Breaking News: Iraqi PM Nouri al-Maliki Steps Down; Crisis in Ukraine; Ukrainian Economy Struggles; Euro Area Growth Stalls
RICHARD QUEST, HOST: The market is closing, it's up some 60-odd points towards the end of the trading day. They've moved the gavel, it's on the other side. He still hits it three times. I don't know why they always hit three times. It is -- it's Thursday, it's August the 14th. Tonight, breaking news, we'll start. Iraq's prime minister is stepping down. You're going to hear the details from Baghdad in a moment. Also, a country on the brink of war. A currency on the verge of collapse. Tonight's Ukraine economy minister tells me what happens next. And growth has broken down. Europe hits a second quarter slump. I'm Richard Quest. We have a very busy hour together, and I mean business. Good evening, we start with breaking news, though. Nouri al-Maliki, the former prime minister, has now stepped down as the country's leader, making way for Prime Minister-Designate Haider al-Abadi to become the new PM. Iraqi state television has reported in an urgent banner on Thursday. Nick Paton Walsh is in Baghdad and joins me now. The decision for al- Maliki to go now was a manifestation of the obvious and the reality.</s>NICK PATON WALSH, CNN SENIOR INTERNATIONAL CORRESPONDENT: And days, really, of pressure and the political writing on the wall here. We know little about the conditions around this key statement, but we know now that, according to a banner on state television, he has taken the decision to step down from power in favor of Haider al-Abadi. Days, now, he appeared to defiantly be holding out in the hope that somehow someone may come to his rescue, holed up in the green zone with a lot of loyal firepower, yesterday making a defiant speech, asking the federal courts to rule on the constitutionality of the new president nominating Haider al-Abadi as prime minister-designate. Hours ago, there was said to be an urgent announcement coming from Haider al-Abadi on television. We haven't heard that yet -- sorry, from Nouri al-Maliki on television, we haven't heard that yet, but we have seen this urgent banner on the bottom of the screen saying that yes, he has taken the decision to step down in favor of Haider al-Abadi. A sigh of relief, I think, here for many in the capital of Iraq, Baghdad. You just saw there a power cut, precarious life here, but now potentially a moment of political healing, perhaps, between the sectarian divides of this country. Many have been waiting for this daily tension to pass, Richard.</s>QUEST: OK, now that might solve -- or at least pour some oil on the troubled waters of the domestic politics, but a shift from al-Maliki to al- Abadi, what does that do for the battle in the north?</s>WALSH: Very simply, in the eyes of those in the international community, particularly the Americans, who wanted to see, quote, "more national unity" before they bolster any aid to the Iraqi government here, it perhaps provides a degree of a clean slate. Now, Haider al-Abadi, in the eyes of many, certainly Barack Obama, speaking hours ago, is somebody who could potentially heal the sectarian divide. Nouri al-Maliki, a Shia who many accuse of targeting Sunni politicians, marginalizing Sunni communities during his years in power. Haider al-Abadi is from a similar stock, the same party. Spent some time in London during the Saddam years, but is clearly in the eyes of the White House somebody they feel more comfortable with. Still someone to be tested, actually, in the office of government. Still to have a resounding endorsement by Sunni politicians, although the Sunni speaker of parliament did shake his hand after he was nominated, so there is a glimmer of light there. But he has a very difficult job. But I think for those who were sitting here watching this political deadlock, really, paralyze the country, the fact that it's now lifted is a real cause for some sense of jubilation, perhaps premature. Richard?</s>QUEST: Nick, thank you. The moment you hear from al-Maliki in his resignation speech, please come back to us. We'll need to talk about that in more detail with you. Our other big story tonight, Vladimir Putin says he wants to stop the blood flowing in eastern Ukraine, and the humanitarian situation on the ground is worsening. City leaders in Donetsk say shelling has hit nearly all districts of the city on Thursday, 74 people have died, and more than 100 have been injured in fighting in the past three days as Ukrainian forces try to encircle the rebel forces. The convoy that Russia says is carrying humanitarian supplies is still outside Ukrainian borders. The Ukrainian government says it, too, is sending much-needed aid to eastern Ukraine. If we put this in economic situations, come and join me at the super screen, and you'll see just how the Ukrainian hryvnia -- the dollar -- has fared against the dollar, and what a dramatic -- Now, it's very interesting. We had this stability late last year, obviously. But then as Crimea picks up the pace, it goes down. Little bit of an uptick, then once again, let's get right in there and you'll see, this latest crisis is pulling the market well and truly down. That's the way things are looking now. So, joining me now is the economy minister, joining me now, the economy minister, Pavlo Sheremeta. Minister, we need to begin with this issue of the -- aid convoy that is heading towards Ukraine. What is it that the government fundamentally fears is happening with this convoy?