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Spanish Bond Yields Hit Eurozone Record; European Markets Review; Contagion Concerns; All Eyes on Europe; US Markets Up; Bleak Outlook at Airline Summit; Euro, Pound, Making Comebacks; World Bank Warns of Increased Uncertainty

Aired June 12, 2012 - 14:00   ET


MAX FOSTER, HOST: No mercy from the bond market. Spain's borrowing costs soar to a record just days after its bailout.

The pressures of being an airline CEO.


ALAN JOYCE, CEO, QANTAS: I've had to deal with natural disasters, like volcanoes. I've had to deal with operational issues, like the engine on the A380 exploding. I've had to deal with the grounding of the airline after three months of industrial action.


FOSTER: We're at the IATA conference, where things can only get better for Qantas.

And a BRIC bombshell: India battles to avoid junk status.

I'm Max Foster, this is QUEST MEANS BUSINESS.

Now, good evening to you. As the situation worsens for Spain, there's mounting evidence that Europe's problems will not be contained.

Tonight, we'll be hearing from a former advisor to US president Bill Clinton on the impact on the US. We'll be talking to the author of a new World Bank report, which warns the developing world will feel the fallout from Europe. And we'll hear form several companies in the twin threats: Europe and oil.

First, though, Spain is suffering from a cruel irony. At its weakest ever moment in the eurozone, the price of relief has never been higher. The yield on its ten-year bonds hit 6.83 percent today, a record since the eurozone began. It's since settled at around 6.7 percent. In the meantime, Fitch has also downgraded 18 more Spanish banks.

Our Madrid bureau Al Goodman is in the Spanish capital for us tonight. Describe the feeling there in the financial sector, at least, about what's going on. Is it in control?

AL MADRID, CNN MADRID BUREAU CHIEF: Where's the euphoria? Where -- where did it go? Because it was just over the weekend that the salvation for the Spanish banking sector was announced when this deal between the Spanish government and the euro group, which said that it would make available $125 billion, 100 billion euros.

Spain still hasn't ponied up to say how much of that they'll actually need, and the details have not come out, and that's what analysts say is really prompting all of these problems, with the rising yield on the ten- year bond.

The stock market really doing nothing after a strong open on Monday morning. This day, it finished just in positive territory by the barest of margins after dropping yesterday. So, really a lot of nervousness here, and you can certainly see that from outside of Spain as international investors are placing their bets. Max?

FOSTER: We're not going to get any more information from Europe, are we, until we get this audit of the banking sector? So, where exactly are we on that?

GOODMAN: Well, they're trying to suffer through, here, and they get one blow after another. Fitch downgrading the 18 banks, now, mainly those are domestic banks, mainly those are the former savings banks that got so - - that had so many problems with the real estate loans.

But there were a couple big ones, the Caixa Bank, the behemoth in Barcelona, and another one called Banco Popular, Max, where I happen to have an account. Max?

FOSTER: OK, good luck with that, Al. No one's escaping this one, are they? Al Goodman in Madrid, there.

Now, stock markets in Europe still managed to make some gains in today's session, remarkably. Doesn't really make sense, but here we are. Spanish stocks finished more or less flat. The only country where stocks fell was Italy, where banks took a real pummeling.

Borrowing stocks there are on the rise, as well. The yields on ten- year bonds is now at 6.18 percent, so another worry.

Now, the Italian prime minister, Mario Monti, has a rubbish comments made today by Austria -- where are we? By Austria. Maria Fekter said she thought Italy might soon need a bailout. Mario Monti said it was inappropriate for finance ministers to talk about another country like that. But Fekter has since climbed down. She said today that there are no signs that Italy needs a bailout.

Going onto Cypress, also brought into the fray. It could be the next in line. Its banks are heavily exposed to Greece, and its finance minister says the country's need for outside help is "exceptionally urgent."

Always a factor here is Germany, the powerhouse and driver, it's got a lot of the money going to these countries. In Germany, Angela Merkel is still pushing structural reforms as a solution. She says it would be disastrous if countries gave up on their reform plans halfway through, and that Europe can only succeed with more centralized control.


ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): We do want Europe. We do want more Europe. But I want a Europe in which it is always made certain that joint accountability and joint control are always in one hand. It cannot be that accountability is a common task and control is left to the national responsibility.


FOSTER: Well, Mrs. Merkel's policy are under scrutiny both inside and outside the eurozone. US president Barack Obama says Europe needs to focus on more than just austerity. Robert Shapiro is the chairman of Sonecon. He's also a former US Undersecretary of Commerce for Economic Affairs and an advisor to the IMF. Thank you so much for joining us.

We've heard how -- a lot in the US media about how Chancellor Merkel, actually, has a key role in the upcoming US elections. But really, what is Obama thinking when he's looking at Europe right now, because it seems to be spreading, if we can call it contagion. It does seem to be spreading, if we talk about countries like Cypress, now, as well.

