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QUEST MEANS BUSINESS
France, Germany Take a Stand Against Short-Selling; Bernanke Optimistic on U.S. Economic Growth
Aired June 9, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, GUEST HOST, QUEST MEANS BUSINESS: A united front against speculators, France and Germany call for the EU to clamp down on short selling.
Berlin rejects General Motors' call for help. The automaker must raise its own funds.
And two days to kick off, how France's feel good (UNINTELLIGIBLE) boosted a nation's fortunes.
I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.
The leaders of Germany and France are uniting against speculators who they say are betting against Europe. Angela Merkel and Nicolas Sarkozy are pushing the idea of an EU wide ban on gambling in certain ways on government bonds. One of the practices they are targeting is known as naked short-selling. And Germany has already banned that.
Now, Mr. Sarkozy and Merkel have written to Jose Manuel Barroso, the president of the European Commission. They say they are worried are worried about severe turbulence and high market volatility. They want the commission to put stricter controls on how government bonds are traded; whether it is credit default swaps, which is a way of hedging against default, or short-selling of the bonds themselves.
Now, the commission says it will develop proposals on short-selling it said it welcomed the sense of urgency from Paris and Berlin, because it reinforces the drive for reform to come soon.
(BEGIN VIDEO CLIP)
PIA AHRENKILDE HANSEN, SPOKESWOMAN, EU COMMISSION: The president and Commissioner Bahnye (ph), have launched an appeal last week, at the press conference that member say it is urgently reached an agreement with the European parliament on our supervision package and on the hedge fund and private equity directive. And we welcome the French and German support for this.
(END VIDEO CLIP)
FOSTER: Well, the Merkel/Sarkozy letter is also an attempt to show common purpose. They had appeared divided over short-selling after Germany decided to go it alone with its ban. And it comes ahead of EU G20 summits, as well. The euro has been in a steep slide for more than six months now. Since late November it has lost a fifth of its value. It is no wonder Merkel and Sarkozy say what is at stake here is the financial stability of the European Union.
Well, the last six months have made a lot of politicians in Europe very nervous. This might give you an idea why. Here's the London FTSE 100; at its lowest point the FTSE tumbled below 5,000 points. It has picked up a lot of ground since then. But it is still 3 percent down on six months ago.
Now things have been just as volatile in Paris. The CAC 40 has shed 9 percent in the past six months and the DAX has actually gained ground during that time. As you can see, although it has been a turbulent time for traders, that's for sure.
Now earlier I spoke to Bob Parker, a senior advisor at Credit Suisse Asset Management. I asked him if he has any worries when he hears politicians talking about banking regulations.
Well, I think it worries the markets. And if you look at the performance of equity markets since the end of April, obviously equity markets have performed extremely badly. But there are a number of sub- themes and one of the sub-themes has actually been the underperformance of the banking sector, relative to the broad equity indices.
FOSTER: Because of the looming (ph) regulations?
PARKER: Well, yes, the month of June, basically, I think all the discussions on regulation will come to a head. You will have the financial regulatory bill probably passed in American, or being closed to passed. And then I think there will be also a raft of proposed regulatory issues at the European level.
FOSTER: Isn't this their worst nightmare, for the banking industry, though? To be tied down with red tape?
PARKER: Well, you use the word "red tape". I think one has to actually look at what the major themes are. The first theme is that regulators will demand that banks have better risk management systems. They will demand the banks have higher capital levels. They'll demand that their leverage ratios are either at their balance sheets, to their capital, is much lower. So banks are taking much less risk. And obviously there is going to be regulation also about instruments like derivatives, like structured products, and where the regulators want much more transparency. And a lot of this regulation, you use the word "red tape", but actually a lot of it is actually is very difficult to disagree with.
FOSTER: OK, and in terms of whether or not it will work. You look at these derivatives, which seem to be the main concern. And these were created by mathematicians and physicists. Why don't we just get a whole new set of products, a different way of making money, which will skirt around the regulations? That are built for derivatives?
