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Global Markets Bounce Back; Ukraine Crisis; International Aid for Ukraine; Moscow Market; US, European Markets Finish Strong; Obama's Budget Proposal; Apple CFO Resigns; Bitcoin Bank Folds; BP Opens US Unit; Russia Increases Gas Prices for Ukraine; ENI Chief Exec on Ukraine Crisis

Aired March 4, 2014 - 16:00   ET



RICHARD QUEST, HOST: And the closing bell rings on Wall Street, the Dow is up sharply, she hits the hammer, the Dow's up 200 points and the S&P 500 is at a record. Today is Tuesday, it's March the 4th.

A chance of avoiding a fight in Ukraine is still alive. Vladimir Putin says he doesn't want a war and the West will regret any sanctions.

In Kiev, John Kerry arrives with financial aid for the new government.

Tonight, we'll be speaking to one of Ukraine's wealthiest men who met John Kerry during the course of the day.

Also, Gazprom threatens higher prices. The chief executive of an Italian oil company tells me he's prepared for the worst but isn't expecting it.

I'm Richard Quest. It's a busy hour ahead, and I mean business.

Good evening. Before we get to the details, let me update you on how the markets around the world bounced back on the hopes that maybe there won't be an open conflict between Russia and Ukraine.


QUEST: It fell very sharply on Monday as Russian troops moved into Crimea, but as you can see on the screen now, a sea of green arrows from New York to London to Frankfurt to Paris to Russia, even, 5.25 percent, right the way through to Tokyo and Hong Kong.

Today, the scene was the sell-off that could have been overdone, and Moscow, although isn't backing down, you're seeing the results are much sharper.

So, what was the market movements all about? The Russian president, Vladimir Putin, today said his country had no plans to take over Crimea. President Putin ordered 150,000 troops to end military exercises near the Ukrainian border and return to barracks.

Still, Russian troops remain on the Crimean peninsula. Although no blood's been shed so far, thank God, President Putin's maintained Moscow's right to use force if necessary.


VLADIMIR PUTIN, PRESIDENT OF RUSSIA (through translator): If I take the decision to use military force, it will be completely legitimate and correspond to the norms, international law, because we have the request of the legitimate president and also corresponds to our duties and corresponds to our interest protecting the people who are close to us historically.


QUEST: That's President Putin speaking in Moscow at a press conference. Our senior international correspondent Ben Wedeman is live in Sevastopol tonight in Crimea. It seems on the macro scale, things have eased off somewhere -- somewhat, Ben. Are you starting to feel that on the ground in Crimea?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, actually, Richard. On the micro scale, there were some tense moments just at the Belbek Base outside of Sevastopol. There, we saw hundreds of unarmed Ukrainian soldiers approaching a Russian position on their base, and the Russian soldiers fired warning shots over the head of the Ukrainians, who kept on advancing.

And then, the Russians threatened to shoot them, shoot them in their legs, if they came any further. Fortunately, the commander of that base was able to calm down the Russians and prevent bloodshed. It's insignificant that despite the fact that we believe Russian forces have deployed in many strategic locations around the Crimea, there has been no bloodshed.

But today, where the -- we saw the first shots fired in anger, and it was only because of cool heads that bloodshed was prevented. So even though at the macro scale the leaders seem to be talking down the conflict, locally, you don't get that impression. You get the impression that, if anything, tensions were ratcheted up today in parts of Crimea. Richard?

QUEST: And it -- as you will be much more well aware than most, it invariably is at the very local level where sort of things get out of hand. Somebody says the wrong thing, the wrong action is made, and before long, you do have a shooting match on your hands.

WEDEMAN: Yes, indeed. And in fact, given that today is Tuesday and these men in green, as some people are calling them, deployed around the Crimea on Friday, it is truly amazing that there hasn't been at least one incident between Ukrainian forces here in the Crimea and, let's just say it, the Russian forces, which are in many places that it is definitely a fortunate thing --


QUEST: Right --

WEDEMAN: -- that they've been as restrained as they have been. Richard?

QUEST: And just to clarify this: President Putin talks about self defense teams and is not necessarily acknowledging the men in green as being Russian forces per se. I hesitate to question a president of a large country like Russia, but nobody on the ground is buying that for a moment.

WEDEMAN: Well, it's important to point out that there are sort of unorganized elements, pro-Russian elements who are in the streets, who are patrolling, for instance, some of the streets of this city, Sevastopol. But at the same time, the men you see around the Ukrainian bases with very standard weapons, standard uniforms, they are clearly not just sort of arbitrarily-formed civilian groups.

