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Interview with easyJet CEO; Rajaratnam Sentenced to 11 Years; Trouble in Paradise

Aired October 13, 2011 - 14:00   ET


RICHARD QUEST, CNN ANCHOR: Tonight, easyJet's chief executive on her new campaign and her focus for the airline.

It is 11 years inside for insider trading. Raj Rajaratnam says murderers get less.

And trouble in paradise. Mexico's tourism minister tells me turf war are a world away from the hot spots.

I'm Richard Quest. I mean business.

Good evening.

Tonight we start with an exclusive interview with easyJet's chief executive. As she gives us a rare insight into how she is refocusing one of Europe's largest airlines.

Carolyn McCall is strategically targeting the business traveler, and in doing so is reinvigorating an industry that has become the backbone of how Europe flies.


STELIOS HAJI-IOANNOU, FOUNDER, EASYJET: Because this is an inaugural flight, I'd like to buy everybody a drink.

QUEST (voice over): In 1995, easyJet began its mission of turning Europe orange. The boss was the Greek-born entrepreneur, Stelios Haji- Ioannou, who had a clear vision from the start.

HAJI-IOANNOU: One of my favorite quotes is, there is no such thing as a free lunch. And the world's airlines wasted a lot of money giving people free lunches.

QUEST: Lunch wasn't the only frill to go. From travel agents to assigned seating, to free bags in the hold. Stelios simplified the business and charged for everything else.

In 2000, easyJet floated on the London stock exchange. And by 2004, the price had more than doubled. Turbulence followed, with the financial crisis, the ash cloud, and of course, the ever present competition from the rival RyanAir. A giant and confident adversary.

MICHAEL O'LEARY, CEO, RYANAIR: What you are seeing in the numbers is this, you know, the continuation of this inevitable trend now, everybody in Europe switching away from high fare carriers, flag carriers, on short-haul flights, to low-fare carriers. It happened before in the U.S. as everybody switched to Southwest. And now it is increasingly taking place across all of Europe as people move away from the BA, Lufthansas, the Air Frances, onto Ryanair.

QUEST: While Ryanair 11,000 routes still dwarf easyJet's 570, the smaller carrier has other advantages.

ANDREW HARRISON, FORMER CEO, EASYJET: easyJet's philosophy is to fly to primary airports, to the most convenient, centrally located airports. That is quite different to Ryanair's network strategy. So the direct overlap between easyJet and Ryanair is actually relatively small.

QUEST: Andy Harrison, easyJet's former chief exec, struggled to help the airline find its place in the fast-moving, low-cost world. As it has grown, the airline had a terrible reputation for on-time performance. And it wasn't always clear for what EasyJet stood. Now, with a new chief executive and new direction there is a new strategy.


QUEST: Now this shows you the sort of challenge that Carolyn McCall is facing. These are the so-called traffic statistics for August, the month just gone. And as you can see, Ryanair comes in at 8 million, Lufthansa at 5.6 million. So Ryanair is clearly the largest carrier in Europe at the moment. Then Lufthansa, and then you get easyJet, with just about 5.5 million, almost neck and neck with Lufthansa. And incidentally that is Lufthansa Main, not Lufthansa Group. Behind that you get Air France and British Airways at 3.2.

So, easyJet at the moment, the third largest, at least as seen in the summer months, for the airline. Carolyn McCall has been in the top job, running easyJet, for now just over a year. From day one, the goal was to take on the companies no frills Virgin, and Vision, and give it a sharper focus. For an executive with a background in media, that mission has thrown up different challenges. I spent the morning with Carolyn McCall, at easyJet's headquarters, in Luton


QUEST: It's 9:30 and Carolyn McCall, easyJet's CEO is chairing the morning meeting. Finding out, across the network, how the airline is performing.

CAROLYN MCCALL, CEO, EASYJET: No cancellations at this point?

UNIDENTIFIED MALE: No cancellations. We had to downgrade-

QUEST: Everything from passenger numbers, aircraft maintenance, and of course, punctuality.

UNIDENTIFIED FEMALE: So we had four hours and 16 minutes delay on this aircraft, on this flight.

MCCALL: So what about a passenger comes there and how we dealing with it?

QUEST: The call came from the media world, where she was the chief executive of Guardian Media group. A year after she joined easyJet, she has become expert in the complex world of aviation, with its multitude of challenges, from weather, government regulation, and expensive planes.