PARKER: Well, I think what the regulators want is, I think two things. First of all, for any derivative, or a product which is similar to a derivative, is very transparent, and where investors lost significant amounts of money in 2007 through to 2009, is that they were buying or they were being sold derivatives, where the risks embedded in those derivatives were not transparent.
FOSTER: Because they had been sold and resold and resold and
PARKER: Well, partly that and also partly because they were complex. And you could argue the people who were creating them and the people who were buying them actually really didn't understand the risks embedded in them. What was the problem of these derivatives going wrong.
FOSTER: So, let's just keep on that point. How do you regulate against that?
PARKER: Well, a number of ways. The first way, and this I think is a basic tenant of the regulatory initiatives in Europe and the States. Is that derivative activity being moved to stock exchanges? So we go from over the counter trading to stock exchange trading. And that, I think, is very much a basic tenant of the regulatory initiatives. A sub-set of that is to insist that there are very clear risk disclosures so investors who buy these instruments, these assets, understand what is the risk of them going wrong? What's the risk of them blowing up? So, there is much more transparency in them.
FOSTER: OK, and finally, what is the risk of politicians tinkering with financial regulation in an attempt to get rid of the volatility and actually making the volatility worse, because they are getting it wrong?
PARKER: Well, I would actually argue the risk of making volatility worse is actually a very low risk. I think, however, there is a very significant risk because if you are saying to banks take less risk, increase your capital, reduce your balance sheets, then you reduce the ability of banks to lend. And lower bank lending therefore has a negative effect on the global economy. Now, I would argue that over the next six months you will probably see that macro economic effect really becoming very apparent in America and Europe.
FOSTER: Let's have a look at Wall Street then. Investors are extremely worried about how the European debt crisis will ultimately affect the U.S. economy. Today Fed Chairman Ben Bernanke, attempted to reassure lawmakers during an appearance on Capitol Hill. And Maggie Lake was watching things unfold from New York.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, Max, he didn't have a set of pom-poms, but he might as well have. Ben Bernanke certainly attempting that all this volatility and pessimism to be a reassuring voice today for investors. One of the questions that was asked, as you might have imagine, was about the situation in Europe. Whether it was going to spill over and drag the U.S. back down again.
Bernanke saying as long as the markets continue to be stable that the impact on the European situation was only going to be modest when it came to the U.S. economy, so investors and traders here also relieved to hear that. And you can see that reflected in the price action today.
But he was also talking about the overall economy. There has been so much chatter about a double dip recession and Ben Bernanke really sort of being very clear today, saying that this recovery, that we are-that's underway is on track. Have a listen.
(BEGIN VIDEO CLIP)
BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE BANK: It appears to us that the recovery has made an important transition from being supported primarily by inventory dynamics and by fiscal policy toward recovery led now more by private final demand, including consumers spending. That is encouraging in terms of sustainability. So our current most likely outlook is that the economy will continue to recover at a moderate pace.
(END VIDEO CLIP)
LAKE: Now, Max, I was kidding about the pom-poms. As you know, that is about as upbeat as a central banker is going to be. They are also extremely cautious. But he did go into a bit of detail and said in terms of a forecast for the U.S. economy he thinks it is going to be about 3.5 percent, in between 3 and 4 percent this year, that that growth is going to continue into next year.
He did warn, however, that that unemployment rate is going to be stubbornly high. The growth isn't enough to really yank that down, that continues to be a worry and he is also concerned that housing remains fragile. So, definitely some risks and challenges out there, but overall, a sort of reassuring Fed chairman and that really helped the sentiment here today.
FOSTER: Yes, and from his point of view, when he looks at these budget deficits and-with the awareness that they are so politically sensitive, how does he go into that whole subject, because he's got to be very careful about what he's saying, hasn't he?