And yesterday, I was in the port of Kerch, which is in the far east of the Crimea, where we had a frank and open discussion with an officer who said yes, I'm with the Russian Black Sea Fleet, that I was dispatched here from the Russian base at Sevastopol, and he said, yes, my men are Russian.

So, it doesn't take long when you're here on --


QUEST: Well, we seem to have lost Ben Wedeman, but I think we got the gist of what he was saying, and I think I can almost finish his sentence for him. But anyway, Ben Wedeman joining us from Sevastopol.

Overseas lenders are gearing up to get financial help to Ukraine. The United States is offering repayment guarantees for loans to the tune of $1 billion. It doesn't directly put money into Ukraine's coffers, it just makes it easier for Kiev to borrow.

A team from the IMF Fund -- the International Monetary Fund has arrived in Kiev. That's because the IMF offers a loan. If so, there will be strings attached. Economic reforms will be demanded.

And Ukraine's parliament approved an agreement to borrow from the European Union, loans worth nearly $840 million were agreed last year but weren't ratified until today.

Russia has also promised to lend money. That was before Yushchenko (sic) was -- lost office in Kiev. Ukraine's acting prime minister is opening talks with Moscow to find out if $2 billion loaned from Russia is still on the table.

The US secretary of state, John Kerry, has met with members of Ukraine's parliament in Kiev. He's making a point of showing Washington's support for the interim government. Mr. Kerry says helping Ukraine's economy is a priority for the US.


JOHN KERRY, US SECRETARY OF STATE: We are working closely and will continue to work closely with the IMF team and with international partners in order to develop an assistance package to help Ukraine restore financial stability in the short run and to be able to grow its economy in the long run.


QUEST: My next guest is one of the politicians that Secretary Kerry me with today. He's Petro Poroshenko, Ukraine's former foreign minister. He's also estimated to be -- by Forbes to be worth a good billion or two, thanks to his chocolate-making business.

Tonight, Mr. Poroshenko, we're interested in your business acumen and your sort of hat as a leading businessman in Ukraine as much as anything else, because as we look at the economic situation in Ukraine, tell us tonight, sir, what does the country need most, and what does it need immediately?

PETRO POROSHENKO, UKRAINIAN MP, FORMER FOREIGN MINISTER: Thank you very much for the invitation. Today, we have a very foggy weather and you cannot see the Maidan, but I think that the main and tremendous changes which were made in this country just defined what we need now very urgently.

The first and the most important thing is security, and I hear what you discussed now and the security and danger for and the fighting for peace, and the security in Crimea is our top priority. We think that this is very important that this day may be one of the most difficult days in Ukrainian history. We have today our American partners together with Secretary Kerry.

But point number two, the second important danger is the economy, and I think this is a very important to be as a country who are ready now to start up modernizing the country, to launch the economy, who maybe within the next few days sign a memorandum for cooperation with the International Monetary Fund and World Bank.

QUEST: Right.

POROSHENKO: Now, we need just a pillow to make it softer reform, for the people just not to lose the support of the people for the reform. And in that condition, the decision of the United States to support Ukrainian economy with $1 billion and coordinated with the European Union decision for much financial support, for 610 million euros is exactly --

QUEST: All right.

POROSHENKO: -- the evidence that the friend in need is a friend indeed. So, we can seriously improve the trust for the potential investor, not only by the financial injection, not only by the cooperation with the IMF, but the very dramatic changes in the investment climate of Ukraine. And we need just two positions: security, stop the war, and the economic cooperation and economic reform.

QUEST: Right. How much money do you think -- or how much money are you looking for? Last week, the figure of $35 billion was being bandied about. The Polish prime minister says he doesn't think it'll be that much. What sort of number, if you had to put a number on it, would you say Ukraine needs?

POROSHENKO: Look, I'm a responsible politician and responsible economist, and I doubt that we can just do like that, $35 billion. This is absolutely, I think, not very professional.

I also think that the cooperation program with the IMF, which would be very tailor-made and very severe and exact calculation, would be from $15 billion to $20 billion by several tranches, and it would come exactly at the time we need.

QUEST: Right.

POROSHENKO: The second position is just the international support in form of the -- either the European Investment Bank, World Bank, and support from different countries. It's also bringing an additional $3 billion to $5 billion.

I think that if we launch the reform, that would be perfectly enough. It will be the unexpected risks, including the operation in Crimea, including the embargo from Russia, including the dramatic rise of the price for natural gas and different other factors, which we should include in the calculation of our balance of payment. Even under that condition, Ukrainian economy --


QUEST: Right. Let me just --

POROSHENKO: -- using the improvement and modernization, can demonstrate growth.

