[Richard Quest, Cnn:] Wall Street is rocking this Friday. The Dow has broken 15,000. It's a job well done. U.S. unemployment numbers are encouraging. And look, the cherry blossoms are out; spring has sprung. But with the forecast, Europe faces a deeper recession ahead. I'm Richard Quest in the German capital tonight, where we mean business.
[Quest:] Good evening. We are live tonight in the German capital and an appropriate place to be when the economic situation on both sides of the Atlantic could not be seen to be more different. They are in stark contrast tonight. On Wall Street, in New York, celebrations on the trading floor as the Dow and the stock market hit record highs, the Dow over 15,000, the S&P; over 1,600. And job numbers beat expectations. Here in Europe, markets may be up and we had the E.U. spring forecast with a warning of a deeper recession this year. Tonight we have analysis from both sides of the Atlantic. We'll start, though, over on Wall Street. For the first time the Dow Jones has gone over 15,000. The S&P; gained went over 1,600. Alison Kosik joins me from the New York Stock Exchange. It's been a it's been a while coming, an inevitability some would say. But, Alison, worth saying nonetheless.
[Alison Kosik, Cnn Business Correspondent:] Yes. It is, you know what, when you saw the Dow hit 15,000 even the sort of the traders downstairs who don't necessarily, you know, live their lives on these numbers per se, that necessarily the media does, they actually did cheer. They cheered, they rang a few bells. They were excited when the Dow hit 15,000 and so was everybody else. Now you've seen the Dow pull back a little bit from 15,000, but even if it closes at the level it's at now, it would still be making history. We have never seen the Dow trade this high. Let's not forget the S&P; 500. It also is trading at record highs right now at 1,650. It is off the highs of the session. But once again, if it closes at this level, Richard, it would make history as well. And this is all after we got that upbeat jobs report, showing that employers here in the U.S. added 165,000 jobs in April. The unemployment rate ticked lower, from 7.6 percent to 7.5 percent. All of that, Richard, pushing investors to buy in, Richard.
[Quest:] Alison Kosik at the New York Stock Exchange, let me dot the I's and cross the T's on that jobs report. The numbers were 165,000 jobs added in April, better than expected. And as Alison said, the unemployment rate fell to 7.5 percent, still 1 percentage point, of course, a whole percentage point above where the Fed wants to see it before it said it will move on interest rates. More interestingly, revisions upwards for both February and March, with a total of 114,000 extra jobs. Mohamed El-Erian, the chief executive of PIMCO, joins me now from Newport Beach, California. Good evening, Mohamed, from Berlin. Now this is the sort of economic news to be cheerful about.
[Mohamed El-erian, Ceo, Pimco:] Yes, it is, Richard; like you say, it's an encouraging report and in three mutually reinforcing ways. So first, if you look at the average for the last three months, the U.S. has now created 212,000 jobs per month. That's getting close to what I think is a threshold level of 220 which is really important. Secondly, the unemployment reason, the unemployment rate is finally coming down for a good reason. People are getting jobs as opposed to people exiting the labor force. And finally and perhaps most importantly, long-term unemployment is coming down. So this is a big step in the right direction.
[Quest:] So pull these strands together for me. The U.S. is forecast to grow 2.2, whatever, 1.8 percent. So there's going to be growth in the U.S.; job numbers are coming jobs are being created. Jobless is coming down. The deficit is still somewhat of a problem. What is the difficulty now? Why should people be a dog in the manger about the U.S.?
[El-erian:] So there are a few things happening. The good news is that this economy continues to heal. So think of a patient that ended up in the ICU because of the financial crisis. Now they're out of the hospital and they can walk, and walk a little bit faster but they cannot run. And they need to run. Why can't they run? A couple of reasons. One is that the political system is creating headwinds. And secondly, the economy is still structurally impaired. So, yes, the economy is growing, but growing at about 2 percent. Now that's great relative to where you are, but that's not enough relative to what's the potential of the United States.
[Quest:] But what I think people need to understand tonight is whether this improvement is a false dawn. I mean, is this something, whether it's the sequester or the budget gridlock or the debt ceiling? Is there something that we are not seeing here that in six months to a year will prove this to have been Scotch Mist and disappear quite as quick?
[El-erian:] Yes, there's three major rifts. One is that the politicians create additional headwinds. And Congress has found a way year after year to do that. Two is that the central bank policies that are assisting this process prove to be detrimental. We're getting very close to the point where the benefits of this hyperexpansion gets offset by the cost and the risk. And then finally, the international environment. The U.S. could catch a cold from outside. So this is a tenuous process, but it's yet to gain strong traction. But it's in the right direction.
[Quest:] OK. Finally, the U.S. at these numbers is sailing more smoothly. But it to mix my metaphors it is at these numbers by no means an engine of growth for sclerotic Europe, which we're going to talk about in just a moment. Would you agree?
[El-erian:] I completely agree.
[Quest:] And there we'll leave it. Have a lovely weekend, Mohamed El-Erian, joining me from California. So that is the side that is the story as seen from the U.S. part of the Atlantic. As for this side of the Atlantic, in Europe, on the continent, it gets worse before it gets better. Simply put, that's the bleak outlook for the European economy. The European Commission has scaled down growth predictions, part of its regular review, the spring forecast came out today. Now growth will return on the back half of 2013. And even so, even with very small smidgens of growth, France, Spain and the Netherlands are all expected to miss their 3 percent targets. In the Eurozone, these are the headline numbers, GDP forecast cut to 0.4 percent, unemployment forecast to stabilizes at 12 percent. Next year economic activity growth of 1.2 percent. France is now forecast to enter recession this year, deficit bigger than was previously believed and it's likely to widen certainly France is asking for extra time to meet master criteria. As for Germany, only one of top five Eurozone economies to grow, miserable, 0.1 of 1 percentage point. But the country's said to be it's having a robust job market. So to the European markets, buoyed by jobs data, German stocks closed at an all-time high, the Xetra DAX gaining over 2 percent. They were listening to the for direction from the European Commission and, in that case, it was Olli Rehn.