LAKE: He does, because of course the Fed chairman does not want to get into the whole political debate. They try to keep themselves separate, really impartial, but he did warn about deficits, as every Fed chairman tends to do. Saying that large deficits are unsustainable and he said it again today. But he also sort of was a bit more specific in terms of saying, listen, look at what's happening in Europe. In fact, he said to avoid the disruptive shift in spending programs and tax policies and to retain the confidence of the public we should be planning now to deal with these problems. So Europe really being held up as a warning sign of what's to come here. And the Fed chairman driving that point home today, Max.
FOSTER: OK, Maggie, thank you so much. We'd better then just look at how Wall Street took this news. Let's have a look at the Big Board and see what the Dow is doing right now. How did they interpret effectively what Ben Bernanke was saying.
Well, it seems pretty positive. It is up two-thirds of 1 percent, 10,000 mark there. As you can see. Psychologically important they call it. U.S. stocks also getting a lift from a strong euro today, which is, of course, linked into all of this.
Now, the pressure mounts on BP, meanwhile, as the deadline looms. We'll show you why the company has a matter of days to produce a fresh blueprint for containing the oil.
FOSTER: BP has 72 hours to explain how it is going to clean up every drop of oil spilling from a broken well. The U.S. Coast Guard is ordering the oil giant to deliver a plan for the full uninterrupted recovery of the crude, even in the event of severe weather or technical problems. Ed Lavandera joins me now, live from New Orleans, our bureau there, with the very latest on this. Take us through this, then, Ed.
ED LAVANDERA, CNN INT'L. CORRESPONDENT: Well, it will be interesting to see the fall out from this letter that you are talking about, Max. Because there is a great deal of political pressure now being levied against the situation on all fronts, really, against the Obama administration here in the U.S., as well as BP. So you are really starting to feel that tension rise to the surface here in a very public kind of way, as we are now approaching two and half months of watching this-or more than-almost two months of watching this oil spill, here in the Gulf of Mexico.
So these are critical times and really it comes as the realization is setting in that any attempt to really capture a lot of this oil is going to be very difficult to see and that it will likely be August at the very earliest before we see this oil disaster killed off and really the earnestness of the clean up process to begin.
But recently, last night, we were able to see new released images. These are high definition images of that oil leak on the bottom of the Gulf of Mexico floor. This video only came to light after a couple of U.S. senators in Washington put a lot of pressure on BP to release these images. So, again, it goes back to this frustration that many people here have in the United States with BP and what many people say is a lack of transparency. BP continues to say that they are providing all of the information to the authorities here in the U.S. and helping everybody understand that, but again, another day when something like this trickles out at the pressure of senators, kind of reinforces that point that many people here are frustrated with BP and the way they continue to handle this crisis.
FOSTER: Which is sort of what the White House wants, isn't it? Because they are trying to deflect blame from themselves and being-being- using harsher and harsher language against BP and its chief exec, in that process.
LAVANDERA: Oh, right. You know, over the last few days we have really seen the war of words, the intensity of the words coming from the Obama administration, starting to escalate. But, you know, it is kind of interesting as you go along the Gulf Coast here, I think a lot of this is lost on the people who are so directly affected by this oil disaster, the fisherman, the people who work in the oil industry along the Gulf Coast, the people who own hotels in popular tourist destinations who are seeing their reservations and their summer tourism boom kind of disappearing before their eyes. All of that I think is lost entirely on them. They want this thing capped. They don't care about the talk at this point.
FOSTER: Ed in New Orleans, thank you very much indeed for that.
Well, as that deadline looms for BP Capitol Hill is awash in oil spill hearing. At this hour committees and subcommittees are asking questions as senators talk about a sweeping overhaul of U.S. corporate liability laws. President Obama will make a fourth visit to the Gulf Coast next week. Before he can inspect progress on containing the leak, the Oscar-winning actor and director Kevin Costner caused a stir. He told Congress he invested millions of dollars in a device that might have helped but got brushed off by those in the industry and in authority.