She seems at home.

MCCALL: I'm just someone who loves the whole-every aspect of what I do. And it has to be deeply operational, because this is an operational business. You are only as good as your last flight.

QUEST: easyJet is Europe's second largest carrier, with 20 operational bases across Europe. It now flies 50 million passengers each year. Under McCall the airline is shifting its strategy, aiming to appeal to business travelers, which is risky because of the potential increase in costs.

CAROLYN MCCALL, CEO, EASYJET: First bear in mind that one in five of our travelers are already traveling on business. So we already have between 18 and 20 percent of our current passengers who are traveling for business. So we have a very credible position. So people have found us. We have marketed anything to them.

Secondly, what they said to us is, if you had a product that gave us more flexibility and you had a slightly better schedule to some of these primary airports, we would use you more. Or we would actually reconsider you for business travel.

So what we have done on that is we now have a flexible fair product, called FlexiFare, very original. And it gives you complete flexibility to change you flight within a window of a month.

QUEST (on camera): You see the thing about business travelers, you are right they are flying you anyway, but they are flying you because that is where you go. What you need to do, of course, is to get them to like flying you.

MCCALL: When business passengers try easyJet, they rarely go back to the carrier they were using before. And the reason for that is, it is extremely good value. It is efficient and they really like the warm and friendly service. Our crew are fantastic. And that is a really (AUDIO GAP) for us.

QUEST: McCall is messianic about making sure she does nothing to destroy the low-cost model.

MCCALL: easyJet can be Europe's short-haul airline, and to do that what we have to do is absolutely be low-cost in our business, and operating model, because we can then do low fares for our passengers, so easyJet lean is in everything we do, lean thinking.

And secondly, that we can really drive our RPS, our revenue per seat; and the way we can drive our revenue per seat is by looking at the business passenger. So that is a very important part of the strategy.

I'm Carolyn. How are you doing?

UNIDENTIFIED FEMALE: I'm good. How are you?

MCCALL: I'm fine. Thank you. How is it going?


MCCALL: You all right?

You get your people right. You get your customers right. Because actually, you know, we had lost sight-slightly-of the customer, the passenger in all of this. And we are very customer focused. And that doesn't mean we add cost. We don't layer in cost. It doesn't take a lot to be helpful, friendly and to smile.

QUEST: You are bundling back in again, aren't you?

MCCALL: No. No we're not.

QUEST: Bags in the hold.

MCCALL: You don't have to take a bag in the hold. We are not bundling you in any way.

QUEST: Your critics say you are moving away from the low-cost model.

MCCALL: We are really proud of having a low-cost operating model. And the reason we are really proud of it, is we can give low fares to our passengers.

QUEST: In Europe, do you see more consolidation coming along? And if so, are you going to be part of it?

MCCALL: We have a lot more to grow, organically, and we can do it stealthily. We are very cautious about the next two years. We have capped our fleet for the next two winters. We don't believe the next two years in Europe, maybe longer, is going to be very pretty.

So to answer your question, when you think about the cost headwinds for this industry, you know the unprecedented high fuel for a very sustainable period of time, that is gong to cost us 220 million pounds, more year on year. Emissions (UNINTELLIGIBLE) schemes for the first time ever, that is going to cost us money. APD, who knows what this government is going to do on that. They should not be taxing passengers. But who knows? That doesn't seem to be the trend.

So we have got some really severe headwinds. In addition to that we have a Eurozone in crisis. So I think consolidation is going to be inevitable in some way over the next three to five years. easyJet's entire strategy is based on organic growth, not on M&A.

QUEST: (voice over): Carolyn McCall has also had to deal with the majority shareholder Stelios, who has frequently questioned the board of directors' competence and called for some directors to be fired.

MCCALL: We deal with all our shareholders and our entire approach is that we want a constructive dialogue. And that is exactly what we are doing with our largest shareholder. You know, he makes some very good points about growth, and about Europe, and about the Eurozone. You know, we listen.

QUEST (on camera): One year on, Carolyn McCall is as a seasoned chief exec is warming to her task of giving the airline direction, depth, and gravitas. Some things, though, will never change. Like that color.

Have you learnt to love or hate the color orange, yet?

MCCALL: I've always loved it. I swear. I had an orange, very smart, jacket, before I joined easyJet, which I have never worn since I've been here. But I love orange.


It's a happy color.