</s>PAVLO SHEREMETA, UKRAINIAN ECONOMY AND TRADE MINISTER: Well, the worry that the Ukrainian government has is that through that very border, there are lots of Russian militants with Russian weaponry coming in, so the natural worry, what kind of that convoy is? So, that is why the Ukrainian government says that it will receive the convoy on the Ukrainian territory only under the strict supervision of the International Red Cross.</s>QUEST: Right. So, let's be blunt about this, Minister. You're fundamentally saying you fear these trucks are not carrying water, rice, and goods, but some of those trucks could be carrying arms, bullets, missiles, whatever.</s>SHEREMETA: Well, we just knew that this is coming through. So, that's why we are naturally worried. But trusting the International Red Cross and trusting the supervision of the International Red Cross, we believe that the Red Cross will supervise and ensure that it's truly humanitarian aid.</s>QUEST: Right. And is it your belief and your understanding that Russia will allow the Red Cross to intercept or to take control of this convoy once it reaches your borders that will enable it to go down to Donetsk and the affected area?</s>SHEREMETA: Well, this is our request, and we believe that it should be done according to the international law, and we believe that the International Red Cross is the best organization best-suited for this operation.</s>QUEST: We need to talk now about the economy and how the economy is weathering --</s>SHEREMETA: Sure.</s>QUEST: -- because you're about to apply for and receive the second tranche of the IMF loan, the IMF standby agreements and loans. There is a vast difference in the geopolitical system today than when that loan was negotiated and agreed. Are the economic fundamentals vastly different as well?</s>SHEREMETA: Yes, that's true. We have a seriously different situation, and we appreciate the understanding of the international financial organizations of the situation that Ukraine is really in.</s>QUEST: But how can you convince the IMF now that it's not pouring more good money down the drain by continuing with a program in a country which -- where there is still such a civil war taking place?</s>SHEREMETA: Richard, I have to tell you that I disagree it's a civil war going on in Ukraine. I visited Donetsk in the spring. It was peaceful and quiet city, which tells that the situation that we have at the moment, this war conflict, is instigated from abroad. And that's why our request to Russia that the best humanitarian aid would be actually to stop the inflow of militants and weaponry. And it's - - actually, it's quite good that international financial organization understands, too, that this is not a civil war. Ukraine is not at war with itself, not at all.</s>QUEST: Right. So, finally, Minister, are you seeing any signs of external investment coming into the country? Are you -- in your private conversations with bankers and with Western companies, are they saying, "Get your act together and we'll plow some money in and build a factory" or whatever?</s>SHEREMETA: Thank you, Richard, for that question. I'm meeting with - - in my capacity, of course -- I'm meeting with investors very regularly. And I should say it's a big interest to Ukraine. I usually have the halls full of investors. They are worried, of course. And absolutely the three worries that they have are that, when you guys will take full control of your country? Are you guys serious about the corruption in your country? And the third one, what are you doing to be solvent? And actually, on all three fronts, the Ukrainian government is going forward to ensure that we have the full control of our territory, that we are serious to fight corruption, and to deregulate the business, to make it simpler, to make it less expensive so that all the investors, Ukrainian and foreign investors, can get a good profit operating in Ukraine.</s>QUEST: Minister, thank you for joining us. You and I will talk many more times as these investment decisions and --</s>SHEREMETA: Thank you very much.</s>QUEST: -- as it moves forward. The minister joining me, there, from as you can see, it's a very busy day today. Now, the crisis in Ukraine has hit Europe's economy hard, and worse may be to come, because it's still extremely early days. Eurozone GDP stalled in the second quarter, according to this. And it actually surprised analysts. So, if you take a look at the various performance, eurozone economies are most definitely running at different speeds, you can see in the car.