QUEST: Let me jump in here, if I may, briefly.


QUEST: No, not at all, sir. Mr. Poroshenko, last night, John Lipsky, the former managing director of the IMF, deputy managing director, he said Ukraine -- we know what they need to do, they need to cut subsidies for fuel, they need to reform, there needs to be anti-corruption measures put in place, and there needs to be a restructuring of the economy.

Now, you've been a business leader in Ukraine for many years. Are you and your fellow CEOs prepared to lead the way on those reforms?

POROSHENKO: All these reforms are a significant part of the memorandum for cooperation between the Ukrainian government and the IMF. And for sure, all these reforms would be an integral part of this program for cooperation.

No doubt that we should build up the competitive economy. No doubt that this is an integral part of the investment climate. And the people are starting to change their country because they are not surviving under this level of corruption.

So, first of all, these reforms should have a very transparent way of doing. This is have a very good information policy, and I think that without that reform, it would be impossible to build up the new economy of new Ukraine, that's true.

QUEST: Mr. Poroshenko, thank you for joining us, sir. I appreciate it. Thank you very much, we look forward to talking with you more about this in the future. Thank you.

POROSHENKO: Thank you.

QUEST: The markets and how they responded. Well, you saw at the beginning of the program, the Dow Jones Industrials, a very good session, up one and -- nearly 1.5 percent. The S&P 500 is at an all-time record. More in a moment.


QUEST: Moscow shares rallied on the hopes that the Ukraine crisis will end without violence. The MICEX index since the start of last week, February the 24th. Now, it shot up about 5 percent today, but that, of course, only pretty much wipes out half of the loss of 11 percent that was seen on Monday.

On the big board, as you can see, by the time New York opened, there was very much an indication of how the developing changes were taking place. So, New York opened sharply higher, remained very strongly up for the whole session. And although just a tad off at the close, nearly the best of the day. The S&P 500, that is at an all-time high.

European markets rebounded the session after a sharp sell-off. The tensions have gotten -- same reasons. The Xetra DAX was up 2.5 percent, the Paris CAC 40, and London and Zurich were also higher as well. Put it all into perspective, and the markets were pretty much somewhat relieved by what they had seen.

Alison Kosik is at the New York Stock Exchange. We know the reasons why, but even so, still an impressive performance.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Oh, very impressive. You see the Dow closing 227 points higher, that's its biggest rally of the year. This was really a classic relief rally. It was a market that took its cues from Putin, Putin cooling off a bit, and the markets heated up.

Ironically, this comes after one of the biggest losses of the year, yesterday, that the Dow had. And as you said, the S&P 500 closing at a fresh record high. Analysts put a positive spin on this saying, you know what? The sell-off, it was a buying opportunity for everybody.

But also at the same time, not out of the woods just yet. Many American companies, Richard, they're watching these developments in Ukraine and Russia very closely, companies like Deer, Caterpillar, and DuPont --

QUEST: Right.

KOSIK: -- they do business in Ukraine, so they are watching this very, very closely, Richard.

QUEST: Alison, thank you. Alison Kosik at the New York Stock Exchange.

President Barack Obama has released a $4 trillion budget proposal for 2015. He's putting forward tax breaks for working families and higher tax for people on top incomes. The president wants Congress to implement a "Fair Share Tax," as it's being called. It's known as the Buffett Rule

The idea is anyone making more than a million dollars a year should pay at least 30 percent of their income in federal taxes. Now, you might wonder, how do they avoid doing it? Various deductions and machinations can bring one's federal tax down to below that particular level.

Also included, $56 billion worth of extra spending on infrastructure and job training. The president said balancing America's budget is all about values.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our budget is about choices. It's about our values. As a country, we've got to make a decision if we're going to protect tax breaks for the wealthiest Americans or if we're going to make smart investments necessary to create jobs and grow our economy and expand opportunity for every American.


QUEST: That's the president. Now, a look at other business news that you may need to know about in the course of an interesting day.

Apple's chief financial officer is resigning. Peter Oppenheimer will leave the tech company and join the board of directors of Goldman Sachs. He was hired by Steve Jobs in 2004.

A Bitcoin bank has been forced to shut after hackers stole more than $600,000. Flexcoin says it doesn't have the funds to cover the losses. Users who paid for extra storage will be able -- it's known as cold storage -- to recover their bitcoins.

And BP is setting up a separate unite for its assets in the US. The British company says it will enable the management to respond faster to changes in the US energy industry. BP lost a case in the appeal court and will have to continue paying money into the various Macondo funds.

Coming up, we look at what the gas crisis in Ukraine means and what it might mean for Europe's energy supplies, in a moment.