QUEST: Carolyn McCall talking to me earlier today. And I promise you at some point we will have her wearing that orange jacket.

He's facing yet another confidence vote tomorrow, as Italy's economic crisis rumbles on. Find out what ordinary Italians think about Silvio Berlusconi. QUEST MEANS BUSINESS-(DESK BELL CHIMES)-in a moment.


QUEST: Welcome back.

The six-day winning streak on European stock markets has come to an abrupt end, at home and abroad. Worrying news has got investors selling. And if you join me in the library you'll see what I mean. Not the worst of all, except in Italy. And we'll come to that one in just a moment. The reasons, of course, China's exports have slowed to the weakest pace in 17 months. Now, they are still at 17 percent year on year, but banking shares were very badly hit. ECB has warned that haircuts in the market, particularly for large banks could trigger large-scale recapitalizations. There is also this political uncertainty, of which I'll explain more in a moment. As a result, banks like Unicredit were down 12 percent in the Milan market.

On the U.K. markets, in the London market, Lloyds were down 5.4, the Royal Bank of Scotland were down 6.3 percent. And the reason, very simple, Fitch has downgraded the state-backed banks. Even though they are backed by the U.K. government, there is a feeling they will now need more money. So, they are both reflecting the advance political will to reduce support.

And this is another banking issue. Josef Ackermann, the Deutsche Bank chief executive, he has criticized that plan that I told you about yesterday, the recapitalization plan from the banks of President Barroso. Ackerman believes recapping the banks, an injection of capital, would not address the actual problem, is what he says. Government bonds have lost their status as risk free assets. And there is definitely a view in the German banking community that a general recapitalization of banks is a poor idea, because of the problems it would have for the sovereigns. Particularly, of course, for sovereign bonds like Germany's.

Meanwhile, in Italy, where the woe continues, the Prime Minister Silvio Berlusconi said today, it will be a disaster for the country and its economy, if his government collapsed. Mr. Berlusconi was speaking ahead of a confidence vote that he has called tomorrow. The Center-Right coalition is riven by internal disagreements. His critics say his conduct has become a source of national embarrassment.

Even if Prime Minister Berlusconi survives the confidence vote, it will be far from the end of his troubles. His popularity has plummeted, due of course to the corruption allegations and the sex scandals. Our Correspondent Paula Newton shows us some of the more recent examples of how the Italian public are reacting.


PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT (voice over): In the sun-backed Umbrian town of Colatino (ph), they admit they have rarely asked themselves for whom the bell tolls. In fact, the bells at San Sevestro (ph) Church, wedged as it is in the thick of this scenic town, rarely ring at all. They mirror the moral ambivalence here, the shrug of the shoulders, to lewd exploits of their infamous leader. That is, until now.

UNIDENTIFIED MALE (through translator): He should be serious. Instead, he goes around the world like a magnet for money and escorts.

NEWTON: Opinions have changed here says this tavern owner because business has changed. The crisis is biting.

"And Berlusconi does bear some responsibility," he says. "Because he spent too much time chasing skirts, instead of safeguarding the interest of the country."

With his approval rating now at less than 25 percent Silvio Berlusconi's alleged sex scandals and trails are reaching new depths. With some Italian newspapers declaring that evidence now gathered for trial, lays bare details of a personal life to vulgar to print. But listen to what made it to press from wiretapped conversations between Berlusconi and businessman Giampaolo Tarantini, now on trial for blackmail.

Berlusconi complains of a backache. Tarantini, "I'll send you a little angel to help you get rid of the back pain."

In another Berlusconi boasts, "Last night I had a line up outside the bedroom door. There were 11 of them! I only did eight of them because I couldn't do more."

In another conversation, Berlusconi complained there were too many women at the party the night before. "At the most we can have two each," he says. Then continues, "Then we can exchange."

He then allegedly says something too vulgar to repeat here, about circulating women for sex.

(On camera): Even if Italians were willing to forgive all this of their prime minister there are suggestions now that his private life may not have been so private. Court documents allege that he was using state funds for his parties, including those held here at his official residence in Rome.

(Voice over): Berlusconi denies any wrongdoing, repeating, he loves women, but that is hardly illegal. But for a 75-year-old prime minister of a country in dire financials straits, it is hardly wise either.

