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QUEST MEANS BUSINESS
Spanish Bank Rescue Reaction; Tesco's Turnaround; Euro Fails to Keep Gains; Big Bite for Apple
Aired June 11, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, HOST: No quick fix. The appeal of the Spain deal wears thin.
A shiny new Apple. CEO Tim Cook unveils his new products.
And management in just ten words. Terry Leahy as Tesco lifts the lid on leadership.
I'm Max Foster, this is QUEST MEANS BUSINESS.
Hello to you. A rescue, a rally and, for the moment at least, in Spain, relief. Europe will bail out the country's struggling banks, providing up to $125 billion in aid. But analysts warn the deal poses more questions than answers.
The terms, including how much money Spain will need, are still being drawn up, although there will be no new austerity measures, and this has annoyed some people in Ireland. Rumblings out of the Republic suggest the terms of their deal, while relatively similar to Spain, are much tougher.
Now, on the European markets, investors reacted positively to begin with, and the rally lasted a few hours. But by the afternoon, there was a retreat, and markets in London, Paris, Madrid finished the day flat in the end. The IBEX was down half a percent on news that the ratings agency Fitch downgraded the Spanish bank Santander from A to Triple-B-Plus.
Now, it was a forgettable day for Italian markets, as well. In Milan, the FTSE MIB index was down nearly 3 percent, and at one stage, the country's borrowing costs had surpassed 6 percent. Investors worry when bond yields creep towards 7 percent and that's because it's considered a danger zone.
Now, Nina Dos Santos following developments for us from CNN Madrid. Nina, looked good to begin with. What happened in the end? Why did the markets fizzle out in that way?
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Well, it seems though when people greeted this bailout, they greeted with a note of euphoria, thinking yes, they put billions -- hundreds of billions -- at this problem.
But then, throughout the course of the day, a lot of people pointed out that there was plenty of fine print that had been left off this offer so far. So, all sorts of things are going to be hammered out over the next few days. Indeed, how much money Spain will actually need to ask for after the reported two independent audits is published in the next few days.
And then, what we'll also see is some kind of bargaining over what kind of terms Spain will be afforded. Because remember that Ireland had a banking collapse itself and had to take a sovereign bailout for the whole country. Spain is keen to pitch this as just a bailout of its financial sector.
This is what Ollie Rehn, the European Economic Affairs Commissioner, had to say just moments ago to try and shore up confidence, Max.
(BEGIN VIDEO CLIP)
OLLIE RHEN, VICE PRESIDENT, EUROPEAN COMMISSION: There's no simple fix or no single issue movement that a loan can provide one convincing single solution to the complicated problems of the complex eurozone.
In particular, in order to be able to move towards further mutualization, we must in parallel further strengthen our stability culture. We will not be able to overcome our problems by focusing on a joint issuance of debt without simultaneously ensuring fiscal sustainability.
(END VIDEO CLIP)
DOS SANTOS: So the last two parts of what he was talking about was basically a veiled reference towards the dreaded word "euro bonds." That means pooling the debt of these countries to try and make the eurozone one, finally, on the bond markets.
And it was really the bond markets where Spain really suffered today. The yield on its ten-year note came right down to six percent, but then rose a full 50 basis points higher than that in just the same session as people became very worried about the kind of terms that could be on this sheet.
FOSTER: In terms of the markets and their big concern, what are the strings attached that they're most worried about, Nina?
DOS SANTOS: Yes, depends whether you're talking about stock investors or bond investors, but for the latter, the reading really is in the fine print. And just bear with me, here, because it is quite technical.
The kind of language that we heard from the eurozone finance ministers call when they said they were going to be issuing this kind of aid to Spain meant that they would be funding this through the permanent and also non- permanent bailout funds, so it could come from either the so-called ESM, which isn't ready yet, that's the permanent one, or the EFSF, which is the temporary one.
But depending on where they disburse that money from, that could have some really severe conditions for private bond investors who could come further down the pecking order, and if it comes from the temporary fund, well, other countries, like Finland, may impose some strict conditions, like collateral, which is what they tried to do for Greece.
FOSTER: OK, Nina, thank you very much, indeed, for joining us from Madrid.
Now, boom and bust, much of Spain's debt problems stem from a volatile property market in the 17 autonomous regions, which are responsible for two-thirds of the country's deficit. Isa Suarez (ph) explains.
ISA SUAREZ, CNN INTERNATIONAL CORRESPONDENT (voice-over): First, a property crash. Then, a liquidity crisis with the banks. Now, regional governments are threatening to blow a bigger whole in Spain's finances.
It all comes down to overspending. Last year alone, Spain's 17 autonomous regions were responsible for two-thirds of Spain's deficit. Together, they account for all of all state spending.
MARCHEL ALEXANDROVICH, SENIOR EUROPEAN ECONOMIST, JEFFERIES INTERNATIONAL: Obviously, you have different governments that are basically effectively running big regions of the country, and those governments might have a very different view of how to run the economy from what the federal authorities are thinking. Obviously, that's creating conflict.
