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QUEST MEANS BUSINESS
Iceland Repays One Fifth of IMF Loan Early; Krona, Euro, or Loonie? Iceland's Recovery; Former Icelandic Prime Minister on Trial; Hungry for Apple; US Market Slightly Down; Fourth Day of Gains in Europe; StubHub Launches in UK
Aired March 16, 2012 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST: It's payback time. Iceland is settling scores with its creditors.
It's also time to buy. Queues around the world for the iPad 3.
And bad timing. Nike puts its foot in it with a St. Patrick's Day themed sneaker.
It may be Friday. I'm Richard Quest, and I still mean business.
Good evening. In a week that saw bailouts and payments, we start tonight with Iceland making amends and looking for answers. The country pays down its debt. It's former prime minister's waiting to hear if he will be held culpable for the spectacular financial mess of 2008.
And tonight, we'll be asking how this country's economy and its people move forward. Because Iceland has now repaid a fifth of its IMF loan, and it's done ahead of schedule. The original banking basket case is suddenly looking like a model of fiscal and financial probity. In just three and a half years, Iceland's gone from meltdown to on the mends.
If you join me over in the library, you'll see exactly what I'm talking about here. So, Iceland announced today it was repaying nearly $450 million in loans to the IMF. Now, the total loan is over $2 billion. It does -- but this repayment of 20 percent, ahead of schedule, does of course reduce the total debt outstanding, and that will reduce the interest payments and thus allow Iceland to put more money into the economy.
In fact, Iceland's economy, according to the fund, is going to grow 2.5 percent. But it wouldn't be the IMF if they weren't grousing about something. So, they're worrying about slippage, which we'll talk about in a moment, about what that actually means.
And there are still fears of the krona, the Icelandic currency. There have been suggestions, because of stricter capital controls, to clamp down on speculative trading, but the prime minister is suggesting perhaps the euro should be introduced as the currency. The polls show 60 percent are against joining the European Union.
Now, whether it's the euro or the Canadian currency, the Canadian dollar, the loonie which, of course, bearing in mind, if you think of where Iceland is, that could be a well geographical positioning between Canada over there or the European Union.
You get the idea of the issues. Let's talk about the repayment. The Fund says its support has been key to Iceland's recovery. In exchange for the money, Iceland had to restructure and get its financial system in order.
Julie Kozack is the IMF's mission chief from Iceland -- for Iceland, and she joins me, now, from Washington. Julie, all right. Iceland went bankrupt. The economy collapsed. The IMF came in. Relatively -- I understand in real terms to the Iceland's economy, it was a large sum, but nominally a modest sum. Why -- to what do you attribute the fact that the repayment's early?
JULIE KOZACK, IMF MISSION CHIEF FOR ICELAND: Well, Iceland has achieved quite a lot since the crisis, as you noted. The entire financial system collapsed in 2008, and there's been tremendous progress made between now and then.
The economy is growing again, public finances have been put on a sustainable path. Iceland was able to re-access international capital markets.
And of course, there's been a lot of fiscal belt-tightening, all the while preserving the social safety net. So, there's been quite a lot of progress and achievements made.
QUEST: All right. But there are problems. There's the slippage problems, the krona problem. There are still some issues that really give -- you said to me they're not out of the woods yet. Well, that's certainly true. What to you is the biggest concern at the moment?
Well, Iceland still faces a number of very big challenges. One of the challenges is to lift the capital controls that were imposed to help stabilize the krona in the wake of the crisis.
And of course, they still do need to continue with the fiscal adjustment, because public debt is still very high and needs to be reduced. And at the same time, indebtedness of the household and corporate sector is also still high. So, they still face some very big challenges.
QUEST: You see, in Iceland, more than most other countries, there is relative fury, isn't there, at the baking system, which collapsed and which they basically, most of the ordinary Icelandic people say, "We had no part in this. We are now bearing the brunt of such draconian austerity."
KOZACK: Yes. Obviously, there has been -- this has been a very, very difficult time for the people of Iceland, and there -- there have been -- there is pain that is associated with the crisis, unfortunately.
But the people have been resilient, and the country has been resilient, and that's part of why so much progress has been made in spite of the very difficult circumstances.
QUEST: Now, I know that your -- your bailiwick is Iceland, and that's what we've agreed to talk about, so we won't lead you down to other areas, but I think it is legitimate to say, what has Iceland done right, if you like, that other countries facing IMF or other programs of restructuring, the lesson that they can learn from the Iceland experience?