"Let's say, those are his problems, but they reflect on all of us," he says. There is still little moral outrage here about Berlusconi's personal life. Just a shrewd calculation that it is now a liability Italy can no longer afford. Paula Newton CNN, Colatino (ph), Italy.


QUEST: Now, when we come back, as the U.S. flirts with a double-dip recession, it's neighbor to the south is looking for a back up plan. Mexico's tourism minister will tell me why her country wants the BRICS for its tourism pesos.


QUEST: A leader of one of Mexico's most ruthless drug cartels has been captured according to the country's military. The Ministry of Defense says this man, Carlos Zelevas Castillo (ph) was arrested at a safe house on Wednesday. Allegedly he oversaw operations for the Zetas cartel. Castillo is accused of ordering a casino attack in Monterey that left 52 people dead.

As well as the human cost, the Monterey attack was a serious blow to Mexico's tourism industry, which is a driving force for the country's economy. According to the CIA World Fact book, the services industry accounts for 63 percent of Mexico's GDP last year. Tourism, the backbone of the economy, in many ways, supported by 57 international airports and several major highways to the United States. The WTO, the World Tourism Organization, ranks it, that is Mexico, as the 10th most popular holiday destination in the world.

Now, there is all that in mind, and bearing in mind the drug cartels and the warfare that seems to be making the news on a daily basis. I spoke to Gloria Guevara Manzo, Mexico's secretary of tourism, who told me that the drug cartel related violence should be a concern to tourists.


GLORIA GUEVARA MANZO, SECRETARY, MEXICAN TOURISM: What is going on in Mexico is not against tourists. It is not against regular citizens. That is something very important to mention. It is a gang-to-gang situation, fighting for routes, to bring the drugs to the U.S. And at the end of the day, you look at the tourist destinations, they are far away from those places.

You will see that what we have is very-very much located close to the border in the north of the country. And for instance, you might also find that the distance between those locations and let's say Cancun, that is one of the popular destinations that we have, is 1,300 miles away.

QUEST: Right. So now let's turn then to-well, let's turn to the other issue, of course, which is affecting every country in the world at the moment. And that is just simply economic slowdown. When you have the United States, which I know, of course, that highest spending, trans- Atlantic passengers are more welcome, because they average spend is greater, but you have got to keep those large numbers of people coming down from your northern neighbor, and the northern neighbor could be heading into a double-dip recession.

MANZO: Yes, and that is the bigger challenge. You are correct. A couple of years ago we were depending on 70 percent from the foreign visitors from the U.S. If you look at the latest figures it is 58 percent, because we implemented a strategy to diversify. We learned in 2009 that it was very dangerous to depend so much on one nation. Because when you have a challenge in the economy in that nation, it impacts directly your tourism. So, since then we implemented a strategy to diversify and that is why, if you look at the latest numbers you will see that we are open to 145 nationalities.

Now, the economies that are doing better, such as Canada, for instance, just to name one, we have seen an important increase, 6 percent more, 7 percent actually more Canadians, versus last year. Now we have seen an increase also in Brazilians, Russians, Chinese, Japanese, all the BRIC countries that we know. And there are some other economies that are doing much better. Now, at the end of the day, also, you find a greater value for your money in Mexico.

QUEST: All right.

MANZO: That is something also to consider. Mexico is not a very expensive destination. You can find a luxury product, as well, that when you have to decide where to go in a challenged economy, then look for places where you find a greater value for your money.

QUEST: You have been in the industry for some years, Ma'am. Do you still-do you still love the tourism industry? I often wonder, whenever I go to ITB in Berlin, or WTM in London, what is it, do you think, that makes this industry so special?

MANZO: If we really invest in this industry and support this industry we are going to be able to create more jobs. We are going to be able to build the economies and we are going to be able to provide more benefits to more people. Because that is the other thing, within this industry the benefit is distributed. It is not only in one person or a small group.


QUEST: Mexico's tourism minister speaking to me earlier.

When we come back the disgraced hedge fund manager-more than disgraced, now in prison, after the break.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS back in a moment. This is CNN and on this network the news always comes first.


Call it judgment day, in a way. It's the sentencing of the former billionaire hedge fund manager, convicted in what's called the largest insider trading scheme in U.S. history. He's Raj Rajaratnam and he got 11 years in prison for raking in more than $60 million worth of ill-gotten gains.

Maggie Lake is in New York.

This was more than just sentencing him, wasn't it?