ROBERT SHAPIRO, FORMER US ECONOMIC ADVISOR: Yes, well, I think the president is taking a deep breath when he looks over at Europe. He's hoping that Germany will finally recognize the inevitable, and that is that the European economy -- the eurozone cannot be rescued unless the full faith and credit of the whole stands behind the full faith and credit of the parts.

And that means Germany, France, the Netherlands are going to have to stand behind Italy and Spain and probably Portugal and Ireland, as well.

Greece, I think, most economists think really can't be rescued. What we're really seeing now is an attempt to set up an orderly mechanism for the exit of Greece from the eurozone. That will be a catastrophe for Greece, but it -- if other arrangements are made, it could preserve the eurozone.

FOSTER: Very, very worrying. Of course, Spain is worrying. It's a much bigger prospect than Greece.


FOSTER: But when we're talking about Italy and bond yields rising there and banking stocks being hit, then really, this is becoming a major global problem, because that would directly affect US markets, wouldn't it?

SHAPIRO: Well, if you were to see a collapse of the sovereign debt markets in Spain and Italy, you are talking about a Europe-wide banking crisis. Most of the large banks would be technically insolvent under those conditions.

After all, the largest banks in Spain -- in France and Germany alone hold $600 billion in Spanish sovereign debt. They hold even more in Italian sovereign debt. Under those conditions, you have a global event, and that of course, would have significant effects on the world's largest economy, the United States.

FOSTER: It's interesting to look at Cypress, isn't it? Obviously, not a major economic player, but they're not actually looking for -- looking to Europe for a bailout. They're looking to Russia, it seems. Some suggestion that they're looking for Russian money to help them out.

But there's politics playing into this, now, as well. How would America view Russia bailing out European countries?

SHAPIRO: Well, I think -- I can't say what the State Department would say, but if I were asked my opinion, I would say, well, if the -- so, if the Russians want to throw bad money -- good money after bad, that's their business.

The eurozone several months ago looked to China to invest in bonds that would be used to prop up Greece, Italy, and Spain. And China, who are -- and they're pretty good business people, said no thank you, we're not interested in those bonds.

Instead, what the Chinese are beginning to do is move in and buy European companies. After all, Europe, because of the decline in the euro, Europe is on sale. And in the event of a financial crisis, there will be a fire sale of all the major corporations in Europe.

FOSTER: OK, Robert Shapiro, thank you very much, indeed. Interesting times, not just for Europe, but also the US. Stocks in the US are holding on to their gains this session, despite the bad news from Europe. The Dow's currently down -- currently up around 100 points, roughly in line with the gains we saw in Europe earlier this session.

Now, investors are keeping a close eye on Europe, and we're expecting big movements in the coming days, depending on the results of Greece's election on Sunday. Up 0.78 percent at the moment.

High costs and low margins. We'll have the latest gloomy news from the IATA aviation summit in Beijing coming up for you.


FOSTER: Now, global airline executives are heading home from the IATA world air transport summit in Beijing. It is a major industry event. The International Air Transport Association represents 240 airlines, which make up 84 percent of the world's air traffic.

Now, Qantas CEO, Alan Joyce, was among those attending the summit. His airline shares ended Tuesday's session with gains of nearly 11 percent. Qantas says it has hired investment bank Macquarie to help fend off a hostile takeover.

The airline has become an easier target lately. Its shares hit a record low of 96 Australian cents last week after it forecast a 90 percent drop in four-year underlying profits.

Now, also at the conference, Europe's controversial carbon tax was under fire. IATA's aviation environment director, Paul Steele repeated calls for an international carbon solution, warning that the tax on flights using European airports has put the industry on the brink of a trade war, no less.

Now, the aviation sector had enough problems without that happening. In its latest outlook, IATA warns that net profits for the entire industry will total just $3 billion this year. That's a miniscule half a percent of the industry's revenues. Richard was at the summit, where good news was thin on the ground.


RICHARD QUEST, CNN INTERNATIONAL (voice-over): IATA's annual meeting brings together airlines representing more than three quarters of the world's aviation. Here, they have high fuel prices, the eurozone crisis, government regulation, and dwindling profitability on their mind. The airlines are forecast to make just $3 billion in total.

QUEST (on camera): Overall, for IATA airlines, the profit margin will be just half of one percent, which the secretary general admits is pretty poor by any standards.

TONY TYLER, DIRECTOR GENERAL, IATA: A 0.5 percent net profit margin is razor thin. And when you think it's on revenues of over $600 billion, obviously if we've overestimated our revenue or we fall short in our revenue by, let's say, just one percent, it turns a profit of $3 billion into a loss of $3 billion. So, we really are walking a tightrope here, as far as profitability is concerned.

QUEST: There are an extraordinary number of CEOs that bothered to make the trip to the IATA AGM. It's an indication of how important the meeting is to bring airline chief execs together to discuss the industry's problems.