KOZACK: Well, Iceland has done a number of things that have obviously laid the foundation for the recovery that they're seeing right now. One of the main lessons from Iceland is the importance of policy ownership on the part of the government, the authorities.
The authorities came in, particularly on the fiscal side, they had a strong objective to maintain the social welfare system, and they adjust -- they decided how they were going to tighten the budget based on that overall objective, and they took strong ownership there.
They also introduced some unorthodox policies, which were very necessary at the time. For example, the imposition of the capital controls to stabilize the krona, and that has also been a very successful policy in helping Iceland recover.
QUEST: Julie Kozack in Washington, we thank you for that.
Iceland's former prime minister is waiting to hear if he will be labeled a criminal as a result of his actions in the crisis. Geir Haarde is accused of not doing enough to save the banking system from collapse, and today a court heard the closing arguments in his trial.
Haarde's the first and, seemingly, that we can see so far, only world leader to face charges for his role in the financial crisis. He firmly denies the accusations brought against him. It's now up to the court to decide if he will be found guilty. He could spend up to two years in prison.
Haarde's denied his -- the charges against him, and when I spoke to him last September, he felt there was a political motivation to those charges.
(BEGIN VIDEO CLIP)
GEIR HAARDE, FORMER PRIME MINISTER OF ICELAND: What we have here is a criminal trial, formally speaking. But in reality, it's a political trial, which has been initiated and instigated by some of my old political enemies, who see the opportunity to settle some old political scores --
QUEST: Right, I --
HAARDE: -- using the justice system to do it.
QUEST: Right. But they say, and we may as well just, very briefly, because obviously it's phenomenally complicated with truth reports and the like. But they basically say that you knew the crisis was coming, you didn't act swiftly or appropriately in dealing with it. That's basically the nub of their accusation.
HAARDE: Well, you know, this was an international financial crisis. It started in the US. The US Federal Reserve is on record saying that they did not see it coming. They have a very good hurricane watch in the US, but they don't see -- they didn't see the financial hurricane coming in the fall of 2008.
Neither did the European governments. And all the public data we had throughout the year 2008, up until September, about the bank, including their audited reports, reports from the financial supervisory authority and, among others, the IMF, suggested that even though there was head wind, they were basically sound.
QUEST: But -- but --
HAARDE: And this is -- this is what the situation as we deemed it at the time.
(END VIDEO CLIP)
QUEST: And that was the interview earlier last year. Magnus Arni Skulason has been watching the trial of Geir Haarde closely. He's the managing director of Reykjavik Economics and joins me now from the Icelandic capital.
Magnus, so the judge has retired to consider the verdict. How long do we expect before we will know? Is there anything -- do we have an idea?
MAGNUS ARNI SKULASON, MANAGING DIRECTOR, REYKJAVIK ECONOMICS EHT: Well, around four to six weeks, I expect, so that -- the judges need to take their time, the justices.
QUEST: All right --
SKULASON: It's a complex case. There's over 40 witnesses and et cetera, so --
QUEST: Right. And obviously, we won't pre-judge what any judgment will be. Is there -- you will have heard my discussion with Julie Kozack in Washington. If we talk now about the early repayment, how much anger is there still in Iceland at the situation, even though the economics have clearly improved immeasurably?
SKULASON: Well, it's right from Ms. Kozack that the macro-economic has improved dramatically, but the micro is still having problems at these households and companies.
So, there's a lot of anger for people who have lost their -- that they're under water in their houses, but also small and medium-sized companies that have gone bankrupt. So, we've seen a lot of bankruptcies, especially in the construction industry.
QUEST: OK. The one thing --
SKULASON: So there's a --
QUEST: -- the one thing that does come clear from this is, Iceland went bankrupt, the banks went bankrupt, and there are many commentators today saying they recovered. Greece should have taken the same measures. A clean sweep would have been preferable, as Iceland did. Can you see the merit in the that argument?
SKULASON: Well, I can't see, because the banks were private, and actually, the treasury of Iceland was quite well protected in the autumn of 2008. So -- without any debt. But the Greek situation is quite different in that respect. So, we -- private banks went bust in Iceland, but the treasury actually did not -- did not go default.
QUEST: Mangus --
SKULASON: There was no --
QUEST: Mangus, many thanks, indeed. Mangus Skulason --
SKULASON: Thank you.
QUEST: -- joining us from Reykjavik tonight.
Now, if you build it, they will come. Literally, they did. And Apple had them round up, lined up around the block. The iPad launch day again, in a moment.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: It's a good day today because I bought an iPad for me and for my wife. Thank you. Thank you, Apple. Thank you everybody.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: I'm to the point now where I've got the Mac, I've got the iMac, I've got the iPhone. So, once you get to that point, you kind of need everything.