SUAREZ: Catalonia, one of Spain's richest regions, accounting for nearly a quarter of its GDP, is now also one of the most indebted. Last week, it was one of the eight regions downgraded by credit rating agency Fitch. Its cost of borrowing has soared.
ARTUR MAS, REGIONAL PRESIDENT, CATALONIA (through translator): We as the Catalan government, I don't think anyone can argue, are committed to the value of austerity. But austerity as a permanent value is one thing. Austerity as a sick obsession is something else entirely. So therefore, we send this message to the European Union: austerity yes, but not at any price.
SUAREZ: More than 280 kilometers away in Valencia, the ground zero in the collapse of Spain's housing industry, its government is also facing a liquidity crunch, with a debt pile of over $24 billion.
ALBERTO FABRA, REGIONAL PRESIDENT, VALENCI (through translator): We're making important changes in the area of a billion euros. We're tightening our belts. For example, out of the 46 public companies we had in the public sector, only six entities will remain.
SUAREZ: This regional struggle has historical and political roots. The government in Spain wants to centralize after the Franco years. Regions have the right to legislate over everything from health care to infrastructure.
RAMON PACHECO PARDO, KING'S COLLEGE LONDON: The way it works in Spain is that the central government raises taxes and regional governments can also raise some taxes. So in a sense, it is the central government distributing the money, the funds, for all the regions in Spain, and the regions decide how they are going to spend this money.
But the central government has really no say on how this money that is transferred to the regional governments is going to be spent.
SUAREZ: That may be the case, but the central government is not admitting to it. Pointing to the board, Spain's treasury minister said its regions are now meeting deficit reduction targets.
CRISTOBAL MONTORO, SPANISH TREASURY MINISTER (through translator): We are making reforms. We're cleaning up the banking system and the public sectors. And that, along with other reforms, will create growth, employment, and allow us to exit the crisis with an integrated and strengthened Europe.
SUAREZ: The problem is, Europe is not integrated enough, and neither is Spain. The disconnect between core and periphery is a national problem here, and Madrid faces an urgent struggle to bring the two together.
Isa Suarez, CNN, London.
FOSTER: Well, Ken Wattret is the chief eurozone economist at BNP Paribas, he says Spain's banking deal has come at a cost to the country's credibility. I asked Ken earlier what he thinks the wider implications of the deal will be.
KEN WTTRET, CHIEF EUROZONE ECONOMIST, BNP PARIBAS: There's still some uncertainty over the amount of finance that the Spanish government needs to deal with its banks. Our own estimate has been probably in a distress scenario at a maximum something in the region of 100 billion euros in addition to what's already been provided. So, the scale of the assistance that's being talked about so far we think is broadly appropriate.
What we haven't had concluded yet is the review of the underlying position of the Spanish banks, and once we get that, within a week or so, we should have a better idea of how much leeway there is in terms of the financial assistance that's being provided.
FOSTER: The yields on the 10-year bond were actually down a bit, weren't they, today? Down below 6 percent. But we've got these two other auctions coming up on the 19th and 21st. Is that a key focal point in terms of the Spanish economy?
WATTRET: Well, I think there is still a big question mark about the ability of the Spanish government to continue to fund itself. You've had, I guess, a positive in one respect in that the Spanish government has finally admitted that it needs some external assistance to deal with its banking sector problems.
But you still have the underlying issue, there, which is the Spanish economy's in recession, unemployment's exceptionally high, and the Spanish government is going to find it very difficult to deliver on the targets for the budget deficit both this year and in subsequent years.
So, in that respect, you have one acute problem being dealt with, which is the worries about the banks, but then you have a chronic problem, which is still to be dealt with, which is how you deliver fiscal consolidation in a period of very weak economic conditions.
FOSTER: And the next big test, I guess, in terms of the eurozone, the wider eurozone, is actually the Greek elections on the 17th of June. Could that knock things sideways if there's a really negative anti sort of market response there?
WATTRET: Well, you have a number of different issues going on in the euro area at the moment, and as I said, the initial reaction to the news on Spain was quite favorable. But of course, you have a number of ongoing issues, one of which is the uncertainty over Greece and the possibility that the debate could grow about a potential exit from the single currency.
And of course, the election result over the weekend upcoming will be hugely influential on sentiment. There's a huge amount of uncertainty over that issue. It's a very difficult election to call until we have a clearer idea of what the consequences of that election will be. Their markets are likely to remain relatively fragile.
FOSTER: And whilst all this is going on, a really worrying thing on the Italian bond markets, because the yields there are rising, aren't they? So, what's going on there?
WATTRET: Well, it's the same problem. You've had good news in relation to one specific issue for Spain, and that this problem in the banks is being dealt with. But you have this wider issue.
I mentioned in the context of Spain worries about the state of the economy and how governments are going to deliver on the fiscal side, and I think that question mark is still very much for Italy.
The economic data flow that we've had from Italy's been pretty awful. It's probably just been going under the radar because of the focus on the news elsewhere, and that makes it very difficult for the Italian government to deliver on its fiscal targets.
Of course, you have the same issue there. Can the Italian economy grow at a sufficient margin to stabilize the public sector debt? And until that issue is clearer one way or another, again, you have markets remaining very concerned.