I mean he bears the brunt. But this was a deterrent sentence.

MAGGIE LAKE, CNN CORRESPONDENT: This is -- this is meant to send a message, absolutely, Richard. And even the judge made no bones about that. I mean we had heard from Preet Bharara, the prosecutor, the U.S. attorney who's sort of spearheading this very large crackdown on insider trading.

But the judge himself, in the sentencing today, Judge Holwell, the district judge, said this. "His crimes reflect a virus in our business culture that needs to be eradicated."

You know, 11 years -- let's remind everyone the average, the median sentence, rather for insider trading, is about two-and-a-half years. And that as it's gotten steeper. So this clearly well above that. But it's not nearly what the prosecution was asking for. They wanted up to 24 years in prison. Two factors came into consideration with regard to that. And one of them is health issues. We've been hearing about this, not knowing the details, really. Today the judge unsealed that and it appears that Rajaratnam suffers from advanced diabetes and may need a kidney transplant at some point. So the judge had concerns about their ability to treat that, in prison over that length of time.

Also, his charitable works. Despite the fact he is now a convicted criminal for insider trading, he has done a lot of charity, given a lot to charity over the years, including, of course, his -- his native country, Sri Lanka, but also earthquake victims in Pakistan, victims of September 11th.

So the judge, taking that into consideration, felt an 11 year prison term was adequate.

A $10 million fine goes along with that. The government was also trying to go other -- after other assets...

QUEST: All right.

LAKE: -- and interestingly, the judge also denying that ability to stay out while they appeal this, out of jail. And you can bet his lawyers absolutely plan to do that.

QUEST: All right, so -- so what's the message, I mean besides don't do insider trading?

I mean insider -- you know, how will Wall Street be watching this and anticipating and deciding what to make of it?

LAKE: You know, it's interesting, Richard, because though some people will tell you it doesn't matter the penalty, greed is always going to be there and people are going to break the law in an attempt to do that. You can't -- you can't change that with sentencing.

But it must be said that they're -- that now that they're, A, winning these cases -- remember, wiretaps is the first time that -- that -- that organized crime tool they had used so effectively was used in insider trading. Now, they're proving they can win cases. And when they win them, they're going to throw the book at you.

They're hoping that that makes an impact and discourages people. It's not the main people, other people from participating in that network, makes them think twice about doing it. That's the whole goal of Preet Bharara, certainly the message he's hoping to send today.

QUEST: Finally, Maggie, this was a particularly egregious case, wasn't it?

When -- we're now seeing -- you see the wiretaps. You see them basically -- even -- even coldly and calculatingly working out how to do double trades so as to hide the trades they were doing.

LAKE: That was the argument of the prosecution, Richard. The defense will still say -- and they're going to appeal this -- that this wasn't, this was research. It was -- it was particularly interesting because it was...

QUEST: All right.

LAKE: -- into corporation insiders and into boardrooms. Remember, there's another case going on with a Goldman board member.

But the wiretaps really are what brought this to life.

Who knows, in other cases, this may have been going on, but we never heard their words.

This time, we got a front row seat to it all.

QUEST: Maggie Lake in New York.

Good to see you, Maggie.

Many thanks, indeed.

Another Murdoch newspaper that's mired in controversy. This time, it's the respected "Wall Street Journal" and it's accused of fudging its circulation numbers.

What does News Corp's most prestigious paper say?

In a moment.


QUEST: Britain's "Guardian" newspaper helped put the Murdoch empire into an uncomfortable (AUDIO GAP) over the phone hacking scandal by the defunct "News of the World" newspaper.

Now, "The Guardian" has done it again, focusing attention this time on Murdoch's most prestigious paper, arguably, "The Wall Street Journal." And the issue concerns circulation numbers for its European edition.

"The Journal," though, is fighting back.

CNN's Jim Boulden reports.


UNIDENTIFIED MALE: Is that you were misled?

JIM BOULDEN, CNN CORRESPONDENT (voice-over): When Rupert Murdoch was hauled before British lawmakers back in July, it was all about phone hacking by his now shut "News of the World" Sunday newspaper.

That appearance was the culmination of a story broken by a Murdoch competitor, "The Guardian" newspaper.

This week, "The Guardian" has turned its attention to Murdoch's most prestigious title, "The Wall Street Journal." "The Guardian" has used the term "scam" to claim "The Journal's" European edition inflated circulation figures in order to attract advertising.