UNIDENTIFIED MALE: We're flying in Kazakhstan to Baikonur for selling new iPad from me for my friend, and go back home.
UNIDENTIFIED MALE: I think that the revolution was to create the iPad in the first place. This is just the next logical step for it to talk.
UNIDENTIFIED CORRESPONDNET: And why do you have to have it the first day?
UNIDENTIFIED MALE: I just have to.
UNIDENTIFIED CORRESPONDENT: You just have to?
UNIDENTIFIED MALE: I just have to. It's -- it's --
UNIDENTIFIED CORRESPONDENT: Like breathe.
UNIDENTIFIED MALE: Yes. It's -- I never even questioned it.
(END VIDEO CLIP)
QUEST: With loyalty like that, no wonder Apple is at $600 a share. Apple's new iPad has gone on sale worldwide, and not only were fans prepared to camp out overnight just to get it first, people like me who, of course, not only went from the one to -- not too close. Don't get too close, you'll see which apps I've got.
The -- I've lost my train thought, there. You -- now, of course, old- fashioned, behind the times, because I haven't got the iPad 3.
Well, what would I have if I was to be so minded to make that sort of investment. This is what I would have. First of all, I would have the 5 megapixel camera, which I still haven't worked out what a 4 megapixel is better than a 3 megapixel.
Apparently, it is the new, sharper, retina display, twice as many pixels as a DVD. That will give me much greater pictures and pixels and all sorts of things, which will be greater to be seen. And you can't really get the gist of it on this screen.
It will also give me the ability to share with other devices wirelessly. I assume they intend it to be with other Apple devices. Be interesting to see if it'll be with any other device.
And it will give me 4G connection which, considering in London I barely get 3G connection in many parts, one has to worry about whether or not it's good enough. That's what you get.
Some people are saying it is incremental rather than quantum. CNN's Dan Simon is outside the Apple store in San Francisco, and Dan is with me. Good Lord. Could it be raining on Apple's parade?
DAN SIMON, CNN SILICON VALLEY CORRESPONDENT: You know what, Richard? It never rains on Apple's parade. We saw a number of die-hard fans come out to this store, here, in the marina section of San Francisco. You can take a look inside the store behind me. A few customers, but we had a bunch of people line up this morning. Of course, people got here overnight.
And you touched on it, about the new features, a lot of people want to upgrade to the new retina screen, Apple calls it, a much sharper screen. Also, that wireless connection you were talking about, a much faster wireless connection.
I think if you have the first iPad, if you can shell out the $500 to upgrade, it's probably worth doing so. But I want you to listen, now, Richard to the first guy in line who got here last night.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: I don't know, it's pretty insane, come in for a toy, really, you know? That's all I use it for is a toy. But it's pretty awesome, the whole -- I've never really been at anything like this before.
(END VIDEO CLIP)
SIMON: Well, Apple shows demand for the new iPad has been, quote, "off the charts." They sold out of all their pre-orders, so if you want to get it shipped to you, you might have to wait two or three weeks.
But if you want to get it today, Richard, you have to come to an Apple store, or you can go to one of the other US retailers that's selling them, like Radio Shack or Walmart or Target.
We're seeing Apple devices being sold in a lot more retail stores across America, and perhaps that accounts for why you're not seeing the tremendous lines that you would normally see at a store like this here in San Francisco. Richard?
QUEST: And I still -- Dan, I still don't know, because -- the core question, is it worth it if you go from the 2 to the 3? Is it incremental, sufficient, to justify that extra expenditure?
SIMON: I think it depends on your personality. If you're somebody who thinks the -- you want to have the latest and greatest device, then by all means, if you can afford it, go and do it. That resolution, that sharp resolution that you see on the new iPad really is stunning, and that really is the signature feature of the new iPad.
I think that a lot of people who have the 2 will go out and do the 3. We've seen it over and over and over again, and I don't think this is going to be an exception, Richard.
QUEST: Dan Simon, who is in San Francisco for us today. Somehow, I think I'll be keeping my wallet firmly in my pocket where it belongs.
The numbers are on track for stocks to gain across the whole week. Some disappointing economic news today, the fall in the index of consumer sentiment. There was also disappointing industrial production numbers. Apple's stock is at $585, down from the record of 5 -- of 600. The market is off just ten points. It is barely -- what one could -- it's level, pegging just at 13,241.
In Europe, it was a good week for equities. Today was the fourth straight day of gains, and it was insurers that pushed the market, after winning concessions from the EU's new capital rules, potentially saving them billions of euros and dollars.