FOSTER: Well, he's turned around Tesco's, now he's offering his advice on management. An interview with Sir Terry Leahy for you after the break.
FOSTER: Now, struggling to win back shoppers, like many of its customers, Tesco's is feeling the pinch and knows too well the meaning of its catch phrase, "every little bit helps." Here's why.
The UK's largest supermarket company has reported crumbling UK sales for a fourth straight quarter. The retailer blames the tough economic client and falling disposable income. The news forced chief executive Philip Clarke to defend his billion-dollar recovery plan, announced after the company's first profit warning in over 20 years. Tesco shares in London finished their session exactly where they started, at 302 British pence.
Now, former CEO Terry Leahy joined Tesco straight out of university and, 25 years later, turned it into the world's third-largest retailer. Terry Leahy entered the supermarket chain as a marketing executive in 1979, was appointed to the board in 1992, and was CEO by 1997. He was 40 years old.
When he became chief executive, Tesco was the firm underdog, really. After his stewardship, Tesco built its share of the UK market to 24 percent. By the time he left, at least one in every eight pounds spent with a UK retailer was with Tesco.
Terry Leahy was knighted in 2002 for his services to food retailing. He retired from Tesco early last year. Since then, he's been putting his wisdom down in a book, "Management in Ten Words." I asked him earlier which of the ten was the most important.
TERRY LEAHY, FORMER CEO, TESCO: I think truth. It's very hard for an organization to see itself as others see it, to know what's going on in the world around it. But if you can really use good data, good insight, and be honest and find out what's going on, that's a great starting point for a strategy.
And then the final one is trust, that a leader not only has to gain trust, but they have to trust people in the front line to do their job. And that's the basis of motivating everybody in an organization. If you feel trusted, your confidence grows, you prepare to take more responsibility.
FOSTER: You almost have to learn from your mistakes, as well, don't you? Are there mistakes that you thought were particularly valuable lessons to you?
LEAHY: Yes. I've always seen success and failure as two sides of the same coin. You can't be a success without making mistakes. You mustn't punish mistakes, because people won't show initiative again.
FOSTER: What was the big one?
LEAHY: Oh, I remember our first advertising campaign when I became marketing director. It was awful.
FOSTER: Plainly awful.
LEAHY: It was pretty bad. We didn't have a success when we went into Taiwan. We didn't choose that country correctly. There are lots of mistakes. And that's the great thing about business. You can make mistakes, but you can still recover to have a success.
FOSTER: You're heralded as Britain's most successful businessman because of what you did with Tesco and the scale of the operation. Is there one thing that you always had in your mind, is there a simple message you always woke up thinking about?
LEAHY: I think it was the customer. I grew up as a marketing person and was taught that you always start your business with the customer. You don't --
FOSTER: What they want.
LEAHY: What they want. You don't start with what you have, product and services, and try and sell or impose those on the customer. So, I think that was the single message, start your business with the customer and what they want.
And you've got to work hard to find out what they want. You need research, Club Card was very important for us because --
FOSTER: Club Card's your loyalty card that you created.
LEAHY: Yes --
FOSTER: And that's -- you said that that's actually was partly crucial to Tesco's success, but in what way?
LEAHY: Because it gave us so much new information that nobody had ever had before about customers, how they shopped, what they bought, what they needed from us.
FOSTER: Was that them talking back to you, then, about what they wanted?
LEAHY: It was, yes. And that insight allowed us to develop information and products and services that were better tailed to customers. And it was really the start anywhere in the world of using data to help develop your relationship with customers. And of course, today with social media and the internet and everything else, it's so much larger.
FOSTER: In the past, supermarkets would target at a particular type of branding, whereas you broke down the branding, didn't you, in stores? You had cheap products, if I can call them that, and ten high-end products, as well, on the same part of shelving. Was that something -- what was the story behind that?
LEAHY: Well, we always tried to make Tesco classless so that everybody was welcome in the store and everybody, whether you were on income support or a millionaire, could find something in the store for you.
One way we did that was to have different types of own brand, from economy, value ranges right the way through to finest luxury goods. Actually, people of all incomes shop right across the range, though in different quantities. But people always felt there was something for them in Tesco.
FOSTER: But that was a big gamble, wasn't it? Because people that go in buying your finest products, for example, finest meats, don't -- the assumption would have been that they wouldn't want to have the cheap products next to it. Even the -- the cheaper customers next to them.
LEAHY: It was a gamble, and I remember when we introduced our value range, the economy range, after many years of trying to move upmarket to emulate Marks & Spenser and Sainsbury. Our shareholders were appalled at the idea. But actually, we'd listened to customers, and they needed their money to go further, and it proved to be a big success.
FOSTER: What did you learn about customers, because you had done something new. You'd obviously learned something new about customers.
LEAHY: Well, I think what we learned is that while businesses change relatively slowly, industries change slowly -- you think about the supermarket industry, it's not a massively growing industry. People's lives change a lot. They change all the time, what they're interested in, what's effecting them, what they're worried about.
And as of that change comes new needs. And if you can get very close to customers, you can be the business that spots that new need and can respond to it.