[Olli Rehn, European Commission:] It is a sense that we do everything we can in order to combat youth unemployment and restore confidence and the recovery in our economy. This calls for both consistent consolidation of public finances and statutory reforms that will help to boost growth and competitiveness. It also calls, obviously, active labor market policy in order to fight youth unemployment.
[Quest:] Now, joining me now is Michael Burda. He is the economics professor at Humboldt University here in Berlin. Good to have you.
[Michael Burda, Professor Of Economics, Humboldt University:] [Inaudible].
[Quest:] Now Mohamed El-Erian was painting a very I mean, he wasn't, I wouldn't say, rosy picture of the U.S., but he did say, of course, that the right pieces of the jigsaw are in place. It's very different in Europe at the moment. When you see these spring forecasts, this is a cause for concern.
[Burda:] Absolutely. The growth situation in Southern Europe is pulling down the entire continent. Germany is doing OK, but as you said, it's not doing well enough. The job market in Germany is doing well and that's the stabilizing factor but to be honest with you, Germany needs a bit of a boost from within. So we're all hoping for a nice, big fat wage settlement in the coming months to boost German demand.
[Quest:] And yet if I look at the spring forecast, it talks about German growth coming from domestic demand. Now that implies that people around us are going to go out and start spending money and not save it as they have been.
[Burda:] That's right. [Inaudible] they need to have more money, so they're the government's either going to give them a pay increase or the firms are going to have to loosen up their tight pay policy or the unions are going to have to start getting active. I don't see that happening necessarily. But it's what Europe needs right now to rebalance between the North and the South.
[Quest:] Does Germany still have to be the along with maybe Finland and other Northern European countries, do they still have to be the main engines here? And have they got room? I mean, we know that Germany's, you know, the constant criticism is why don't they spend more?
[Burda:] Well, they've got a surplus right now, which is phenomenal. Today's markets has been better since
[Quest:] It's tight, tight, 5 percent.
[Burda:] That's right. It hasn't been better since the unification phase. So there's a lot of room there, but the Germans are concerned about the debt
[Quest:] What are they concerned about the debt for? What are they concerned about?
[Burda:] They're the last they're the last financiers of the whole of Europe. So if, you know, if Southern Europe doesn't follow their footsteps, they're going to they're going to set the wrong example. The worst fear would be for the rest of Southern Europe to just throw in the towel and run huge deficits, not try to cut back at all. I think it's a huge conflict of objectives.
[Quest:] And yet, seen from here in Berlin tonight, a glorious spring evening, but seen from Berlin, with Germany at an unemployment rate of 5 percent, 5.5 percent, and you compare it to Spain up in the high 20s percent and there's no meaningful reduction in unemployment this year or next.
[Burda:] Well, Richard, unemployment is a lagging indicator so
[Quest:] Everybody always tells me that. It's a lagging indicator until you get social unrest. And then suddenly it becomes the primary indicator.
[Burda:] That's exactly right. And that's why Germany won't have any social unrest for a while. But I think we need to worry about Southern Europe. The pressure on them to loosen up and also in France, where France needs to do the structural bitter pill right now. They're the ones that the Germans are worried about.
[Quest:] Really. And, OK. Now if France, when you say France is you're talking about structural change. But do you accept that there will have to be longer accommodations to hit Maastricht limits?
[Burda:] Of course.
[Quest:] Cutting three to four years down the road?
[Burda:] Yes, cutting spending, raising taxes now is poison for the economy. It's
[Quest:] Well, tell them over there.
[Burda:] If they'd listen to me, I'd tell them.
[Quest:] I mean, they're the people who have to listen to it.
[Burda:] That's right. No, they have other objectives, too. Remember, the Germans are the last
[Quest:] Ms. Merkel has an election to win.
[Burda:] That's also true.
[Quest:] I just and if the last polls [inaudible], she'll still win it, but there's a bit of a weakness there, isn't there?
[Burda:] Well, there's a little minor party that's coming. It's called the AVD AFD. And they're basically advocating bringing back the deutsche mark, which is a bad idea, I think, for most companies that export to the rest of Europe. So this if this gets a tailwind, this, big trouble in September.
[Quest:] Finally, pull the strands together in the same way that Mohamed did in the U.S. The U.S. is doing rather well.
[Burda:] Absolutely.
[Quest:] Asia's doing not too bad; China a bit of a slowdown. Europe goes where?
[Burda:] Well, Europe has the potential to stabilize. They've done they've got the financial markets on their side. I think bondholders are happy with what's happened in the South. But people who work are not so happy. And I think if the euro went down a notch, it would help exporters in this in this part of the world. It would help a lot overall.
[Quest:] Well, [inaudible] was meaningless this week, but nonetheless, we thank you for joining us in Berlin tonight. Now when we come back on QUEST MEANS BUSINESS, live from the German capital, as the number of victims in the Bangladesh factory collapse rise - it's more than 400-500 the E.U. responds with a threat. We have the commissioner after the break. Good evening.