"The Wall Street Journal" has hit back. In a press release, it says "The Guardian" article is, quote, "replete with untruths and malign interpretations."

Still, "The Journal" admits that one deal to distribute copies of the paper to students through a consulting firm was, quote, "admittedly complex, but nevertheless legitimate."

(on camera): But "The Journal" does say it's no longer comfortable with the appearance of the distribution deal and that such deals have ceased, even though it says its European circulation numbers were audited and approved.

(voice-over): Britain's media trade journal, "The Press Gazette," uses a lot of ink on the circulation wars in the UK.

DOMINIC PONSFORD, EDITOR, "THE PRESS GAZETTE": "The Wall Street Journal Europe" has not got a very high overall sale, you know, 75,000. But they would certainly spend a lot of time emphasizing to advertisers that they are targeting the key business decision-makers of Europe. BOULDEN: While this involves the rather arcane way newspapers are given away to students or at events or hotels, to some, it's hard to separate this fact from the ongoing phone hacking scandal.

PONSFORD: And so it plays for "The Guardian." You know, they -- they've exposed Murdoch to a lot of scrutiny and it's had absolutely historic consequences here in the UK. BOULDEN: When Murdoch took over "The Wall Street Journal" and its parent, Dow Jones, in 2007, there was a promise of editorial independence. Journalists at "The Wall Street Journal" itself are also investigating the circulation story and how it's linked to the stepping down of a top Dow Jones executive on Tuesday.

Jim Boulden, CNN, London.


QUEST: As we turn our attention to the skies -- and they are beginning to clear for a weekend in Western Europe -- Pedram, the core question, cold or warm?

PEDRAM JAVAHERI, CNN METEOROLOGIST: Oh, it's going to be warm, Richard. I know yesterday you were telling me something along the lines of putting your raincoat away. A good idea here across portions of Western Europe for at least a couple of days.

And I don't know if it's going to be exactly what you saw, say, to begin the month of October. I wasn't there with Richard, so I'm not sure if he was across portions of Western Europe at the same time. But they were, of course, dealing with temperatures pushing in and at one point reaching well over 30 degrees in a few spots.

But if you take a look, the coolest beginning to shift to the east or so, see it here with the storm system. A few clouds, breezy conditions across portions of Macedonia. We saw Jim Clancy there earlier in the evening there with some windy conditions and some storms in the area.

But high pressure going to begin to build from the west. And then we're talking about a nice temperature trend the next couple of days, 17, 18, possibly 19 degrees from areas around Paris all the way toward portions of London, they're going to see mild conditions.

And with high pressure in place, again, really, the key ingredient why we get these soggy days starting at this time of year across portions of Western Europe is that jet stream. It begins shifting a little farther south, farther south. And as it does, the storms follow that track.

With high pressure here, it's going to really push this jet well to the north. So we're going to enjoy sunny skies here, kind of mild temperatures for a couple of days.

So if you want rainfall, you'll find it across portions of the Black Sea there, Western -- Northwestern Turkey. We actually had a report of a tornado touching down just outside of Istanbul in the past 24 hours. A weak tornado caused some damage to property across that area of the world.

But you can take a look. The rainfall well out of the northern portions of the U.K. there across the North Sea with these next couple of storms.

So currently, we're looking at 23 in Barcelona. It is about 25 in Porto right now. And sitting at 30 degrees in Sevilla.

Look at the temperature trend. We're going to warm it up to up to 17 in London.

Paris sit at about 16 degrees for you on Friday. And -- and, again, if you've got travel plans, a few showers to be found, with some thunderstorms developing to the south. But generally speaking, you're going to be looking at mild conditions at least through Saturday, Richard, possibly a good Sunday on tap, as well, across Western Europe.

QUEST: I can live with that.

Pedram, many thanks, indeed.


QUEST: U.S. lawmakers have approved a long delayed free trade agreement with South Korea, calling it the most significant in some 16 years. One key supporter of the deal is the American auto industry, which stands to benefit from a cut in tariffs on car imports in from the United States.

As Paula Hancocks reports, though, the design savvy South Korean market may not be ready for America's oversized vehicles.


PAULA NEWTON, CNN CORRESPONDENT (voice-over): Chong Hansoo bought his Chevrolet three years ago. Since then, he's become a big fan of the U.S. car, even joining a local Chevrolet club. But he's not convinced the U.S.- Korea Free Trade Agreement will lead to an influx of U.S. models into South Korea.