FOSTER: And we'll hear more from Terry Leahy tomorrow when the former Tesco CEO tells me why emerging markets are so important.
Now, your Currency Conundrum. Where in the world could you find a local currency called the "hour." Is it Ithaca, New York, Bristol in the United Kingdom, or Nimbin, Australia. I'll have the answer later in the program.
And initially, positive reaction to Spain's banking rescue quickly faded on the currency markets. The euro in particular failed to hold onto gains. It jumped to a session high against the dollar in the immediate aftermath of the bailout and now since that, it is now back below $1.25. Sterling is also struggling. The yen is flat.
FOSTER: Now, Apple is unveiling its latest technology right now at its worldwide developer conference in San Francisco. The keynote speeches are underway, none more important, perhaps, than from the chief executive, Tim Cook, who unveils the company's next generation notebook, among other things.
(BEGIN VIDEO CLIP)
TIM COOK, CHIEF EXECUTIVE, APPLE: And the teams at Apple have been hard at work to deliver even more innovations, so you can take your ideas even further. Today, we're announcing exciting changes in our notebook lineup, and major releases of OS 10 and iOS, the world's most advanced desktop and mobile operating system, making them even better so you can make even more amazing apps.
(END VIDEO CLIP)
FOSTER: Larry Dignan is editor-in-chief of ZDNet. He joins me now, live from Philadelphia. You'll have to help us explain this one to the wider audience. When they're talking about the software in particular, what sort of things are the iPhone, for example, going to be able to do now?
LARRY DIGNAN, EDITOR-IN-CHIEF, ZDNET: Well, the biggest thing -- one of the biggest things they just introduced was a preview of iOS 6, which is the next gen iPhone and iPad operating system.
And one of the bigger things here is Siri, their voice-activated -- I guess you can call her an assistant, she's getting smarter. Like you're supposed to be able to ask her baseball scores and baseball stats, and she'll get back to you with real answers, which will be a big improvement over Siri today, because my experiences with her have been a little dreadful.
FOSTER: I never really understand the use of that, though. Is that when you're in your private space and you're talking to your phone? Because you're not going to do it out and about when you're in a hurry, are you? What's the thinking behind Siri?
DIGNAN: Well, the thinking -- one of the things they're doing is they're making Siri hands-free, so you can basically ask her to launch an app and she will. And they're also doing deals with car makers so you can integrate her into the steering wheel. So, Apple has pretty big plans for the Siri voice activation system.
FOSTER: Yes -- sorry, carry on.
DIGNAN: I was going to say, the other big thing they're doing with iOS is integrating Facebook. So, your Facebook will be integrated with the iTunes store, iOS, iMessage, and all that kind of thing. So, it could drive Facebook usage pretty nicely.
FOSTER: And what about hardware and new hardware announcements? What do we get from that?
DIGNAN: They refreshed the Macbook Air, which is their really thin -- it's about as thin as a piece of paper -- and their Macbook Pros. And the big thing there is they added a retina display, which the short version is, it's basically super-high def. It's more than 5 million pixels, which for the average bear, just means it's much more crisp and clear.
FOSTER: And in terms of the iPhone, everyone's very keen to find out when the latest one is coming out, but are we going to see that this year? They're talking about the software. Does that imply that the phone is out soon, as well?
DIGNAN: Yes, typically the cadence is they do -- they introduce software or at least some new features right around June, and then you'll see a new iPhone probably in the fall. Typically, they do it right before the Christmas season.
FOSTER: And is this enough to put it ahead of the new Samsung, do you think?
DIGNAN: My guess is it will be. We only have rumors to go on right now, but the rumors that have been circulating is that the screen will be bigger and it'll be 4G, which right now, the iPhone isn't 4G, and that's a pretty big handicap, at least in the US.
FOSTER: OK. Thank you very much for joining us. We'll wait and see if there are any more announcements coming out of that speech currently taking place.
Next, rising fuel costs force Flybe's profits down. We speak to the CEO of Europe's biggest regional airline.
FOSTER: Welcome back to you. I'm Max Foster, these are the main news headlines this hour.
Former Egyptian president Hosni Mubarak is now in a full coma, according to a government spokesman. His attorney describes Mubarak's condition as very critical. His two sons, Gamal and Alaa have been given permission to be at their father's bedside in prison.
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(WOMAN CHANTING IN SPANISH)
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FOSTER: Spaniards are protesting their government's request for $155 billion to bail out its bankrupt banks. The protesters want to know why the banks are getting help for their enormous mistakes whilst nothing will go directly to help Spanish people.
UN envoy Kofi Annan says he's gravely concerned about the latest reports of violence in Syria, including more new shelling in the flashpoint city of Homs. Opposition groups cited escalating bloodshed all over the country on Monday, with some 61 people reported killed so far.
Former British prime minister Gordon Brown testified on Monday before the committee investigating media ethics in the UK. He said one of Rupert Murdoch's newspapers never got his or his wife's permission to run story about their son's medical condition. That's a direct contradiction to testimony from Rebekah Brooks earlier this year.
FOSTER: Well, the airline industry's been given a dire outlook for the year ahead. Global profits are staying down and airlines will go bust. That's the warning, given today by the industry group International Air Transport Association. It's especially ominous for European companies. IATA has doubled the forecast loss to more than $1 billion. There are lots of reasons behind the bad news.