QUEST (voice-over): Some airlines, like Australia's Qantas, are feeling the heat more than most. Having given a profit warning, the chief executive, Alan Joyce, has now appointed bankers to protect the airline against unwanted takeover bids. Before the announcement, Joyce repeated the strengths of Qantas.

JOYCE: We have a portfolio of different assets, some of which are performing exceptionally well and having a near record year. Our domestic business made over $600 million, will make over $600 million this year.

Unfortunately, there's one part of our business, Qantas International, that's going to lose over $450 million. It's been impacted by the high fuel price, it's been impacted by the high Australian dollar.

But we've given a clear plan to the markets, and we've identified over $360 million worth of savings that we're introducing and making those changes today, and we've told the market that that's business will get back to break even within three years and return its cost-to-capital with the domestic business within five, and we've laid out that clear timetable.

But to put this in context, Qantas is still going to make an underlying profit this year. And lots of airlines here would love to be making an underlying profit. Qantas is an investment-grade rated airline, one of only two in the world. A lot of the airlines here would love to be investment grade very greatly.

The issue that our share price is suffering for is because of that investment grade. People believe we potentially have to raise equity to protect the investment grade. We've said clearly we don't have to raise equity. We are a very strong airline with a very strong balance sheet, with a lot of assets a lot of people would die for.

QUEST (on camera): Are you feeling the pressure yourself in terms of your job?

JOYCE: In my four years as CEO of Qantas, I've had to deal with natural disasters, like volcanoes. I've had to deal with operational issues, like the engine on the A380 exploding. I've had to deal with the grounding of the airline after three months of industrial action.

I have to say that there's no pressure like that pressure over those three years. And I'm very focused and have the support of the shareholders and the board on turning this company around.

QUEST: Alan Joyce, of Qantas. From Australia, now, to Europe and the changes taking place amongst European carriers, especially Europe's largest airline group, Lufthansa. Lufthansa owns Swiss, Brussels, Austrian, amongst other subsidiaries. The chief executive, Christoph Franz, made it clear, he was determined to make sure all the subsidiaries return to profitability.

CHRISTOPH FRANZ, CEO, LUFTHANSA: I think with regard to the fact that our group is employing approximately 120,000 employees, so it's a huge group. It's also quite evident that making change happen is something which you cannot do from one day to the other.

It needs some time, particularly it is important to get the buy-in of everybody, management and also employees, with regard to the dynamics of the changes in our industry so that everybody is willing to contribute.

QUEST (voice-over): In the US, the focus is on American Airlines, currently in Chapter 11 bankruptcy, undergoing major restructuring, with US Airways snapping at its wings seeking a merger. Tom Horton, American's CEO, presses on regardless.

TOM HORTON, CEO, AMERICAN AIRLINES: It's going very well. We are completing the first phase of the restructuring, which is about restructuring debt and leases and grounding some older airplanes, restructuring our facilities footprint. And changing some of our supplier contracts to make them better.

So, we're near the end of that process, which is going to save us a lot of money annually. And we're now in the process of restructuring our labor contracts, and that's really the most difficult part of the process.

QUEST (on camera): You've got to work with those people afterwards.

HORTON: Of course.

QUEST: And you don't want a bitter, disaffected worker.

HORTON: Of course. And so, this is really about getting the best outcome for the greatest number of people at our company, and that's what I've tried to keep all of our folks focused on.

QUEST: When will you look at whether or not US Airways and some form of agreement or merger could at least be on the cards?

HORTON: Well, today is not the day to talk about mergers. We're very focused on the restructuring, Richard. We are going to look at all alternatives that can make the American -- the new American Airlines stronger than it is. But I can assure you, the new American is going to be a power.

QUEST: Is that its name? The New American?

HORTON: It is today.

QUEST: Here at IATA, the airlines are joined by the plane manufacturers, who have challenges of their own. Taking Boeing, for example. It has to finish the 737 Max, ramp up production of the 787 Dreamliner, and get new orders for the 747-8. The chief executive, Jim Albaugh, brought me up to date.

JIM ALBAUGH, PRESIDENT, BOEING COMMERCIAL AIRPLANES: On the 737 Max, this is not a very complex undertaking. We've re-engined that airplane twice. Our we watching it, managing it? Absolutely.

On the ramp, we're 3.5 now, going to 10. Nobody's every done 10 composite airplanes in a month. Is that something I worry about? Absolutely. Do we have the discipline to do it? I believe we do.

On the 747-8, we've got a lot of active campaigns, and I think over the next couple of months, and hopefully when I'm sitting across from you this year at Farmborough, we can talk about some of the announcements.

QUEST: The airlines will continue to fly the world, grapple with the problems of higher fuel prices, competition, government regulation, and the like. They are battle-hardened and they leave the IATA conference ready to fight the year ahead.

Richard Quest, CNN, Beijing.


FOSTER: Time now for a Currency Conundrum for you. This one is about the durability of this, the US dollar. According to the US Treasury, how many times do you have to fold a dollar note backwards then forward before it would tear? Is it A, 400 times? B, 4,000 times? Or 40,000 times, C? We'll have the answer to that later in the show.