QUEST: Russia says it's putting up the price it charges Ukraine for the supply of gas. The state-controlled gas company, Gazprom, says Kiev has unpaid debts of more than $1.5 billion. You'll be familiar with the fact that a dispute between Russia Gazprom and Ukraine is nothing new.

But Ukraine's been pushed around Gazprom many times before. Look at it. In 2006, the company turned off the taps because Kiev refused to accept the price rises. Then as now, Ukraine was building a closer relationship to the European Union.

There was another price dispute in 2009, which led to severe gas shortages in several European countries in the middle of cold winter, because the line passes through Ukraine on the way to Western Europe.

And right now, Gazprom says it's building the means to ship gas to Europe without going through Ukraine. Obviously, when it passes Ukraine, there are transfer charges that it has to pay to the country. By bypassing Ukraine, then, of course, it would be a lot cheaper.

The Nord Stream gas pipeline opened in 2011. At full capacity, it will deliver 100 million cubic meters of gas a day from Russia to Germany and to other countries. So, Gazprom has nearly a fifth of the world's gas reserves and supplies, more than half the gas that Ukraine used.

Look at Europe's dependence. Most European countries buy a large part of their gas from the same Russian company. According to Morgan Stanley, Russian gas represents less than 20 percent of British. So, the British and you can see the French, that's less than 20 percent, Belgium and the Netherlands.

Now, then there's a group of countries that get between 40 and 80 percent of their gas from Russia. You're talking about Hungary, you're talking about Germany, and you're talking about Austria.

The countries most reliant on Gazprom are those in Eastern Europe, and there again, you can see right the way across, almost to the Russian border: Belarus, Finland, the Czech Republic, and Bulgaria.

Now, who provides all that? One of the companies is the Italian company ENI, very active in Ukraine. Last October, the chief exec, Paolo Scaroni met with Viktor Yanukovych, who was then president. ENI has right to over nine blocs for exploration. I asked the chief executive if he felt his assets were safe in Ukraine.


PAOLO SCARONI, CEO, ENI: We have a strong position in the Ukraine. We are still in the exploration phase, and when I met President Yanukovych, it was to sign for a final deal in the Black Sea.

Now, for the time being, we do not have a lot of money at stake, but certainly the Ukraine is a country of great interest for us. The Ukraine needs desperately gas, and we are engaged in exploring both shale gas and conventional gas in the country.

QUEST: Have you or your company, have you been in touch with the new interim administration in Kiev, basically to find out what's going on?

SCARONI: No, not yet. As a matter of fact, we do not have any more partners in the country. We wait to see if the situation gets normal, and then I would certainly get back and get in touch with the new authority there.

QUEST: You need to be on top of this, don't you? Because if you've got a potential deal and a potential asset that you're looking to invest in, you want to make sure firstly that it carries on and be that nobody gets there before you.

SCARONI: Absolutely. No, I think -- we have been living through changing of governments in many countries in our life, and normally contracts are respected by new governments. So I'm not expecting any major problem in the Ukraine.

QUEST: In terms of your relationship with Gazprom, ENI is a major if not the largest European purchaser from Gazprom, and now we hear that Gazprom is looking at its pricing and its discount structures. Do you expect any changes to your contracts with Gazprom?

SCARONI: Yes, we do expect some changes, favorable to us, as a matter of fact. We have been striking a new deal with Statoil, which is another supplier of ours, and we would start a new negotiation with Gazprom in the next few weeks.

Now, of course, when you mention new conditions, Gazprom is mentioning the new condition for the Ukraine, but this is a problem which does not concern us.

QUEST: So, you're not expecting to find your relationship with Gazprom affected by what's happening in Ukraine?

SCARONI: No, not at all. Let's say for the time being, we are expecting no change whatsoever. What has been happening in the Ukraine has not affected the gas market either. Prices are where they were ten days ago. So, for the time being, no real major issue.

Now, of course, if you look for a catastrophic scenario in which the Russian gas will not flow anymore through the Ukraine, the situation is different.

QUEST: But you're not expecting that?

SCARONI: This, I -- frankly, I don't know. I'm not expecting that, frankly. But it is always a possibility and we have always to prepare for the catastrophic scenarios, of course.

QUEST: If we look at Ukraine, when you and I last spoke, one of the things -- we were talking about fracking and fractured gas extraction. But you made it very clear then that you saw great potential in Ukraine for this, and now, if we take onboard your Black Sea aspirations. So, you still -- you very much believe that Ukraine has a huge energy future for the West?

SCARONI: Yes, I do. I think that the Ukraine is probably the most promising country in Europe for shale gas, and that's the reason why we are there. We have nine blocs which we are exploring right now.