At top of the list, surging oil prices and the (inaudible) effects of the euro crisis. Well, the euro's biggest regional airlines, Flybe, is feeling the strain today. It announced losses of more than $11 million in the year to March. I asked the CEO, Jim French, to explain why.
(BEGIN VIDEO CLIP)
JIM FRENCH, CEO, FLYBE: The loss this year is about 61/2 million pounds and you know, you usually think that this year the challenge you have seen is the U.K. domestic market, the consumer spend is still being very much restricted. Oil, the annualized cost of oil this year is the highest ever recorded in history, with 12 percent higher than ever before.
Departure tax continue to increase and IATA today came out and said that the U.K.'s departure tax is now the highest of any country in the world. So those three things combined made it a real challenge for us this year. But we still grew the business by over 14 percent.
The other thing we've got to remember, during this -- in this 61/2 million loss is that there were some very big strategic investments this year. We invested just under 4 million pounds in our first year losses on an airline we acquired in Finland in conjunction with Finncomm.
A significant number, 65 million pound turnover business this year, which we're forecasting will grow to about 120 million a year, and then (inaudible) the training academy, of course, opened the new training academy, about another million. So the actual (inaudible) was about a 4 million profit to 1 mission loss.
FOSTER: It's interesting, obviously your business is particularly affected by oil and fuel prices, but it seems as there are many businesses being affected more than -- more by oil prices right now than the euro crisis, which is grabbing all of the headlines. Is that true to say, would you say?
FRENCH: For us, I would say so, yes. I mean, the crisis in the euro is really southern Europe at the moment, and we have a tiny operation to Spain, really nothing else. We were very (inaudible). And of course the northern operation is, thankfully for us, Norway, Scandinavia and the Baltic region is less exposed. So we've got very little exposure to any concern --
FOSTER: But looking ahead, those countries will also be affected if there is an implosion of some sort in the Eurozone. Have you made preparations for that? Are you concerned about that?
FRENCH: At the moment, we're seeing -- we haven't seen any significant (inaudible). We have a lot of business routes, European routes serving the U.K. regions. We haven't seen any significant deterioration there. But you're absolutely right.
There may well be a deterioration during the course of the year, in which case we'd respond. We have high-frequency operations in there. We can cut frequency, et cetera. But there's no sign at the moment of any significant deterioration.
FOSTER: So other British business, it seems, actually you're probably looking more to what's going on in the Middle East right and how that might affect fuel prices.
FRENCH: Oil's the big issue. I think it's very interesting that somebody said about 4-6 weeks ago, they want to see oil come back to about $100 a barrel. It's come a little bit below that. We thought for about six months it'll probably come to $100 plus or minus $10. At that level, that's fine for us. So that's going to be stabilized.
No, I think that, you know, it's quite interesting, you know, as a regional airline, we see some opportunities coming out. The -- it's quite interesting; Manchester and Birmingham airports are looking to develop now taking some of the overspill from (inaudible) --
FOSTER: (Inaudible) growth coming from in regional transport?
FRENCH: Well, it's quite interesting. At Manchester, we (inaudible) -- we sort of recalibrated all of our networks into a hub concept. And what's happens, there's (inaudible) having a real hub there with massive (inaudible) from the U.K. through Manchester. The intercontinental carriers from that airport are saying, hey, we can take this speed (ph) from you.
Some of the carriers at Heathrow currently who rely upon the feed (ph) at Heathrow are now looking at British Airways, their primary competitor, as the major supplier, and they're now saying, actually, we need an independent feed (ph) and that can be provided by us at Manchester.
FOSTER: (Inaudible) happening across Europe, would you say?
FRENCH: Well, you've seen this development of a hub strategy, you know, Amsterdam Schiphol was the first, then Charles de Gaulle Frankfurt, Helsinki now. Dubai, I mean, if you look at the services to Dubai from the U.K. now, they are, you know, very considerable number of flights now. So I think that the congestion, the lack of capacity through has been serving these intercontinental European hubs.
(END VIDEO CLIP)
FOSTER: Interesting perspective there from a regional carrier.
Well, all day we've been following the market reaction around the world to Spain's decision to ask for help to stabilize its troubled banking system. We've seen the markets post early gains and then retreat from those rallies later in the session. Let's to Alison Kosik at the New York Stock Exchange.
Alison, I guess -- I mean, everyone's just trying to make sense of this, and it's a struggle, isn't it?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: It really is. I mean, you saw that excitement over the bank deal really fizzle out pretty quickly here on Wall Street. Literally within the first hour of trading today, and here's part of the reason why.
It's a very narrow solution. It takes care of one problem; it doesn't deal with the broader issues of the European debt crisis. One analyst puts it this way, saying, you know what, there's no growth plan with this. There's no structural reform.
And guess what? Spain's economy is still in a lot of trouble. There also are still a lot of questions about how the funds are actually going to be distributed, plus investors are waiting for the next possible bombshell.