Right now, the euro is making a slight comeback against the US dollar. It's trading at just over $1.25, that's up around a fifth of one percent. British pound gaining more than a half a percent against the dollar. The Japanese currency is down by around a fifth of one percent, with a dollar buying around 79.5 yen.


FOSTER: The World Bank has issued a warning to developing countries. In its Global Economic Prospects report, it says they should prepare for a prolonged period of volatility.

The bank says a resurgence of what it calls tensions in Europe have eaten away any stock market gains made this year. It's forecasting slow growth in developing countries.

As a result of the increased uncertainty, the bank says we will see more budget cuts. Banks will unwind riskier investments, and production will be limited.

Andrew Burns is the World Bank's manager of global macro economics and the lead author of this report, and he joins me now. And it's very depressing reading, isn't it? Because things started looking up at the beginning of the year, and actually, the gains have been lost.

ANDREW BURNS, LEAD AUTHOR, GLOBAL ECONOMIC PROSPECTS: Well, that's right, Max. We had a good start. We had a difficult second half of 2011, we had the sort of rising tensions in the euro area at that time. They cut into activity in the second half of 2011.

They start to pick up again. We saw growth actually getting into double-digit rates, if you look at industrial production. So, very solid growth for the first four months.

And then, we hit May, and all of a sudden, we had these tensions rising again. We see a significant cut in capital flows to developing countries, and all of this is going to have an impact on growth going forward.

We expect developing countries, nevertheless, to come in with a pretty strong number, about 5.3 percent growth this year, coming up to about 6 percent by 2014.

FOSTER: The concerning thing is that businesses and investors seem to have lost confidence, now, and don't want to make decisions about the long or even medium term, because they're not sure what's going to happen. And that is bad for any economy, isn't it?

BURNS: Sure. And that's the real operating factor, here, at the moment. It's the uncertainty, it's the natural caution that that causes people both in developing countries and in high-income countries. That causes growth to slow.

And it really depends how long it lasts. If we come out of this period of uncertainty relatively quickly, then we should see growth rebound more quickly. If we stay in it for an extended period of time, then we're going to see outturns that are even lower than the ones we're talking about.

FOSTER: The next big event we're looking at is at the weekend and the Greek elections and a possible exit from the euro. How -- how much would an exit from the euro affect other parts of the world?

BURNS: Well, it's a doubtful question. I think anybody who's looking at the scenarios is in an educated guessing game. And what we do in the report is we say, OK, look, that's the case. But let's try and walk our way through a couple of scenarios, not because we think they're going to happen, because we think it's important to understand what the kinds of transmission mechanisms are and how they might affect developing countries.

FOSTER: Are we overly concerned about it, then?

BURNS: I don't think it's something you can be overly concerned about, because I do think that the risk, the possibility of a significant deterioration is there.

What we see is if that were to occur for developing countries, they could get hit significantly hard, GDP coming down by about 4 percent from the baseline in that kind of scenario. Not minus 4 percent growth, but 4 percent lower growth than we might otherwise have seen.

FOSTER: OK. Andrew Burns, thank you very much, indeed.

BURNS: Thank you.

FOSTER: Now, only if strictly necessary is still -- the hiring mantra globally. We'll speak to Manpower about their latest employment survey, next.


FOSTER: Welcome back, I'm Max Foster, these are the main news headlines this hour.

Spain's borrowing costs have risen to the highest level since the launch of the euro in 1999. The ten-year bond yield rose to 6.8 percent as the initial enthusiasm to Spain's bank bailout wore off. Fitch rating agency also downgraded the credit rating of 18 of the country's banks.

The United Nations peacekeeping team says Syria is now in a state of civil war. He says the Syrian government has lost large pieces of territory to the opposition, including several cities, and wants to retake control. This video posted online appears to show new shelling in Homs.

Meanwhile, the United States is worried Russia may be sending Syria attack helicopters. US Secretary of State Hillary Clinton said Russia's claim for this armed transfers to Syria are unrelated to the conflict there are patently untrue.

Tens of thousands of protesters have taken part in a rally against President Vladimir Putin to call for a new election. It is the first major protest against the president since he was sworn in for a third term. It's in spite of a new law put through by Mr. Putin that increases the fines for unsanctioned demonstrations.

In less than 15 minutes, Russia takes on Poland in Group A of the Euro 2012 football championship. Polish police had to break up a march by thousands of Russian fans to mark their national day after scuffles broke out between the rival sporters. Some missiles were thrown, and police had to use water canon to break up the fans.

In the day's earlier game in Group A, the Czech Republic held on for a 2-1 victory over Greece. The Czechs scored twice within the first six minutes. A mistake from goalkeeper Peter Schmeichel gave Greece a consolation goal in the second half.


FOSTER: Now companies remain reluctant to hire, according to a recent firm, Manpower. Employers are waiting until they've got more work than they can handle before taking on new staff. Two-thirds of those surveys expected to take on fewer new workers this quarter compared to this time last year. In Europe, job prospects weakened year-on-year in 16 of the 22 countries surveyed.