The Ukraine needs desperately gas, and this is very clear today, and we are very much engaged to find shale gas for the country.

QUEST: One of the big issues with the reform of Ukraine is the question of corruption, transparency, all the issues. Now, I know that it's not your job as an oil company or as an energy company to be the morals, if you like, of these governments, but at the same time, you are -- you do now have a position where you can exert huge influence. Will you be doing that?

SCARONI: Yes, we will do whatever is needed, first of all to keep corruption away from us and from our suppliers, from the world around us. And I think example is always the best way to convince people that corruption is not part of the oil world.


QUEST: That's the chief executive of ENI, Mr. Scaroni, talking to me earlier.

Still on QUEST MEANS BUSINESS, we look at how Europe's attitude to sanctions on Russia may have influenced the decision.


QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network, the news will always comes first. The Russian president has said Russia does not want to annex Crimea and doesn't want a war with Ukraine. But President Putin reserved the right to use force if ethnic Russians in the Peninsula were to ask for his help. Mr. Putin says the current authorities in Kiev are not a legitimate government and have taken power in an unconstitutional coupe.

U.S. Secretary of State John Kerry's been Ukraine's interim leaders. He offered Washington's support and a billion dollars' worth of loan guarantees. He said the U.S. and its partners will take further steps to isolate Russia if it doesn't withdraw from Crimea.

Stock markets rallied as worries about the military conflict eased. The S&P 500 rose to a record high in New York and the Dow Jones had its biggest gain of the year. It was an emotional session on day two of the trial of Oscar Pistorius. A second neighbor testified she heard shouting the night Pistorius shot and killed his girlfriend Reeva Steenkamp. Pistorius wiped tears away in the courtroom. He says he mistook Steenkamp for a burglar.

Russia's President Putin has warned Western government it will be a mistake to punish Moscow with sanctions for the actions in Ukraine, saying, "If you use trade as a weapon, both sides will suffer." Look at me, join me over at the super screen and I'll show you who might be those that will suffer. In Europe, America's allies are wary. That's because it relies on Russia for about 25 percent of its natural gas as we were talking about.

Starting off with Germany, if you look at Germany, one of the largest countries in Europe that does inward and outward investment -- exports and imports with Russia -- $110 billion was in 2012, roughly equal to Germany's combined trade with Japan, Brazil and South Korea -- sizeable. No wonder Angela Merkel said that she believed President Putin was better at the table of the G8 rather than being kicked out. And the United Kingdom not ruling out sanctions against Russia. Not enthusiastic necessarily. Russian wealth has breathed life into London's economy -- newspapers, footballers, banks and real estate. So, when the U.K. government says it's not looking at sanctions or it's questioning whether or not Russian access to financial markets.

Let's talk about this. Becky Anderson is at Downing Street, home of the British prime minister now -- joins me now. Becky, much was made about seemingly reluctance of the U.K. to jump on board the sanctions bandwagon.

BECKY ANDERSON, CNNI ANCHOR AND HOST OF "CONNECT THE WORLD" SHOW: You're absolutely correct, and then in the past 24 hours an image appeared that has made headlines around the world. It was an image of a draft document being carried by senior British official to what we believe was the National Security Council meeting. Now, there is no suggestion that this document actually made it into what were the final discussions on whether the U.K. would get involved in trade sanctions or asset freezing of Russia and Russians, but it is important to note that within the wording of that document, it talked about the fact that London's financial center to be effectively omitted from any potential sanctions going forward. Now you and I understand exactly what that entails and why that would be significant. We've got some $60 billion worth of trade going towards Russia from the U.K. -- incoming to the U.K. and through London's financial center is some $40 billion worth of capital.

Now, you rightly pointed out over the past half hour that nobody wants a fight on the energy battleground that is the E.U. versus Russia for Ukraine. But when it comes to bilateral trade, things get a lot more complicated. And I see at present, no cohesive E.U. policy towards trade sanctions nor the freezing of assets. This is what the foreign secretary William Hague had to say, alluding to that draft document snapped, let me tell you, by a photographer right here outside of Downing Street. These were his words -- have a listen to this.


WILLIAM HAGUE, BRITISH FOREIGN SECRETARY: Any such photographing or making any documents available for photographing is absolutely regrettable an should not happen. And I hope all officials will ensure in the future it does not happen. Nevertheless, it should also be seen in perspective. So I can't agree with him that it had those implications and I want to make absolutely clear that anything that is written in one document being carried by one official is not necessarily any guide to the decisions that will be made by Her Majesty's government. And our options remain very much open on that subject.


