Profitable Moment.


QUEST: Tonight's Profitable Moment.

To paraphrase Oscar Wilde, to lose one Russian battle is a misfortune, to lose two battles looks like carelessness. I'm talking, of course, about BP.

First, it was the Macondo Gulf of Mexico fiasco. Now the collapse of the Rosneft deal is the second time in three years BP has fallen foul of Russian round trip.

In 2008, a dispute between TNK-BP and the government led to the current chief exec, Bob Dudley, being suspended for allegedly violating the country's labor code.

This time, it was the oligarchs that were the ones objecting. And now BP's Arctic ambition may be dead in the water.

BP can't blame the Russian government or AAR. This is their miscalculation. Bob Dudley is no stranger to doing business in Russia. It beggars belief that BP made such a miscalculation that somehow this deal with Rosneft would go by on the nod. Dudley probably should have known better.

It doesn't matter, though. Somehow it will be rescued in the wash.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

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

"PIERS MORGAN TONIGHT" is ahead after the headlines.