Even Germany is losing steam. Hiring attentions (ph) in Europe's biggest economy are down for the fourth quarter in a row. Manpower polled more than 65,000 employers across 41 countries and territories.

Now David Arkless is Manpower's president of corporate and government affairs. I spoke to him and began with the good news, Spain's private sector hiring intentions are actually on the up, would you believe? I asked him how with Spain's dire unemployment rate this could be.


DAVID ARKLESS, MANPOWER'S PRESIDENT OF CORPORATE AND GOVERNMENT AFFAIRS: The government has finally, after years, after more than a decade, agreed to change some of the labor laws to get more people off contract work, where they created the most huge contract labor sector in the world, onto permanent jobs.

So that positive, that slight positive for Spain really reflects a structural change in the labor market. It's not as if they're creating huge numbers of new jobs. In fact, they're not.

FOSTER: Rather worrying that Germany isn't looking great, either.

ARKLESS: Germany, you know, isn't immune from the global economy, just like everywhere else. As we've seen the dampeners (ph) put on parts of the Chinese economy, obviously export performance from Germany suffers.

But Germany will now go back to what they were doing two years ago. They will not lay lots of people off. What they'll do is go to job sharing, part-time working, keep as many people in the labor force as they can.

And as soon as China starts to turn the wheels a little bit more -- and there's some pretty positive figures in China, which we think are a leading indicator in terms of manufacturing economy of China, then Germany's going to benefit again, and they already have people ready in jobs. And they'll just do more hours.

FOSTER: You've talked about anticipatory hiring becoming a thing of the past. This is employers hiring for what they might need in future, not doing that. So uncertain about the future, aren't they?

ARKLESS: This recession has completely changed the psychology of permanent hiring. Employers are saying I might be hiring by now if it was 20 years ago and I'd be optimistic. But I'm not going to do it. And even then, I'm still not going to do it.

Even when my order books are up 20 percent, I'm still not going to do it. I'm going to get people to work harder and longer, and then get contract labor. And then when I'm absolutely sure I'm not going to get smashed by another downturn, finally I'll start hiring.

FOSTER: America actually thinks they're ticking up, though very, very slowly. So a positive story there.

ARKLESS: Story of the last few years. This forecast is the best since 2008 in the U.S. Last 24 months, pretty positive hiring. But as you say, quite rightly, it's very modest in terms of numbers.

FOSTER: In India, we were talking about India today because there's some concern about the Indian economy, but they are posting very good job prospects right now. Explain why that is when the economy isn't looking great going ahead.

ARKLESS: Well, what's happening in India is that manufacturing output is pretty stagnant, and in fact, falling in some parts of the manufacturing sector. But they're starting to create jobs, based around the consumer economy. Retail jobs, service sector jobs, those are the sectors that are showing really positive growth and they're impacting the rest of the jobs market.

FOSTER: And interestingly, a lot of those jobs being filled by Indians who've been living abroad.

ARKLESS: Well, there are a lot of returnees. I mean, pay rates and wages are getting higher in India. So people that have lost a job in the U.S. or Europe are thinking maybe I should go home and see if I can get a job there. So there is a very positive return cycle of migrant workers right now.

FOSTER: Globally, there's still a shortage of talent. I mean, if you can attract those foreign workers, that's a pretty good sign, isn't it?

ARKLESS: I see that as a problem for the future for the U.S. and for Europe, having gotten really well educated Indians, for instance, in the past and attracted them abroad, now they're starting to drift back. And there's going to be a huge battle for those talented engineers in future.


FOSTER: Meanwhile, the view of Manpower and a former Tesco chief executive, Terry Leahy, believes in embracing emerging markets. He says in these tough economic times every little counts and businesses need to go where the growth is. Terry Leahy told me that's not just the Eurozone crisis taking its toll on the economic recovery.


TERRY LEAHY, FORMER TESCO CEO: You have the financial crisis, but underneath that, you've had an oil shock. Oil has doubled in price virtually since 2010. That alone would knock 3 percent off GDP. So take combined together, it's no surprise that Western governments are struggling.

There's a little bit of good news in the sense that the oil price seems to have leveled off, may even have come back a bit. There's no easy solution. There's no blueprint to follow for the euro. All any government can do is to make sure it pays down its debts, lives within its means and follows policies that encourage people to innovate and take risks and start businesses.

FOSTER: It's very important that consumers stay confident, isn't it, because consumers is what you now about. Are you -- how worried are you about consumer sentiment going ahead?

LEAHY: Interestingly, I think the rise in petrol, in energy costs, have hit consumer sentiment the most, more even than the euro crisis. And I think the euro problems have hit businesses, investment, sentiment. If energy prices came down or even stabilized, I think that would allow consumer confidence to repair itself.

