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UK Growth Staves Off Triple-Dip; Spanish Protests Turn Violent; A Look at Croatia's Situation

Aired April 25, 2013 - 14:32:00   ET



MAX FOSTER, CNN HOST: Welcome to QUEST MEANS BUSINESS. Springtime growth in the services sector has helped the U.K. avoid a triple-dip recession. (Inaudible) released today show the British economy grew 0.3 percent during the first quarter of this year. Britain's Chancellor of the Exchequer George Osborne has used the figures to fight back against critics of his austerity policies.


GEORGE OSBORNE, CHANCELLOR OF THE EXCHEQUER: Well, I mean, these figures are an encouraging sign that the economy is healing and that, despite the difficult economic situation we're making progress. But I'm not going to pretend to you that there are more difficult decisions that are required. I'm not going to pretend that it's an easy road ahead.

It isn't. We've got to go on confronting our country's problems if we're going to build an economy fit for the future.

FOSTER: With me now is Andrew Sentance, the senior economic adviser at PricewaterhouseCoopers and a former member of the Bank of England's march policy committee. Thanks for joining us.

Wonderful news for George Osborne, because there's just a small figure, but it's positive.

ANDREW SENTANCE, SENIOR ECONOMIC ADVISER, PRICEWATERHOUSECOOPERS: Well, it's a sign of the times that we're welcoming so warmly a increase in GDP of 0.3 percent, which if it carried on at that through the year would only give us about 1.75 percent growth.

FOSTER: But politically, it's important, isn't it?

SENTANCE: Well, I think it's important to get a indication that the U.K. economy is growing. I think myself that the U.K. economy has been growing through this recovery at a very uneven rate and at a relatively slow rate.

So the average rate of growth since the recovery started in 2009 has been about 1.3 percent. We haven't seen the rebalancing towards manufacturing industry that politicians were looking for. In fact, these services sector activities that have really pulled the U.K. economy forward over this recovery.

FOSTER: So what does this figure say, if anything, about the merits of a tough austerity problem as can be seen in the U.K.?

SENTANCE: Well, I think the austerity that the government are pursuing is a necessary evil. It's something that they have to do in order to get the deficit down.

FOSTER: Is it worth it?

SENTANCE: You can have a debate about whether they're going about it the right way. I don't think the weakness of the economy is so much to do with the austerity.

It's more to do with weak exports markets in Europe and also the fact that all Western economies are struggling to grow in what I call the new normal economic environment, where we don't have the tailwinds that we had supporting growth before the financial crisis.

FOSTER: So everyone's concerned about a triple-dip recession. Is that likely again? I know it's hard to predict, but technically, it could happen.

SENTANCE: We've just had one big dip, this recession 2008. No, and the others have been real -- really just fluctuations in a rather disappointing growth rate, which is not unique to the U.K. Many Western economies are suffering from low growth at the moment.

FOSTER: Are you making any predictions on when Britain, Europe may come out of this slump?

SENTANCE: I think we're going to see slightly stronger growth later this year and better growth in 2014.

But I'm actually quite cautious about the extent to which we're going to see a return to the sort of 2.5-3 percent growth we were used to before the financial crisis. I think if we get a growth of 1.5-2 percent, say in 2014 or 2015, that will be quite good for an economy in the position that the U.K. is in at the moment.

FOSTER: The IMF hasn't been as complimentary about George Osborne's handling of the British economy as some. Do you think that criticism has been fair?

SENTANCE: I think the IMF have a difficult job to do. I think they, in a sense, they're giving a classic economist on the one hand and on the other hand, judgment. They are not criticizing government for bringing down the deficit. They want them to try and do that in a way that doesn't harm growth. But that's very difficult.

So I think we're in a difficult position. And the growth figures that we're getting are at least an indication that the recovery is continuing.

FOSTER: OK. Well, thank you very much indeed for joining us. We'll wait to see what happens at the end of the year. Thank you.

When we come back, a Spanish stand against austerity as jobless numbers soar in Spain and in France.



FOSTER: Job lines in Europe are at record levels. Spaniards are on the streets tonight amid a rising tide against austerity as unemployment reaches grim new heights.

Meanwhile, French jobless claims rose to 3.2 million people in March. The Spanish unemployment rate is now 27.2 percent.

Matthew Chance is seeing the hard end of this unfold in Spain.