Greek elections are coming on Sunday. That could ultimately determine whether the country stays in the Eurozone. So maybe it's not too surprising that buying into the market didn't last. Also, remember stocks are coming off the best week of the year. So maybe you're seeing some profit taking as well, Max.
FOSTER: Alison, thank you very much. Watching that all week of course.
You're watching QUEST MEANS BUSINESS. Coming up, all the latest weather and Warner Brothers brings movie magic to the U.K. for good. We'll go behind the scenes at the new state-of-the-art studios that Harry Potter built.
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FOSTER (voice-over): For now for the answer to our "Currency Conundrum," earlier I asked where would you find the little currency called the "HOUR?" The answer is A. The Ithaca HOUR was created in 1991 as payment for one hour's work. Today the HOUR or 1 HOUR is worth $10. But in recent years it's started to fall. (Inaudible).
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FOSTER: Now Warner Brothers, which is also owned by TimeWarner, parent company of CNN, has just thrown open its doors to its very first film studio outside the U.S. and as Ron Weasley would say, It's wicked."
The Leavesden Studio's famous across the planet as the home of Harry Potter films. But just outside London, the goblins' Gringotts Bank might splash across to read out newsdom (ph). Almost $200 million. But Warner Brothers says the facility's the biggest and the best and they ensure the future of British movie making. CNN's Neal Curry spoke with Josh Berger, president of Warner Brothers U.K.
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NEAL CURRY, CNN CORRESPONDENT (voice-over): For those who just can't get enough of Harry Potter -- and there are many -- a chance to go behind the scenes and discover the secrets of the young wizard's magical world is an irresistible one.
Warner Brothers Studio Tour London, the making of Harry Potter, provides the opportunity to explore the dark secrets of Diagon Alley and Hogsmeade and walk through the great hall of Hogwarts School of Witchcraft and Wizardry, a visitor attraction at Leavesden Studios north of London is expected to be a popular and profitable ambassador for Warner Brothers.
But you have to take a broomstick flight over the site to discover the real magic behind the company's movie making ambitions in the area.
After renting the site during the production of Harry Potter, Warner Brothers have now bought it and spent almost $200 million redeveloping and building new facilities.
JOSH BERGER, PRESIDENT AND MANAGING DIRECTOR, WARNER BROS. U.K.: It's our first move outside of America, planting our flag and making a sizable investment. This is over 100 million pound investment. It's important for the film industry here, because it's going to add 35 percent to the capacity of the British film industry in terms of stage space.
What we have here is a state-of-the-art film facility and television and any kind of production, nine sound stages across 250,000 square feet and one of the biggest backlots in all of Europe.
CURRY: While Leavesden Studios is best known for the eight Harry Potter movies made here, it's also been home to some other famous blockbusters, from James Bond's "GoldenEye," to "Charlie and the Chocolate Factory," and more recently, "Wrath of the Titans." Behind me is Baker Street, home to Robert Downey Jr.'s famous detective, Sherlock Holmes.
CURRY (voice-over): Having worked at Leavesden Studios for almost two decades, Dan Dark knows more than a little of the history of the place.
DAN DARK, SVP AND MANAGING DIRECTOR, WARNER BROS. LEAVESDEN: So we're now in D Stage. This is a 10,000 square feet stage. But it's also got Europe's largest underwater filming tank. This is where we filmed all of the underwater sequences in the Harry Potter films.
CURRY: So this could be movies, music videos, whatever, really?
DARK: It can be used for any kind of underwater filming, whether it's for the big budget Hollywood films or commercials, even still shoots.
CURRY (voice-over): While the facilities are expected to attract other filmmakers, TV productions and music videos, Warner Brothers is expected to be the biggest user of the site. And Berger says work is set to begin on a new production soon, encouraged by the British government's tax breaks for filmmakers.
BERGER: It's very important, but it's an important piece in a big puzzle. And you know, the skill of the -- in front of the camera, behind the camera, talent here is incredibly important as well. The fact that it's the English language, people want to come and make movies in Britain, you never have to convince a movie star to come here.
CURRY (voice-over): The end of the Harry Potter franchise brought to a close a successful chapter in the story of British film production. The opening of Hollywood's first major British studio brings an opportunity to continue writing the script -- Neal Curry, CNN, Leavesden.
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FOSTER: Well, you don't have to worry about weather in studios. This (inaudible), but the rain finally quieted enough to finish the French Open. But what else is in store for Europe's weather? Meteorologist Jennifer Delgado is at the CNN International Weather Center with more on that.
JENNIFER DELGADO, AMS METEOROLOGIST: Hi, Max. You know, the last time we've actually seen the French Open end on a Monday, that was back in 1973. So luckily, yes, we are finally able to get that over with. But there's still rain out there.
And you can see on the radar, in the blue and the red, where the rain is coming down, of course we're still seeing some heavier pockets popping up through southern parts of France as well as into parts of Germany.
So this is going to be the pattern as we go through today and really through tomorrow and that means more wet weather for parts of the U.K., down towards the south. You're going to be looking at more heavy rainfall.
But we're also going to have to add in some severe weather, and that threat is going to stick around through Tuesday morning. Anywhere you're seeing in yellow, extending from Italy all the way down towards areas including Macedonia, Rumania and then we have another bull's eye for the Ukraine up towards Russia.