</s>QUEST: You've got Germany, which of course is the star performer. It's consistently -- it's ahead of the bad performer in Italy. We know that Italy is in recession, they are near the back, but Germany's number was considerably lower than expected. It was expected to have a reduction of 0.1 percent -- 0.1 tenth of a percent. It was actually 0.2 tenths of a percent. Moving forward, you've got -- or backwards if you like, you've got -- so, we've got Italy in recession, Germany slowing down, and then you've got France, which is just basically stagnant at the moment. The reason for France's stagnation, of course, is manifold. Austerity, it's all to do with the questions of what's happening with the reforms and whether those reforms have actually been stalled. The Russian sanctions, of course, are what is really causing the biggest headache and could be coming right across the road in the middle of it. An escalation could fall -- could push the team further back. Germany is Russia's biggest trading partner. You get the idea of the way things -- One good performer, Portugal is pulling out the surprising, beating Spain, near towards the front of the pack. Elga Bartsch is Morgan Stanley's chief European economist. She's optimistic about the team's chances.</s>ELGA BARTSCH, CHIEF EUROPEAN ECONOMIST, MORGAN STANLEY: I actually think this is more a case of recovery interrupted than recovery aborted. There are a number of special factors that dented second quarter GDP. And I do think that growth will resume in the third quarter, and in particular in Germany, where these technical factors were particularly severe. The payback from the unusual warm winter weather, for instance, that really hit the construction industry in the second quarter.</s>QUEST: Joining me now, James Shugg, senior economist at Westpac. You and I spoke about this. One reason I really wanted to talk to you --</s>JAMES SHUGG, SENIOR ECONOMIST, WESTPAC: Hi, Richard.</s>QUEST: -- tonight, because we spoke a couple of -- I think it was last week or the week before that -- and we put it into some sort of context. But I read your article, and I read your comments today. You're not worried about Germany, you're worried about France.</s>SHUGG: That's right. Absolutely. Germany, as we just heard, had a small contraction because the economy was actually very strong in the first quarter because of mild weather. But the French issue -- look, the economy is, as you said, is stagnant. It's an uncompetitive economy, because markets haven't forced them to put in place reforms, like we've seen in places like Spain and Portugal, or because they haven't had some inspired leadership to direct the economy in that direction, France is just being left behind. The boss of Peugeot a year or so ago said that their most efficient plant is now in Spain. Spain's the star performer. They've gone through a real tough time over the past few years, but they're coming out at the end with a more refined, efficient economy. And that's what's been demonstrated by the figures, which showed 0.6 percent growth in the latest quarter, 0.4 percent in the previous quarter.</s>QUEST: I look at the eurozone and the E28 and the E18 numbers, and we're not quite talking about the whole lot falling back into recession, but when you talk about the inflation number, which we saw, which was down at 0.4 tenths of a percent, you've got deflation, which has de facto arrived. You've got some major economies slowing down. Or maybe, James, we are talking about the potential for it slipping back into recession.</s>SHUGG: Look, Richard, the issue of deflation is a really concerning one. I'm sure the ECB council are thinking about this all the time. Already, 40 percent of the population of the eurozone are living on the cusp of or actually in deflation. We've got Spain, Portugal, Italy on zero. Estonia on zero. Slovakia and Greece. That's 6 of the 18, a third of the countries. And that's why we need to look at the very weak growth numbers as well. Even if it is just a pause in the recovery, the ECB is likely to want to do more in terms of policy to prevent deflation from becoming entrenched --</s>QUEST: Right.</s>SHUGG: -- and to ensure that the recovery is only pausing and that we see a bit of an uptick. And that's why we think there'll be an asset purchase plan announced by ECB chief Draghi, probably by October.</s>QUEST: Asset purchase, LTRO, or they've given it a new acronym, IFLLTRO or something, which is even longer range. Thank you, sir, nice to have you on the program again. Good to see you.</s>SHUGG: Thanks, Richard.</s>QUEST: Now, when we come back, President Obama says the situation for refugees trapped on Mount Sinjar is greatly improved. You're going to hear from Iraq after the break.