"First of all," he says, "parking spaces in Korea are made to fit Korean cars. European and Japanese cars are OK, but the big American cars will have problems."

(on camera): The Korean market is an attractive one for the U.S. given the phenomenal explosion in car ownership here. Back in 1990, there were just over three million vehicles on the road. Twenty years later, there were almost 18 million. That's an increase of more than 400 percent.

(voice-over): Environmental concerns could make some U.S. models undesirable in an increasingly green Korea. A part of the FTA agreement, South Korea agreed to lower its strict emission and safety requirements in some cases.

Car design is also a factor.

One FTA expert tells me, "When Koreans buy cars, they look for style, design and convenience. Big powerful cars, like in the U.S., are not seen as stylish here, so I don't expect a surge in demand for U.S. cars."

Korean car and auto parts companies declined to talk about the FTA, saying the topic was too sensitive. But Korea's trade investment promotion agency, Kotra, says they will benefit. Kotra says G.M. Has hinted they will increase imports of auto parts to $1 billion from the current $700 million.

And Ford predicts imports rising by over 20 percent in the next 10 years.

Korean cars are expected to travel well. But for now, experts assure U.S. car fans, like Chong, could remain in the minority in Korea.

Paula Hancocks, CNN, Seoul.


QUEST: And that is QUEST MEANS BUSINESS for this evening.

I'll be back after this short break.

Our brand new program, our look at doing business in the continent. It is "MARKETPLACE EUROPE".


QUEST: Hello and welcome to "MARKETPLACE EUROPE," CNN's new weekly look at doing business in the world's single most valuable market.

Each week, I'll be here bringing you the issues of corporate concern, whether you're a large conglomerate or perhaps something more modest.

And you'll hear from the decision-makers, like in today's program. We have the president of The European Commission, President Barroso. And those of influence, like the secretary-general of the OECD.

This is mini Europe in Brussels -- the whole continent in your hands. And the perfect place for us to understand the very real problems affecting business at the moment.

(voice-over): As the rain pours on these tiny buildings, the big, dark, angry clouds continue to hover over the real Europe.

It is in Greece where we find the biggest problems, a country three years in recession, multiple bailouts and an economy on its knees.

The situation is getting worse and the economic gulf between Northern and Southern Europe is beginning to harden. With 27 member countries of the Union putting things to right is complicated.

And that, of course, means the exporting powerhouse of Germany and the richer, northern countries that will have to foot the bailout bill.

Overall, economically, Germany is, by far, the best performing country in the Union, posting record export figures in August, a rise of 3.5 percent.

Its success is also the reason why it's paying most of the costs of a bailout.

(on camera): As the misery continues to pour down, the newer countries like Romania and Bulgaria, they must wonder what they've signed up to.

(voice-over): For business to get back to normal across Europe, the Union has to come to a consensus. Business needs market stability. It needs a platform for growth, regardless of cost and no matter who needs to throw money into the pot.

(on camera): In today's era of high budget deficits in Europe, every little bit helps.

It's time to head to the Berlaymont Building, the headquarters of The European Commission.

(voice-over): To meet Jose Manuel Barroso, the president of The European Commission.

(on camera): I've interview you many times, Mr. Barroso. But the one question I've always wanted to ask you is, do you ever just want to say to the European prime ministers, get your act together, the old Nike phrase, just do it?

JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: I've -- I've said it. I'm saying it sometimes, just the -- some days the European Parliament in the State of the Union address, I made it extremely clear that we are in a decisive moment. Either we act together in a decisive way or we face the risk of fragmentation.

I believe it will not happen. I believe the forces of integration in Europe are much stronger than any problems of fragmentation. But it's the message I've been consistently conveying to the leaders of the governments of Europe is put your act together. We need to do more together. And it's urgent that we do it now.

We need to have a coherent, consistent, comprehensive response to describe this. It's to some -- to some extent, it's a process of learning. Let's face it, this -- this is the first time we've had such a crisis. We have the common currency...

QUEST: Which was -- which was set up too quickly and perhaps not in the correct way?

BARROSO: We have a common currency and want to keep it, but we were missing some of the elements to make it credible. And we are now putting them in place. We are creating funds, one of 440 billion euros. It's a lot of money. But we have been creating, also, in the process of learning, of adjusting. No one wants to replace Europe and the European Union as a project. In fact, if you look at the debate here in Europe, it is how are we going to make it deeper, the integration?