FOSTER: You did push harder to emerging markets in your time as CEO as well. Is there -- is that a lesson other businesses can follow as well, where if the West is doing so appallingly to try (inaudible) those emerging markets?

LEAHY: Oh, absolutely, yes. I mean, when I was a young man, I -- there was no work in my home city of Liverpool; I came to London. Today the growth is in Latin America and Asia and businesses need to go over there to where the business is.

FOSTER: But you mentioned that Taiwan was another success for you. That it -- you know, it's a very dodgy trap. Some companies haven't got that experience.

LEAHY: It is difficult, particularly in retailing, which is very low court (ph). But whilst we had problems in Taiwan, we had huge success in Korea and Malaysia and Thailand. Then it's all part of the learning experience.

FOSTER: Your message to executives, thinking about going to the emerging markets to avoid the problems here?

LEAHY: Oh, I think you've got to engage there. It's a worry that the U.K. does more business with Ireland than with China. You've got to go out there, find who's the best in the world in your industry, see if you can beat them. See what you can learn from them and see if you can measure up.


FOSTER: And the next in emerging economy is going off the boiler seas (ph). We'll look at how India's slowing growth is putting its BRIC status at risk now.




FOSTER (voice-over): It's time for the answer to today's "Currency Conundrum." Earlier we asked you, according to the U.S. Treasury, how many times do you have to fold a dollar note backwards then forwards before it will tear? Well, the answer is B, around 4,000 times.


FOSTER: We haven't tested them yet. But maybe if we have a quiet day.

The Indian rupee is continuing its slide against the U.S. dollar. Meanwhile, it is trading at its lowest point this month on signs growth is weakening in this emerging powerhouse. India's industrial output grew just 0.1 percent compared to April the previous year.

Analysts were expecting a rise of 1.7 percent. It's just the latest of bad economic news for India. And as Sara Sidner now reports, India's place in the BRICs might now even be at risk.


SARA SIDNER, CNN CORRESPONDENT (voice-over): It's a far cry from 2010, when there was such enthusiasm about India's economy, the International Monetary Fund projected the economy here would grow by 9.7 percent in 2010. That didn't happen. Now in 2012, India's GDP has risen just 5.3 percent this year so far.

The rupee has fallen 20 percent against the dollar in the past year. Industrial growth failed to meet expectations in April. Inflation is at 7.2 percent. Those things are taking a real toll on everyday Indians because prices of everything, including food, are higher. India's leadership is blaming the Eurozone debt crisis and rising petroleum and commodities prices on the international market for its stumbling economy.

But Standard and Poor's and several analysts we spoke with say India's biggest problem is inside the country, simply put: policy paralysis.

SOUMYA KANTI GHOSH, ECONOMIC AFFAIRS DIRECTOR, FICCI: There are several views which expanding and the government must show some specific intent in passing some of this policy because then it will send out a strong signal to the global industry community and also the domestic investors that the government means business, and that may have a sobering influence on the market sentiments which are not that great at this point of time.

SIDNER (voice-over): Analysts say India needs to clear political roadblocks to economic policy reform, some of which protects small mom-and- pop shops like these by heavily limiting overseas investment to single brand retail or wholesale, who tend to be more efficient, like Walmart, for example.

Now let's make no mistake about it: politically, it's a hard thing to do, to allow foreign companies to come into the country on a large scale, because you have to realize that more than 90 percent of India's workforce is employed in what is known as the informal sector. We're talking about fruit sellers on the street and laborers, not people who are working for large corporations.

SIDNER: If India is unable to reverse its current economic trend, some analysts are saying the I in BRIC may stand for Indonesia in the future instead of India -- Sara Sidner, CNN, New Delhi.


FOSTER: Natarajan Chandrasekaran is the CEO of Tata Consultancy Services, an I.T. services and outsourcing company that's part of the multinational Tata Group. Despite India's troubles, his company recently posted annual revenues up 24 percent. He joins me now.

I guess that's because most of your business is actually outside India. That's the nature of the business.

NATARAJAN CHANDRASEKARAN, CEO, TATA CONSULTANCY SERVICES: I think we have built a very respectable portfolio. We work with a number of global companies around the world. We do over 10 percent of our business in India because the market is much smaller for technology in India compared to the rest of the world.

FOSTER: What's happening with India right now, because there was this powerhouse, and now people are saying it's going to fall out of the BRICs. Do you really think that's true? Do you think it's likely?

CHANDRASEKARAN: I think it's frankly, very premature to make such a comment. If you really look back the last decade, and we've had several moments where there has been concerns, but overall, we have gone 8 percent on an annual basis year-over-year over the last decade. So I think that this year, we did around 6.5, 6.6, 6.7 percent, which is not bad overall, given the global economy.

FOSTER: Compared with other countries, I guess. And you've got an interesting perspective, though, haven't you, because whilst Western countries are looking to India for future growth and trying to invest there, you're actually by -- you know, I think, is it 10 percent of your business is in India?