(BEGIN VIDEO CLIP)
KEVIN COSTNER, PARTNER, OCEAN THERAPY SOLUTIONS: My enthusiasm for what the machine could do was met with apathy, a refusal to move off the status quo. The list of government agencies, oil companies, and foreign companies we contacted, reads like a who's who of those who needed, those who should have been looking for it, and probably more to the point, those who should have been developing it themselves. I was told that it was too expensive, that there was no need. That the spills were becoming less frequent, at least the ones we could see.
Many times we offered to send our machines around the world to aid in the clean up where spills were happening. In 1997 we went so far as to donate our largest machine to Japan during a spill. While this move may not be viewed in the business community as a smart one, I hope it reads in the light of day as to the level of commitment my company had and the people working there had for this reoccurring problem. The same offer was repeated and refused many times on our own shores, an ugly catch 22, that you can read more about in my written testimony.
(END VIDEO CLIP)
FOSTER: Something you probably weren't expecting to see from this disaster. Well, for people on the Gulf Coast it must be hard to understand why any offer of help would be refused. Still, the mayor of New Orleans, Mitch Landrieu, says that after the horrors of the last decade his city, and the rest of Louisiana, know a thing or two about holding their nerve.
(BEGIN VIDEO CLIP)
MITCH LANDRIEU, MAYOR, NEW ORLEANS: That high resolution thing, I mean, that oil, no matter how much capture, where we focus on is how much continues to get into the water. That's what is threatening the livelihood of the people of Louisiana. You know, it is really simple, you have to cap the well, capture the oil and make sure that you clean the coast. Those are the three immediate missions that we have to get on right away. A high level of frustration down here, but you know people are resilient. We've seen this before. We know, you know, what kind of fight we are in and we are just going to stay at it until we get it right.
(END VIDEO CLIP)
FOSTER: Well, John Roberts is in New Orleans and he's been speaking with oil workers who fear the fall out from the spill could cost them their jobs.
JOHN ROBERTS, CNN INT'L. CORRESPONDENT (voice over): It is the heartbeat of the oil and gas industry in Louisiana. Port Fourchon, where thousands of workers service the big offshore rigs. More victims of the BP oil spill after President Obama declared a moratorium on deepwater drilling.
So we're going aboard the Harvey Provider, a 240-foot OSV, service in the deepwater of the Gulf of Mexico.
Shane Guidry is the CEO of Harvey Gulf Marine, Louisiana born and bred, he runs the company his grandfather, a one-time oyster man, started in the 1950s.
SHANE GUIDRY, CEO, HARVEY GULF MARINE: The fishing industry was killed by the oil and gas industry. Then the government shut down the oil and gas industry. It is just, when does it stop? What do we shut down next?
ROBERTS: Guidry will soon have a decision to make, keep his idle supply ships in port and potentially loose millions or send them overseas to other oil fields and hire local crews. Either way it could spell bad news for lifetime mariners like First Mate Tom Levins.
(On camera): Are you worried, Tom, about getting laid off?
TOM LEVINS, FIRST MATE, HARVY PROVIDER: Well, sure. Everybody is. You know? I mean you do something for 28 years, you put your life into it.
ROBERTS: It's tough when it all comes crashing down.
LEVINS: Sure it is, sure.
ROBERTS (voice over): And the ripple effects could spread far and deep. Well beyond the crews of these boats. Before the moratorium, Guidry was about to expand his fleet.
GUIDRY: We had three we were going to build in New Orleans, with Trinity. But as of yesterday those were completely canceled.
ROBERTS (on camera): Canceled?
GUIDRY: On hold indefinitely.
ROBERTS: And what was that contract worth to Trinity?
GUIDRY: $140 million.
ROBERTS: There are two themes here repeated so much, regardless who you talk to, that the people who work in oil and gas know somebody who in fishing or visa versa, or many times the same person has a foot in both worlds, doing one thing part of the year, the other, the other part of the year. The other thing you hear so much from so many people is that this is all they know how to do. So if you have fishing shut down, if you have oil and gas shut down for a period of time, the economic blow to this area is just going to be devastated.