Actually, you've just joined as this -- what was a peaceful protest taking place here in the center of Madrid has suddenly turned much more violent with this confrontation that's past the cameraman, to pan across here to the left, between these protesters, anti-austerity protesters, people who have turned out to voice their opposition to the (inaudible) the series of economic measures that have been implemented by the Spanish government led to enormous hardship on the part of ordinary Spaniards.

And this protest, as you can see, there's some things being thrown; the police have got their riot gear on and they're moving backwards at this point.

This protest comes at a time when there have been some staggering figures released as well by the Spanish government. They're saying that unemployment in this country has, for the first time, reached 27.2 percent, which is the highest rate of the entire Eurozone.

If you look at the youth unemployment and the vast majority of the people at this protest are between the ages of 16 and 24. The figure is much higher, something in the region of 57 percent. So that's why there's so much anger and so much (inaudible) frustration in this country, in Spain, as we've been seeing across the Eurozone, Max.

FOSTER: Matthew, is this isolated? Or is this going on across the city?

CHANCE: It's isolated. This preplanned demonstration, it's not a demonstration that's been authorized by the authorities.

In fact, the Spanish parliament is just up that street there; you can see the blue lights on the police vans there, protecting the Spanish parliament because this is a protest that's been organized by republican groups, groups who are anarchists, who are fundamentally opposed to way Spain works and what constitutional change -- they're calling it a protest to siege the Congress, to siege the Spanish parliament.

And so that's why the protesters have gathered here in this particular area. I have to say, there aren't that many people that came to the protest, somewhere in the region of perhaps a 1,000 people, perhaps a few more at its height. But since this confrontation began, the crowds seem to have thinned out very, very much indeed, Max.

FOSTER: Are the police ready for these sorts of things? Because they're meant to be -- you know, they're not expected to turn violent, are they? But obviously from the lines behind you, the police are -- it looks like a really intimidating presence.

CHANCE: Well, I think on this occasion the police were ready for some kind of confrontation. The unions, for instance, that normally stage mass protests in this country, the teachers, the doctors, the state workers that have been so prevalent on the streets of Spain over the course of the past several years, protesting against the austerity cuts, they're not involved with this protest.

This is the hardliners, people on the extreme Left of Spanish politics, which is a growing number of people, of course, given the dire situation economically in the country. And so the police were expecting that there would be troublemakers here. And they turned out accordingly. You can see they've got all their riot shields there, their helmets on.

We saw up the street there, there's -- there are police vans as well. There are also horses up there ready to try and sort of contain the crowds, contain the protests, should this get out of hand.

At the moment, it's certainly not out of hand, although that was a big sort of flash-bang grenade that was thrown there -- I don't know by which side -- but it's certainly not out of control; the police seem to have it at the moment under control. And the protesters at the moment appear to be dispersing, Max.

FOSTER: And is this symbolic of the feeling across the country? I mean, what is it expressing in terms of national feeling, do you think?

CHANCE: I think, you know, there are a lot of Spaniards that would very much sympathize with the people here who have turned out and are confronting the authorities in this way. There's a great deal of anger in Spain, the same kind of anger that we've seen in other Eurozone countries. I've spent a lot of time in the past 12 months or so, in Greece as well.

You saw very similar kind of anger directed towards the authorities because of the hardship that governments, because of their austerity measures, are putting ordinary people through. There's a sort of general perception in this country that the banks are being bailed out, that people are being made to suffer.

And that's a kind of perception that you get in other Eurozone countries as well, we saw it a lot in Greece. We've seen it in Ireland, in Italy and other Eurozone countries as well.

And so yes, I think there's a lot of sympathy not just here in Spain but across the continent for the kind of -- the kind of anxieties, the kind of anger that is being expressed by these protesters, Max.

FOSTER: And what do they suggest in terms of an alternative? Because outsiders would look at the accounts and say it's unmanageable to continue as they are. But what are these people expecting as an alternative to the cutbacks?

CHANCE: Well, as I say, the people at this protest are very much on the extremes of Spanish political spectrum. We're seeing these anarchists here, republicans, people who want fundamental reform of the -- of the Spanish system. They want the constitution, for instance, to be -- to be - - to be renegotiated.

They want Congress and the government to step down. They want to start again when it comes to organizing the system in Spain. They feel that the working classes here, the middle classes where ordinary people are discriminated against by the way the system has been set up.

And so that's what they want. I'm not sure that kind of view has the same kind of sympathy across Spain. It's very much a sort of -- a sort of fringe opinion here in Spain. But it is a growing opinion.

And the fact that we've got 27.2 percent unemployment across the country now, 57 percent or more amongst the youth in Spain, really it's fueling extremist points of view, not just here in this country, but we're seeing it, as I say, across the continent as well, Max.