Most of it is in the West. And in America, in particular, you're continuing that strategy. So why are you continuing to invest in the West when other countries are looking to invest in your country?

CHANDRASEKARAN: (Inaudible) invest globally. We invest in India. We invest in Asia. We invest in Latin America. If you look at our business, we have been consistently growing around 20-30 percent over the last several years. And in that period, our business in the emerging markets, including India, Latin America and Asia, has grown about 17-18 percent of business from single digits. So the --

FOSTER: So why are still committed to the U.S. economy when so many people are concerned about the U.S. economy?


CHANDRASEKARAN: Well, we are committed to all economies. We're committed to global companies. We work -- our customer segment is the 2000-2005 (inaudible) companies globally. And they operate in all parts of the world. For large companies in the U.S., we work for them in the U.S., work for them in Europe, work for them in Asia. So we have a strategy to work with companies globally.

FOSTER: OK. Mr. Chandrasekaran, thank you very much indeed for joining us here in London.

Now we're going to have a look at the weather now. Jenny Harrison is going to report on the ongoing monsoon in the U.K., if I can call it that.


JENNY HARRISON, CNN METEOROLOGIST: Yes, not quite. And of course a bit of a shame, actually, Max, you mentioned a monsoon, (inaudible) really get going in India this year, but let's start, as you say, with conditions across Europe. Now we've got this one area of low pressure which is producing some more rain -- surprise, surprise -- but some strong thunderstorms in there as well.

In the last few hours, it has been looking pretty much like this, Scotland, Ireland, seeing the brunt of the rain across the U.K. And then this is the system working very, very slowly across much of France into Germany and also through the low countries.

Over to the south, you'll notice quite a line of thunderstorms. (Inaudible) some snow in the forecast as well. And as well as that, in Italy, in Venice this Tuesday, a tornado was spotted out over the water and also some large hail across (inaudible) 3 centimeters in diameter, all coming from these thunderstorms.

Now right now it is nearly kickoff. In fact, I'm not sure. Let's have a look. Yes, it's probably just about started now, 1845 GMT, Poland versus Russia in Warsaw. It is actually dry right now. The temperature is about 20 degrees Celsius. As we go through the evening, there are some scattered showers and thunderstorms in the forecast. That's certainly right now it is actually fine and dry.

This is the system. This is the one working so (inaudible) eastwards, and there are, as I say, quite a lot of scattered thunderstorms in the mix there. And then this is the next system, and that is coming in as you can see once again, headed towards the U.K. and generally the west of Europe. But those thunderstorms, giving rise to all these warnings.

You can see some more strong winds, large hail and, again, also that possibility of more tornadoes, just like the one that was spotted in Venice. You can see the rain showers across much of central Europe. There's the next system coming in from the west.

And as it does so, it is also going to bring with it some fairly strong winds, just beginning to push into the picture there, as I say, in the next 48 hours. Temperatures not bad, 18 London and Paris, 20 in Berlin and 24 down in Rome, where some of the better weather really should be on offer.

Now I'm going to head across to the United States, in particular, northern Colorado. There's a massive fire continuing to burn over 175 square kilometers have burned so far. And it is so far also just about 0 percent contained. There are, though, 500 firefighters battling this huge blaze.

This image, this photograph here sent in by an iReporter just to give you an idea, just the massive size, the scope of this particular blaze. Conditions are dry, very low humidity and the winds have been particularly strong, gusting to around 65 kilometers an hour, and of course, no rain has occurred, but also no rain in the forecast.

However, across the South, more thunderstorms and just a couple of pictures to show you in Pensacola, Florida, where we've seen some record rain and that is what it has done, that system moving up the East Coast again over the next couple of days, Max.

FOSTER: I shouldn't complain when I see pictures like that, should I? Record highs (ph). Jenny, thank you.

Now next, in search of bright lights and a Broadway debut, it's a competitive field. But our New York Millennial is confident he can succeed.


FOSTER: Strong, sensitive stuff, belief is the key to success for any Millennial and Michael Burbach is a young man on a mission. Richard spent an afternoon with the aspiring actor discussing his dreams, his work and his ambition.



UNIDENTIFIED MALE: He's a Millennial in search of the bright lights, 22-year-old Michael Burbach, born and bred in the Midwest and ready to make it big on Broadway, fresh from conquering Shakespeare on the university stage, Michael is ready for his next close-up. Richard Quest caught up with him in New York and found that this young actor has confidence to spare.


MICHAEL BURBACH, ACTOR: This represents the Theater District to me. I love it here.

RICHARD QUEST, CNN HOST (voice-over): Spend time with Michael Burbach on Broadway, and it's clear, he's a man who's smitten with New York City and the theater.


BURBACH: See, a lot of my friends don't like coming to Times Square, because it's so busy and so crowded. But I so love coming here and --


BURBACH: -- because --

QUEST: It's full of tourists; it's smelly and it's crowded.

BURBACH: It's where in 10 blocks is all of my dreams. It's all the theaters on Broadway. It's where I want to work.