ANDERSON: Well they remain on the table, the official word from here at number 10 Downing Street, the British prime minister's residence, is as follows. I think it's important that our viewers see this -- let's get the words up on the screen for them. The U.K. has made it clear that continuing to violate Ukraine's sovereignty will have costs and consequences. "We will take decisions on what these are in close collaboration with the E.U. and our G7 partners." It went on to say, Richard, "together we are considering a range of diplomatic, political and economic measures." But given the numbers that I've just been -

QUEST: Right.

ANDERSON: -- alluding to and those that you've been discussing with your other guests, this is a really difficult decision --

QUEST: All right.

ANDERSON: -- for members of the E.U.

QUEST: Becky, we're just looking at pictures now of John Kerry who is arriving in Paris. He was obviously in Kiev with his billion dollar loan guarantee, and now he's in the French capital tonight. The U.S. basically -- President Obama -- he talked sanctions, he talked visa restrictions, and yet Merkel and Cameron backing -- not -- there seems to be a strong rhetoric out of Europe, but I wonder how far they are unified in determining to go forward and what they would do.

ANDERSON: And that is the $64 billion question which is -- to a certain extent -- exactly how much money goes out to U.K. in investment to Russia at the moment. And that is the big problem. When it comes to countries like Syria or Iran, we're slapping sanctions -- or the E.U., I shouldn't be using the word we -- when the E.U. has been slapping sanctions on other countries along with his international partners and including the U.S. I think things have been less complicated. There were certain characters whose assets they wanted to freeze and certain industries that they saw as potentially important -

QUEST: Right.

ANDERSON: -- to put sanctions on, but this -- I think this -- these bilateral trade environments with Russia are a lot more complicated. I mean, you know -

QUEST: Right.

ANDERSON: -- not least for the U.K. Just consider how much business BP does -- the British oil company does in Russia. Consider how many cars for example -- Renault, Nissan are making here but selling into the Russian market. I think I'm right in saying that one in five cars this year from the Nissan factory here are expected to be sold in Russia. So, you know, the numbers need to stack up. If we are looking at economic -

QUEST: Right.

ANDERSON: -- sanctions -

QUEST: Becky -

ANDERSON: -- along with diplomatic and political rhetoric, I think the story gets very complicated.

QUEST: Becky Anderson in Downing Street with the economic side or at least the sanctions side of the story tonight. Russian troops remain in Crimea. Diana Magnay is covering the standoff at Ukraine's Perevalnoye Base.


DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT BASED IN BERLIN: This is where two worlds collide. On the one side, an unmarked army. The Russian president says they're not his men. Tell-tale signs suggest otherwise. On the other, Ukrainian troops trapped in their bases. In between the two, army wives anxious to avoid war who feel Crimea's new pro- Russian leader Sergei Aksyonov has put their husbands in an impossible situation.

ALINA LEVITSKAYA, UKRAINIAN SOLDER'S WIFE: They do not take the oath to the new Crimean authorities and they will be fighting. If there is a drop of blood spilt on either side, then our husbands will be held responsible.

MAGNAY, TRANSLATED INTO RUSSIAN BY INTERPRETER: Relations between the two sides seem cordial. It's us they dislike. Are we able to talk to the Ukrainian soldiers, because you are clearly from Russia?

MALE SOLDIER, VIA FEMALE INTERPRETER: He (inaudible) refused to talk to you.

MAGNAY: OK, so you are taking orders from Aksyonov?


MAGNAY: This man has come to bring food to the Ukrainian soldiers. He says he wants Russian forces out of Crimea.

SERGEI COLOVKO, MEMBER OF SELF-DEFENSE UNIT, TRANSLATED BY MAGNAY: I'm Russian, he says, and I want to say I don't need any protection from any brother nation or anyone else on my land. We will solve our problems through talks, not fights.

MAGNAY: (Inaudible)ing food deliveries at the gate, this self- organized band of brothers, staunchly pro-Russian, they hope this month's referendum gives them a clean break from Kiev.

MALE, TRANSLATED BY MAGNAY. It will mean either we have full autonomy or we disconnect from Ukraine and join fully with Russians. That can only be positive.

MAGNAY: Only the young have no agenda, no idea their playgrounds have become an international flashpoint. Diana Magnay, CNN Perevalnoye, Ukraine.


QUEST: When we come back, how the Russia/Ukraine dispute is affecting the way other European countries view the European Union. In a moment.


QUEST: The Russian/Ukraine dispute has made some eastern European countries think about strengthening their ties within the Union. Poland has voiced renewed interest in adopting the Euro as part of a bid to shield itself from future instability. Before the program, I spoke to Jacek Rostowski, Poland's finance minister from 2007 until November last year, and I asked him if Poland or any part of the E.U. would benefit now more so by joining the Eurozone.