FOSTER: Matthew Chance, (inaudible) thank you very much indeed for showing us those scenes. They surely do show what economic decisions can have on the ground, the impact. There have been mixed fortunes on the European indices. We'll bring you that just to show you what's been going on with the European markets.

Madrid's IBEX 35 closed down nearly 0.3 of a percent; Paris ended lower as well following those record jobless claims. The FTSE 100 ended in positive territory following the GDP figures we were talking about. We'll show the U.K. has escaped a triple-dip recession by a whisker. Let's just show you how the Dow is doing as we head into the last hour of trade or so.

The Dow currently up, but just slightly up half of 1 percent.

Thank you for watching. That was QUEST MEANS BUSINESS.




RICHARD QUEST, CNN HOST: From the River Thames in London, this is MARKETPLACE EUROPE. I'm Richard Quest. In this week's program, the old and the new. We hear from Croatia about how the country's preparing to be the newest member of the European Union and we visit one of the original members, Germany, to see how small and medium sized companies are faring.


QUEST (voice-over): Coming up, focusing on the future: the family craftsmanship that's driven a niche industry for generations.

And as his country prepares for E.U. membership, Croatia's prime minister tells us his priorities.

ZORAN MILANOVIC, PRIME MINISTER, CROATIA: We are trying to reform the country as much as possible to undergo structural reforms so when the -- when the recovery kicks off, that we can be ready for that.


QUEST: The backbone of the German economy, the Mittelstand, that army of small and medium size companies that run the German economy. Isa Soares has been to Wiesbaden to see how these companies are faring in what's very difficult times.


ISA SOARES, CNN CORRESPONDENT (voice-over): The ingenuity and craftsmanship of the Mittelstand is staring you right in the face. Everywhere you look, milky glass eyeballs, kaleidoscope of colors and sizes.

JAN MULLER-URI, OCULARIST, MULLER SOENE: (Inaudible) green and blue, brown.

SOARES (voice-over): Since the 1860s, the Muller family have been molding and sculpting prosthetic eyes.

MULLER-URI: Has to cool off slowly.

SOARES (voice-over): Jan has made around 30,000 glass eyes. And like his forefathers, he's keeping the tradition alive.

MULLER-URI: It's a lot of German companies like ours that still are working after five generations. And I think that the German thinking is work and work and build a house. That's common in Germany. So that's what's driving Germany.

SOARES (voice-over): Small and medium size companies like Muller Sohne account for 60 percent of the workforce and half of Germany's GDP.

SOARES: There's more to this family-run business than meets the eye. (Inaudible) hadn't changed in some 150 years. Specialized glass is carefully blown into shape. Then we begin the process of delicately painting the eye. The glass is then reheated to bring out the colors and the depth. It is then shaped to fit the individual eye socket. The whole process takes an hour and a half.

SOARES (voice-over): It's an intimate and emotional process. The ocularist creates the eye in front of the patient.

MULLER-URI: We have about an hour. We can talk to each other while we are producing the eye. And it's very interesting to listen to people.

SOARES (voice-over): It's this customer service that has patients knocking at their door. Last year, the company produced 8,000 glass eyes to patients in eight countries in Europe. Each one costs 450 euros, compared to 1,500 euros for an acrylic one.

MULLER-URI: The glass eyes are more shiny, more living, because the acrylic eyes, they look rough on the surface and when they're worn. So with the glass eye, they can be rough as sandpaper, but they will still have a (inaudible) lens. So it looks fantastic.

SOARES (voice-over): Despite the more practical and less expensive alternative, Jan knows it is a profession under siege.

MULLER-URI: In the '50s a lot of people lost their eye because of bad circumstances at work. They got metal in the eyes (inaudible) and that never happens today. There will be less people who need a glass eye or an artificial eye because the injuries are so few today. So it's almost only diseases, injuries, car accidents are one way, or the car accidents are still today. We have an airbag and we have the belt in the car.

You can't use a machine today without glasses and doors and everything. So it's much better today.

SOARES (voice-over): Still, he's not giving up on this family business (inaudible) apprentices learning the craft. Benjamin Flettner is now a fully training ocularist. He started 10 years ago when he was just 16 years of age.

BENJAMIN FLETTNER, OCULARIST: The most good thing is that we're traveling around all Europe. So you very different kind of countries, kind of people. That's very interesting part. And the work, of course, and the work is very special.