And that means any of these storms could potentially produce some storms that develop strong winds as well as large hail and, again, the possibility of some tornadoes out there. Warmer temperatures are going to be in the gold out there.
You can see through the south as well as over towards eastern Europe, we're talking temperatures in the 20s, Istanbul, Athens, you're going to be our warmer areas, with temperatures in the upper 20s as well as the lower 30s. And then for Paris as well as into London, we're looking at your number generally in the mid-teens, running a bit cool for this time of the year.
Now a big story coming out of the U.S., firefighters battling wildfires, burning uncontrollably through the U.S. state of Colorado. And it's happening in an area roughly about 100 kilometers away from Denver. It's just to the west of Ft. Collins.
We do know 150 square kilometers is burned. As I show you some of the video here, firefighters have been dealing with so many wildfires over the last several weeks, through parts of the central part of the U.S., I should say the southwest, that firefighters are now coming in from Canada. And the rough terrain is making it even harder to actually contain this fire.
Seeing a lot of mountains out there, and of course, when you're dealing with smoke like this, this is bad for those with any type of breathing conditions. Now unfortunately, we don't have any significant rainfall in the forecast.
You can see very quiet, the rain, all the way over towards the east, affecting parts of Missouri and down towards the Gulf states. Things are drying out very slowly after record rainfall over the weekend, Max. Turn it back over to you --
FOSTER: OK, Jennifer.
DELGADO: -- rain was bad, but down towards the south. It's been pounded, too.
Well, we have it all the time; we still complain about it.
DELGADO: Yes, I know. And you have every right to.
FOSTER: Cultural thing.
FOSTER: Jennifer, thank you very much indeed.
Coming up, Africa eyes fracking, a major energy company set their sights on natural gas in the South African wilderness. We'll look at a controversial drilling technique and the resistance against it.
FOSTER: Now for the first time in a decade, OPEC is expecting to maintain oil output growth as while prices plunge. The organization's 12 members meet this weekend in Vienna, and crude has fallen 22 percent in London since the 13th of March.
Today, prices were initially up following the Spanish banks bailout deal, but gains have eased significantly since then. Both Brent and NYMEX crude are down around 2 percent. And while OPEC is focused on oil, some companies have their sights on natural gas in South Africa, and they're looking towards a controversial drilling technique called fracking to help meet energy needs.
As Robyn Curnow now reports, it's already meeting with strong resistance.
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ROBYN CURNOW, CNN HOST (voice-over): In the barren wilderness of South Africa's Karoo, plans are underway to begin drilling for natural gas contained in a rock called shale deep within the Earth. Several large energy companies, such as Shell, have leased rights to begin fracking here, and they're waiting for final approval from the government to begin drilling.
BONANG MOHALE, CHAIRMAN, SHELL SA ENERGY: We have an amazing opportunity here as a company to create a brand-new industry that can give the people of the Karoo but also the 50 million South Africans energy, environment and economic benefits.
CURNOW (voice-over): Jonathan Deal has written a book on the Karoo and is now leading a campaign against fracking in this area.
JONATHAN DEAL, CHAIRMAN, TREASURE KAROO ACTION GROUP: Yes, it is a very special place. It's irreplaceable, and my concern is that we could make decisions chasing fossil fuels in this country where this generation is making a decision that is going to affect unborn generations, who may not be too happy about it.
CURNOW (voice-over): Controversy surround the way the drilling is done, down and sideways into the shale rock. Large quantities of water and other chemicals are injected. This fractures the rock, releasing natural gas trapped inside the shale.
The Karoo has a unique and delicate biodiversity that energy companies say they will protect, but campaigners believe fracking could kill wildlife and this area's limited water supply could be contaminated. According to a recent report by a South African think tank funded by Shell, terms (ph) like this the country as a whole could get an economic boost if fracking goes ahead.
ROB JEFFREY, ECONOMETRIX: The successful development of the shale gas reserves would result in approximately $11 billion to $30 billion contribution to the South African GDP. By the same token, there would be a significant impact on employment.
CURNOW (voice-over): But others believe the employment case for fracking has been exaggerated.
PEET DU PLOOY, TRADE AND INDUSTRIAL POLICY STRATEGIES: The report cites a number of 700,000 jobs, which is more jobs than the entire mining sector combined. It's -- I can understand the motivation to cite such a high number, but I don't think it's realistic.
CURNOW (voice-over): In America, the debate is just as fractured. In Ohio, there are accusations that fracking has caused earthquakes and the water was so contaminated it could be ignited.
In France after widespread protests, the drilling technique has been banned altogether. Campaigners in South Africa believe that the lack of international and scientific consensus on the benefits and the environmental impact of fracking means it should not be allowed to happen in the Karoo.
DEAL: There have been 110 places around the world, at least 110 places, fracking is either completely banned or under some form of moratorium or restriction. And whilst that's happening in the international community, as far as we are concerned, there's a very big question.
South Africa is the place at the moment where we still have an opportunity to decide whether we're going to allow it into this country or not.