JACEK ROSTOWSKI, FORMER POLISH MINISTER OF FINANCE: Well our view is quite well known, and that is that we definitely intend to become members of the Eurozone because even before these dramatic events in Ukraine, which have of course ended with -- they haven't entirely ended yet, but they have involved incursions by Russian forces onto Ukrainian territory. Even before then we were quite clear that it was not feasible for Poland to remain, in the long-run, in the sort of no-man's land between the Eurozone and the Ruble zone. So our commitment to join the Euro in the long-run has always been there. On the other hand, there are many conditions which need to be satisfied before -

QUEST: Right.

ROSTOWSKI: -- I, for one, would feel that it was a safe opponent to join the Eurozone.

QUEST: Do you see -

ROSTOWSKI: Safe economically --

QUEST: Right, right.

ROSTOWSKI: -- not militarily.

QUEST: Do you see any concern from the events in Ukraine that Poland now needs to take account of?

ROSTOWSKI: The conclusions that we draw from that is that Poland is only as safe as its alliances and its membership of the European Union is strong. And Poland has made huge efforts to ensure that the West makes its decisions in a unified manner and acts in step.


QUEST: The weather forecast now. Jenny Harrison's at the World Weather Center. Good evening, Jenny.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Evening to you, Richard. I'm going to start out with a look at the satellite picture across Europe. Now, we have still got a very unsettled picture across the northwest, but particularly so across the central and southeastern Mediterranean. This area of low pressure has just been sitting across these central areas -- Italy in particular -- and of course producing some rather heavy amounts of rain. Look at this, in Civitavecchia we've got 55 millimeters of rain, 46 in Calgary and France. So, as I said, that's all come down in a very, very short space of time. And there's more to come because that system -- it is slowly moving away towards the southeast, but as you can imagine, still producing some fairly persistent amounts of rain. Not bad across north central and northern areas of Europe, and then, guess what? There's another system heading into the northwest. For the most part the rain over the last few hours is actually in further to the south, so it has given the U.K. great a break. You can see quite a bit of heavy rain there pushing into the northwest of France, and then it just eases off a little bit, heading off towards the south. But at least it's been fairly dry across in the U.K.

Very strong winds too further south, because remember these last couple of systems have taken the worst of the weather further towards the south, and that also means it's very strong winds. So you can see along coastal areas San Sebastian and France very high waves there and also Biarritz in the northwest of France. Again, some pretty high waves, and of course as usual everybody out there taking pictures. So you just have to hope that the waves aren't that big that they can actually knock people from their perches. But we've still got these flood warnings and place. Finally, we're just down to one severe flood risk for Somerset. But for the next couple of days -- Wednesday, even Thursday, -- there's still a high risk of flooding in this area. But we just hope to of course eventually reduce from the severe flooding warnings, just perhaps to a flood warning. I'm sure that would come as a nice welcome relief.

Here's the situation across the central and southeast of the Med. There is that rain, and then of course we'll see a little bit of snow sort of here and there -- really mostly it's those high elevations. But it's not feeling wintry just about everywhere. We've got some, you know, good spring feel out there. This is in Germany, so the snow drops are plentiful -- that cat seems to be enjoying the weather. And of course it's Tuesday - - many people are going to be celebrating Shrove Tuesday in one form or another. Of course you've got Mardi Gras in the U.S., and Shrove Tuesday is the big day in the U.K. Everybody tends to have these pancakes -- tossed pancakes -- have lots of pancake races. But I have to say, Richard, this particular pancake -- if you can see it very clearly -- they're very, very uniform. I'm thinking shot borsch (ph). I'm not thinking they cooked them themselves --

QUEST: And not the sort of thing one would find in Ms. Harrison's kitchen.


QUEST: I have to say, I have to say I was just in the U.K. yesterday and today -- the daffodils are out. The daffs are out.

HARRISON: Very nice. It's a good sign. Good sign, Richard, spring is just around the corner.

QUEST: Thank you, Jenny Harrison with her pancakes and the daffodils. In any struggle, we'll continue in a moment in the Ukraine. It won't just be a question of boots on the ground, it's also our fingers on the keyboard. Coming up next, the president of McAfee will be joining me. We are going to talk about cyber security in the new age. Come with me, sir.