SOARES (voice-over): Despite a decline in sales, Jan and his team say they will continue to work their nimble fingers. To them, it's as much about artisanship as it is about service.

MULLER-URI: It's lovely to see the happiness of the people when they get their new eye and see, oh, I look normal again. And that's so fantastic.

SOARES (voice-over): This is the simplicity and effectiveness of the Mittelstand, passing on your craft and keeping your eyes focused on the future.


QUEST: Isa Soares, eying up the competition.

And talking of eyes, the London Eye. And there's more when we come back after the break for eying up Croatia.




QUEST: Welcome back to MARKETPLACE EUROPE on the River Thames. It's hard to imagine it is 20 years ago that Croatia was involved in a civil war for independence. Since then, peace has brought its own challenges -- rising unemployment, recession and a search for a role in Europe. Now the country's about to become the 28th member of the European Union.

Croatia's prime minister told me the country will face more painful reforms as it seeks to succeed in the new club.


MILANOVIC: We are joining the E.U. and we are trying to reform the country as much as possible to undergo structural reforms so when the recovery kicks off, that we can be ready for that. But I think we should be watching Italy and the likes, you know, because Italy, despite having the primary budget surplus, is not able to generate the growth.

It's very important for Croatia because we rely heavily on our exports and them. And Italy and France are, in my opinion, even though we are not the E.U., that your member, a member of your area, is something that counts a huge amount.

QUEST: Until those major E.U. Eurozone economies get moving again, because you're export-led nation, to some extent, you're not going to be able to recover.

MILANOVIC: As I said, we are at a standstill. We are reforming our, well, our general legal -- legislative framework, doing our best to raise attractiveness of the capital investment. And we know that we have to change.

And all the countries that we're aware of that need for change, like Germany and this country, and Scandinavian countries, are doing fine now. So we are relying on exports, but not so on tourism. We are a small economy.

QUEST: Where does the growth come from for you?

MILANOVIC: Ideas, reforms and competitiveness. That's something some countries have and some countries do not have for cultural and political reasons.

So I'm here and I'm a politician, I'm prime minister and a political leader and I have some equity, so to speak, and some venture capital that I'm supposed to invest into changes. That's why I'm here. So we will have to deleverage. We will have to reduce our debt.

We all have to change. We have two inert public systems. It's not too many people work but too many people have to meter output. And output, so we have to change. It's all political. It's all about cultural trades. Because if ever, you know, from coming out of vacuum, and if I were given a mandate to make changes, I could be able to do that. It doesn't take scientist to do that.

Look what happened to Mario Monti and his export government, which (inaudible) people that there are respect. They have reduced budget deficit, but they haven't generated any growth.

QUEST: What would you like to see in Italy besides the government that might actually have support, that might actually last?

MILANOVIC: Reform government, which I think we might get. When I say we, I'm not possessive, you know, but we, because we all have stakes in it. And I would like to see, well, a country that changes and that goes the way Germany went 10 years ago.

I think there is potential for that. It affects Croatia very much because we are -- we're not as exposed to the -- to the turbulences of the region, as for instance Estonia, Latvia and Lithuania are, because when Baltic -- when the Scandinavian states were going down, the Baltic republics, they plummeted in a year.

They had downfall of 20 percent in GDP in a year. So it doesn't happen in Croatia. I think we are more diversified. But we rely on our strong and big neighbors.

QUEST: Italy is obviously of concern to your country, but geographically and economically. But I'm wondering what do you want to see from your Italian partners, besides a government?

MILANOVIC: I want to see industrial and services powerhouse to the extent Italy was 25 years ago, when (inaudible) was powerhouse of Europe and when Italy surpassed (inaudible) on the GDP terms per capita. That's what I want to see because there are -- Italy is Croatia's major trading partner. And every turn in Italy, positive or negative, affects Croatia as well. If Italians make less money, they spend less in Croatia resorts. That's it.

QUEST: Finally, you're going to join; it's going to happen. Are you doing it enthusiastically without excitement or how are your -- what's your emotion as it's happening? Are you still excited at the prospect?

MILANOVIC: (Inaudible) put it that way. I'm a passionate pragmatist. I think Madeleine Albright said that years ago. I'm a passionate pragmatist, you know. I'm from the country that paid a (inaudible) price for its independence. Now we want war and victory, as Churchill said, good will and magnanimity.


QUEST: The prime minister of Croatia. And that's MARKETPLACE EUROPE for this week. I'm Richard Quest on the River Thames. Whatever market you're in, I hope it's profitable. I'll see you next week.