CURNOW (voice-over): The South African government has stopped licensing while it studies all the arguments. But the state of this fragile landscape could be decided by the end of July -- Robyn Curnow, CNN, South Africa.
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FOSTER: Staying with fuel stories, more than a decade after Honda unveiled its first fuel cell vehicle, hydrogen car technologies are still waiting to take off, really. But now Japanese car makers are turning to new technologies to get hydrogen cars on the road.
Kyung Lah reports.
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KYUNG LAH, CNN CORRESPONDENT (voice-over): Hideaki Tateno never thought he'd live to see this day, when his car for his government job as a driver for Saitama prefecture doesn't run on ordinary gas.
LAH: Do you feel like you're driving the future?
LAH (voice-over): "It's a good thing," he continues. "We're helping to solve the climate change problem."
The car is Honda's FCX Clarity, a hydrogen powered vehicle. The fueling station? Solar powered. It's an experiment for the city using the car for daily business. Call this setup super-green, only sun and water power this car and station. No pollution in or out.
"We're developing this technology with a strong belief that the ultimate future in green cars is hydrogen, says Honda's chief engineer for this project. Green fuel stations, zero emission hydrogen cars, you're looking at what Honda's betting will replace the gas-guzzling cars of today.
LAH: The big problem? Infrastructure. It doesn't take much to build this, an electronic charging station that charges your car because the electric grid already exists. You can't say the same about hydrogen.
ERIC CHENG, HONG KONG POLYTECHNIC UNIVERSITY: We really affect the economy for hydrogen, for example, like the storage, the piping, the generation of hydrogen, all these things (inaudible) a lot of the work.
LAH (voice-over): Hydrogen has baby-stepped out of concept to usage. Hydrogen buses are on the road in Europe and in Japan. Honda's FCX Clarity is in mass production. But the high cost of the vehicle and the lack of fueling stations have put the brakes on car sales really taking off.
Japanese automakers, working with cities like Saitama hope to figure out how to get over the hurdles and make hydrogen commonly available by 2015, the same year Hideaki Tateno is set to retire. He hopes to be driving a workable present-day solution by then -- Kyung Lah, CNN, Saitama, Japan.
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FOSTER: Warren Buffett has lost his touch for making millions, it seems. An enormous bidder has just paid a record $3.5 million at an eBay auction to have lunch with the legendary investor. The money goes to Glide, a San Francisco-based charity organization that Buffett supports. (Inaudible) helped raise more than $11.5 million for the anti-poverty group.
And the winner of the last two auctions actually ended up getting more than lunch. He got hired. No word yet on whether this year's winner is also hoping to join the team of Berkshire Hathaway.
We'll have a quick look at the markets for you as we come back after the break. It's been an up-and-down day. We need to give you the latest.
FOSTER: We're just taking a look at the big board in New York. It was up earlier on news that a bailout was set for Spain. But as the realities of that sets in, how much money will be needed, what strings will be attached, the analysis of it, and the markets have turned down, just as they did in Europe. So currently the Dow down 61 points, down half of 1 percent.
The IMF has welcome the Eurozone's decision to help Spain. The proposed funding gives assurance that the fund actually meets all Spain's banking system will be fully met. Christine Lagarde spoke to chief international correspondent Christiane Amanpour and said Spain must reform its banking system.
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CHRISTINE LAGARDE, INTERNATIONAL MONETARY FUND: on the structural reforms, you know, the markets, the labor market reform, the product market reforms, the health care reform, all of that is -- they're doing very, very steadily and conscientiously.
There's one sector which is under review and scrutiny, and that is the financial sector.
AMANPOUR: The banking.
LAGARDE: The banking sector has to be, you know, strengthened. Some of it needs to be restructured and this is something that is really happening as we speak, because there have been announcements.
There is work underway at the moment, and we hope that this is going to be heading in the right direction so that all the efforts undertaken on the other front, fiscal and reforms, are not in vain, because the banking sector would not be recapitalized and strengthened.
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FOSTER: And you can see the rest of that interview with Christine Lagarde on "AMANPOUR" in just a few moments from now.
That is QUEST MEANS BUSINESS, I'm Max Foster in London. The news headlines are next.
FOSTER: Former Egyptian president Hosni Mubarak is now in a full coma, according to government spokesmen. (Inaudible) describes Mubarak's condition as "very critical." His two sons, Gamal (ph) and Allah (ph) have been given permission to be at their father's bedside in prison.
U.N. envoy Kofi Annan says he's greatly concerned about the latest reports of violence in Syria, including more new shelling in the flashpoint city of Homs. Opposition groups cited escalating bloodshed all over the country on Monday with some 61 people reported killed.
Finally after protesting their government's request for $125 billion to bail out its bankrupt banks. The protesters want to know why the banks are getting help for their enormous mistake while nothing will go directly to help the Spanish people. Spain's unemployment rate is a staggering 24 percent.
France and England's opening Euro 2012 game, anyway, ended in a draw. (Inaudible) gave England the lead with a header set up by Steven Gerard of France with level before halftime with a goal from (inaudible) Manchester teammates (inaudible).
That's a look at some of the stories we're watching for you on CNN. "AMANPOUR" is next.