QUEST: Russia may be waging a cyberwar against Ukraine. The head of Ukraine Security Services says major telecommunications in Crimea have been intermittently down. Ukraine's telecoms provider says phone and internet links have been jammed. Kiev claims lawmakers want their mobile phones hacked and it's believed Russia's Black Sea Fleet has electronic warfare capacity and can jam phone and radio signals. Russia is reported to have used cyber-attacks against Georgia during their week-long war in 2008. Michael Decesare is no stranger crimes. He's the president of the internet security company, McAfee. He joins me know. Michael, this is a new era in warfare. We've always known that sort of the black arts were, but what's your understanding of what's going on in Ukraine?

MICHAEL DECESARE, PRESIDENT, MCAFEE: I think we have been -- for a while now we've understood that governments have had the capabilities to use cyber as an offensive weapon. I think this time we're just seeing it be a little more pronounced up front. You know, most of our critical infrastructures -- whether it's telecommunications, power, what have you, they're online. So they're susceptible to attacks just like any computer.

QUEST: Which we shouldn't be surprised about if we know that the NSA and the governments of the world -- the U.K., for example -- are listening in in normal circumstances. In extraordinary circumstances, it's -- then they're obviously going to be at it.

DECESARE: As you look at the explosion of IP addressable devices -- everything that we use in our day-to-day lives is online. And when they're online they're susceptible to attacks, whether it's phone systems, whether it's our most critical infrastructure that we rely on every day.

QUEST: There's not much you can do about it if you're talking about the Russian Federation and the Black Sea Fleet, is it? In terms of switching off the phones.

DECESARE: You can look at it two ways. I mean, obviously if you're able to disrupt someone's communication system, they can be less coordinated, they can't communicate quite as effectively. Conversely, -

QUEST: (Inaudible) up from the other point of view -- from our point as a, you know, as a user. If they decide to switch off or hack, there's not much you can do.

DECESARE: Well, but then on the same token, I think if a country is able to keep their online critical infrastructure from being hacked, it becomes quiet and offensive weapon as well. So, it's a little bit of the game of cat and mouse.

QUEST: Really. Now, we look at the -- every story these days eventually seems to have a computer cyber security or a hacking angle to it. I've never seen anything quite like it -- whether it's the Ukraine situation, something more every day like Target or tonight we're reporting that one of the Bitcoin exchanges, Flexcoin, has been hacked and their coins stolen.

DECESARE: I think -- I mean, if you look back over the Christmas holidays, right. So much has been made over the years about Black Friday when people shop. And then all of a sudden there was Cyber Monday that caught almost quite -- you know -- the same attention this year, and I think it's just showing the propensity that we have to want to do business online.

QUEST: So, what can we do to protect ourselves besides -- I'll give you the plug, McAfee, I'll give you the plug. Besides that, (inaudible), what else can you do?

DECESARE: I think we need to hold our Cloud providers, the companies we rely on every day, to a higher standard. I think -

QUEST: How can you do that? They hold -- they've got us by the short and curlies -- not the other way 'round.

DECESARE: Ah, but you look at the damage that can get caused through a company like Target when they go through an incident like they're dealing with right now. There's prevention that could be done up front. Systems that are online can be designed in a way that are safe from the very beginning and not as susceptible to those same types of attacks.

QUEST: You as a company -- (inaudible) briefly -- you as a company obviously have to expect this to be an explosive growth area for you in the future as more IP addressed-related devices come on stream.

DECESARE: So, I mean, when you look at the security industry. It's a unique sector of IT and then it's not really us against the other six security companies, it's the collective us against the cyber criminals that are in the world. And they're getting more technically sophisticated, and they're getting more advanced, and the security companies need to keep up and keep tow with that.

QUEST: Thank you very much for joining us.

DECESARE: I appreciate your time, thank you.

QUEST: Appreciate it and thank you very much. Michael Decesare. It's interesting that the New York state attorney general, on this program said that cyber security and fraud was the single biggest growth area in crime at the moment. We'll have a "Profitable Moment" which will be a bit more profitable, maybe, after the break.


QUEST: Tonight's "Profitable Moment." The British foreign secretary William Hague described the Ukraine crisis as the most serious crisis to affect the Western alliance so far this century. And he's probably right, bearing in mind the severity of what's at stake. But in the last 24 and 48 hours, we've also seen just some of the difficulties in this new global economy. The question of who will go forward with sanctions, trade barriers, visa restrictions and asset freezes. Oh, it might be fine for the U.S. president and the U.S. secretary of state to talk about sanctions in the Whitehouse and in Washington, but in Europe they've been far less enthusiastic about the prospect, and for good reason. They stand to gain and lose more, all of which makes this a very tricky crisis indeed. Perhaps one of the trickiest that we've seen in decades. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) hope it's profitable. I'll see you tomorrow.