QUEST (voice-over): It is here where many of his idols have walked.

BURBACH: One of my favorite shows.

QUEST: One of your favorite shows? Really?

QUEST (voice-over): Michael exhibits nothing short of a burning ambition to make it big.

BURBACH: It will be a dream.

QUEST (voice-over): Millennial to the core.

QUEST: Do you have moments of fear that you're not going to make it, moments of self-doubt?

BURBACH: Little ones, and then I brush them aside. This is the kind of -- theater is like a thing where, if you don't believe in yourself 100 percent, go home.

QUEST (voice-over): Michael's performance as Demetrius in his school's production of "A Midsummer's Night Dream" was a resounding success.

BURBACH: Do I entice you? Do I speak you fair? Or rather, do I not, in plainest truth, tell you I do not nor I cannot love you.

QUEST (voice-over): Now he must put everything he has learned so far to the test. And even if the stakes are being raised on the set of the school production, Michael says he doesn't fear the future.

QUEST: What is the next chapter?

BURBACH: The next chapter is taking everything that I've learned and applying it to starting my career and finding a job and supporting myself and living my life as an adult.

QUEST: How are you going to do it?

BURBACH: Well, I'm going to -- oh, I got my head shots done, so I'm going to be sending those to all these agents and to auditions and trying to get TV work or, you know, commercials or any sort of theater work where I can make some money, and I'll probably have to be a waiter or bartender or something in the meantime, just so I can pay my bills as well. It's going to be a lot of work, but I think it's going to be fun, too.

QUEST: The old joke, I'm an actor.

BURBACH: Which restaurant?


QUEST (voice-over): It's a joke that (inaudible). Back on Broadway, that old Millennial confidence, that competitive streak comes back.

BURBACH: I think I have a uniqueness and a thirst that a lot of my other peers have had. I have an excitement for the theater and I love it. It's -- in my free time, I go into shows. I don't go out and drink. I go out and see shows.

QUEST (voice-over): A real belief, anything is possible, the dream is his for the taking.

QUEST: How long are you going to give it before you give up?

BURBACH: I'm not going to give up. Ever. I can't. It's not an option. How am I supposed to eat and live?

QUEST: Get a job.

BURBACH: Exactly. In the theater.

QUEST: And if you don't make it?

BURBACH: Not an option. `Bye.

QUEST (voice-over): Failure may not be an option, but it will take more than steely reserve to succeed. And in the next few months, we'll find out if Michael takes those first tentative steps along Broadway.

UNIDENTIFIED MALE (voice-over): Next week, on "The Millennials," in Santiago, David outlines his strategy for growth in Latin America.

And in London, Joe hires a head of communications to help him do his job.


FOSTER: Meanwhile, we'll have a check on the markets for you in just a moment.


FOSTER: U.S. stocks are still rallying as Spanish bond yields have slipped off their high. The Dow is more than 1 percent higher at the moment, roughly in line with the gains you saw in Europe earlier in the session, actually just below 1 percent higher at the moment.

Now European stocks ended higher as well. It follows the total today's trade with Spain's banking system still a cause for concern. Pressure on Spanish and Italian bonds triggered a selloff in the late afternoon here in Europe, but gains in the telecoms and mining sectors helped pull markets back into the black at the close. (Inaudible) maker Tomtom closed up 16 percent in (inaudible) Apple agreed to use its digital maps.

Crude oil prices are rising in New York and falling in London. The oil cartel OPEC moved to Geneva on Thursday to set output targets for the rest of the year. This latest report showed producers are pumping more than they need to meet weakening global demands. Some of the Gulf states, including Saudi Arabia, are coming under pressure from the other member nations to tighten up supplies.

That is QUEST MEANS BUSINESS. Thank you so much for watching. I'm Max Foster. The headlines are just ahead for you. Thank you for watching.


FOSTER: Spain's (inaudible) cost has risen to the highest level since they launched the euro in 1999. The 10-year bond yield rose 6.8 percent as the (inaudible) Spain's bank bailout wore off. Fitch Ratings agency also downgraded their credit rating to 18 (inaudible) banks.

The United Nations peacekeeping chief says Syria is now in a state of civil war. He says Syrian government has lost large pieces of territory (inaudible) the opposition, including several (inaudible). This video posted online appears to show new shellings in Homs.

Tens of thousands of protesters have been taken part in a rally against President Vladimir Putin to call for a new election. It is the first major protest against the president since he was sworn in for a third term. This in spite of a new law put through by Mr. Putin that increases the fines for unsanctioned demonstrations.

There was violence between rival fans ahead of the Euro 2012 game between Russia and Poland. Fights broke out in Warsaw and as Russian fans marched to celebrate their country's National Day. And no signs of trouble in this fan zone in Warsaw, where thousands are gathered to watch the match on big screens. (Inaudible) the game kicked off around 15 minutes ago. It's currently scoreless (ph).

That's a look at the stories we're watching for you here on CNN. "AMANPOUR" is next.