In a moment, let the market decide. He launched StubHub in the UK, and the chief exec says there is nothing wrong with reselling tickets online. It's not scalping. QUEST MEANS BUSINESS.
QUEST: Forget the old days of buying tickets and popping down and picking them up personally. An online emporium for secondhand tickets is going global, and it started right here in the UK, today.
It's called StubHub, and it is the online marketplace where you can sell your tickets on. It's owned by eBay, and it already sells one ticket every second in the United States.
Now, this isn't, of course, prime reselling. This is where people have bought tickets and they want to flog them onto somebody else, and yes --
QUEST: You can even sell them for more than you paid. A bit of scalping and counting, in the views of some. Live in UK and now next in Europe, StubHub reckons the UK market's worth about $500 million. And that's without being able to offer tickets for the -- for football and the Olympics, which are restricted. There are legal restrictions.
Star Hub says it already has -- sorry, StubHub already says it already has more than 140,000 tickets available. I spoke to the chief executive earlier and began by asking him where the growth will come from.
CHRIS TSAKALAKIS, CEO, STUBHUB: We're an online business, so when we started in 2000, most of the trading of tickets was happening offline, through ticket brokers' offices or on the street.
And what we did is create a safe and secure environment online, a marketplace where you could see exactly all the tickets that were available for sale, the exact location of the tickets, and also the prices. And so, the growth -- a lot of it has been from taking what's offline into online.
QUEST: Right. Because the reselling or the redistribution of tickets is not new.
TSAKALAKIS: No, not at all.
QUEST: Pst! Got a couple of tickets I can sell you to the Madonna concert tonight. Pst! You want a couple of tickets for -- ? That's basically it. But you're doing it online.
TSAKALAKIS: It's online. And unlike what's done on the street, we have guarantees, we have consumer protections. And we've done such a good job of it that we're -- we have the highest levels of customer satisfaction in ticketing. We're a lot different than the tout on the street because --
TSAKALAKIS: Because we offer a guarantee. Ours is a safe and secure environment. And unlike the tout on the street who says, "This is how many tickets I have and this is the price that I want," when you come to our site, you can actually see all the tickets that are available from a variety of different sellers, not just one seller who's trying to corner the market.
The other difference is that we, StubHub, don't own the tickets that are on the site. The sellers who come to our site own those tickets. They set the prices. And we let them compete against each other in order to provide the best price.
QUEST: Where do you stand on the question of scalping? On the question of offering tickets at a higher price than the face value?
TSAKALAKIS: We think anyone who has something to sell can sell it at whatever price they want. So, if something sells for above face value, that's OK. If something sells for below face value, that's OK, too.
On our site, on StubHub in the US, where we're the largest online ticket reseller, half of our -- about half of the tickets sell for face value or below, and about half sell for above face value.
QUEST: Were the -- was the sale of the Olympic tickets in London -- a lot of noise and fuss and furor about the way it was done --
QUEST: And the tranches. What did you think of the way -- of this idea of this bidding and this online process that went through different rounds? Would you have done it that way?
TSAKALAKIS: I wouldn't. I think the intentions were good, but I think the way it was done -- it's basically uneconomic pricing. They're putting something out there, they don't know exactly what the demand's going to be.
QUEST: Would you have done a straight-forward who's prepared to pay what?
TSAKALAKIS: Yes. Exactly. And that's how most of it works. And there are going to be tickets that will sell for less than what the Olympic committee charged for them, and there will be others that will sell for more. For more than what the face value is. It's just the reality.
It's a -- what you need is, what will work is a dynamic market where supply and demand meet, that's where the market value is determined, as opposed to someone guessing what the face value is.
They can do as good a job at guessing as they want, but what we have now is a situation where lots of people didn't get the tickets that they wanted even that the price that was being offered. And then, they've been given this opportunity to buy through a resale market that doesn't work. It launched -- they tried to launch a month ago, and it doesn't work. So, that's not a great situation.
QUEST: StubHub and the selling of tickets. And no doubt, you've got some thoughts on whether or not he's scalping.
It's been a torturous journey. At last, Greece is getting its hand on the cash, and we ask where the eurozone's problem child goes from here. And some surprising thoughts -- it ain't over yet.
QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. But this is CNN, and on this network, it is the news that always comes first.
Protesters have taken to the streets in Syria, demanding immediate military intervention. The opposition says it has now other choice but to ask for outside help. The former UN Secretary-General Kofi Annan says he's now planning to send a technical team to Damascus to discuss a new international monitoring mission.