How can we make it work better?

How can we reinforce the economic governance?

No one is proposing let's get out of Europe. On the contrary, more -- some countries want a giant euro.

So this is the -- the exact dimension of the crisis. I am not being complacent with it. I follow it every day and night, I can tell you. But, in fact, I'm fully confident that we are going to overcome this, because Europe is, with all its problems, probably one of the best places in the world to be.

QUEST: How are we going to overcome it?

The biggest project -- this is your vision.

How are we going to overcome it when the biggest project is smoldering in ashes?

BARROSO: Look, it is not. The European Union is stronger. We have the biggest internal market in the world. We are the first trade bloc in the world. Our average quality of life is, if not the best in the world, among the best in the world.

So there are problems, but we are facing them. In fact, in a way, we are now making, under pressure, what probably should have been done before, in terms of some of economic reforms for more competitiveness in Europe.

So, with all its problems, Europe is able to face the current challenge and we will remain a very important partner.


QUEST: Jose Manuel Barroso, president of The European Commission.

We'll take a short break.

When we return, a sharp message -- ring fence the problem and look to the future.

We hear from the secretary-general of the OECD.


QUEST: Welcome back to MARKETPLACE EUROPE and the little buildings of "Mini-Europe".

As we travel the corridors of business across the continent, my partner will be my colleague, Juliet Mann, who is already on the move.


Each week, I'll take MARKETPLACE EUROPE on the road to meet the decision-makers and business brains that make Europe's economies tick. We get right inside the companies that you want to know more about, like Siemens Rail Systems.

UNIDENTIFIED MALE: Well, our high speed train that we see here in the back can run in eight different signaling systems and under four different voltage systems.

MANN: Heineken...

UNIDENTIFIED MALE: We are pushing the Heineken brand big time. And we believe that this brand is big, big, big potentially.

MANN: And Adidas, all coming up in future shows.

UNIDENTIFIED MALE: The split in the Adidas brand into two divisions, the performance division and the style division.

MANN: Next stop, Paris and the OECD, where I met the secretary- general, whose role includes making strong recommendations to governments around the world to promote financial stability. I asked him how Europe can dig itself out of debt.

ANGEL GURRIA, SECRETARY-GENERAL OF OECD: First, you deal with the immediate problems. The debt issue is critical. You have to deal with that because...

MANN: (on camera): How?

GURRIA: -- it is creating the -- an erosion of confidence. And you deal with that, first of all, by ring fencing the countries that have a problem, by not allowing the contagion to spread. And you deal with that by giving the market assurances that there's enough firepower, this awesome firepower in the hands of the European countries and the IMF, etc. That you can deal with the problem.

And then you also announce and start practicing medium and long-term goals that are ambitious but that are consistent.

MANN: you used to be a finance minister yourself. Surely, if you had all of the European finance ministers in a room, you want to give them a shake, look them in the eye and say, come on, guys, it's time to let Greece and let the euro go?

GURRIA: No, I would not recommend that they let Greece go or the euro go. I think the euro is going to be all right. I think there are going to be more countries joining the euro. The euro is going to continue to be the largest single trading bloc.

The fact that one country in the euro, in this particular case, Greece, has a debt problem does not mean that the euro is going to part the ways.

MANN: It's not just one country with a debt problem, though.

GURRIA: Oh, let me tell you, there's one -- there's one country with a crisis. There are two other problems -- two other countries that have problems. And...

MANN: And a few waiting in the wings.

GURRIA: -- and a few that have large debt issues to deal with, which are now doing something about it.

MANN: Where is the growth going to come from?

GURRIA: The growth is going to come because we ran out of room from low interest rates and spending more public money. It's going to come from structural policies. It's going to come from more competition, from more education, from more innovation, from green growth, from R&D, from releasing the universities so that they can do better.

You can no longer get out of the recession by spending money, public money, and you can no longer get out of the recession by driving interest rates to -- to zero.


QUEST: Angel Gurria of the OECD.

And that's our first edition of MARKETPLACE EUROPE.

I'm Richard Quest reporting from "Mini-Europe" in Brussels.

Do keep me informed with your business stories. The e-mail address,

Finally, whatever your market in Europe, I hope it's profitable.

I'll see you next week.