JAYME SONGY, CAPTAIN, HARVEY PROVIDER: Look around and it looks real nice and neat.
ROBERTS (voice over): Captain Jayme Songy personifies the complex relationship between oil and environment on the Gulf Coast.
SONGY: My wife's entire family is commercial fishing. I'm the oil field side of the family.
ROBERTS: At the moment it is an uneasy marriage, but one for the sake for the local economy and livelihoods that Songy says needs to be worked out.
SONGY: We've been through problems before in South Louisiana. And we're going to pull through it. We're going to clean it up, fix what we've got to fix, and keep going. That's how we do it.
ROBERTS: As the crews of these boats await their fate, it's clear there is little love lost for BP. They too say the company needs to be held accountable for the accident and do whatever is necessary to put things right. The blow out, they believe, was human error, easily avoidable and something they say in true Louisiana fashion, you can protect against.
GUIDRY: I'll tell you how you protect against it. You get the guy that cause the human error, you get the guy who didn't follow procedure or policy, and you indict him for 11 murders for the 11 guys that died. Then the next guy is going to do his job right.
ROBERTS (On camera): According to the industry there are about 12,000 people who work on those supply ships, but overall, the size of the industry that supplies those rigs is much larger than that. According to officials as many as 100,000 people could have their jobs at risk if this moratorium goes on for a long time. John Roberts, CNN, New Orleans.
FOSTER: Now the World Bank likes the look of global growth, but it doesn't like what is happening to some developing countries. The bank's managing director joins us live in just a minute.
FOSTER: The World Bank says global growth is on the move. In fact, the bank says, it is accelerating faster this year than estimated. Not all good news, though. The group that pushes to end global poverty warns that some countries risk a double-dip recession. And the bank says developing nations are particularly vulnerable to seeing billions of dollars lost through corruption.
Ngozi Okonjo Iweala is the managing director of the World Bank. She joins us now, from Paris, where she has been talking about the need to shut down safe havens for stolen money.
Thank you so much for joining us. Just talk about this issue that you have been talking about today. You were talking about corruption, but not just in the developing world, also the developed world, right?
NGOZI OKONJO IWEALA, MANAGING DIRECTOR, WORLD BANK: Yes. We are seeing that we risk the globalization of corruption. It is not an issue solely for developing countries, but it is also there in the developed world. And as we go through this economic crisis, we heard that in Greece, for instance, this is part of the problem. You know, a systemic issue.
FOSTER: Yes, just explain what that means in practice, though. Money being stolen, how does it work?
IWEALA: Well, you know, corruption in general undermines the development, and hampers growth, and weakens institutions that deal with growth and development. But for developing countries it is devastating, particularly when the resources that should be going to finance education for children, put girls and boys in school, vaccines for children, it finds its way out of these countries as illicit flows into developed countries and other financial centers.
FOSTER: So you are warning, basically, corruption or the temptation towards corruption is going to increase because the world has got less money, we're going into a difficult period?
IWEALA: No, I-well, I'm saying that money matters. That as the world goes into a difficult period where, you know, developed countries are struggling with, you know, high fiscal deficits, they are trying to work on fiscal consolidation, money matters and it is time to look at flows that could help developing countries that are even more cash strapped to invest in basic services for their population, to invest in reducing poverty, to invest in improving the living standards of poor people.
FOSTER: But you are appealing to governments or organizations who are corrupt themselves in many cases. So, how does that work?
IWEALA: Well, you know, I mean-I wouldn't say that, you know, all governments are corrupt. You know, I'm just saying corruption is a global problem and one that both private sector, governments and civil society, ordinary citizens have to deal with. And we are just saying that it needs a partnership to make-stop corruption from being a globalized phenomenon. When money leaves developing countries illicitly and finds its way in the banking sector, financial centers, abroad, in developed countries, it takes a partnership to have those countries return this money to where it belongs.
And there is a United Nations convention against corruption, which provides the framework for this to be-to happen in a much faster way than we see it happening now.
FOSTER: OK, I just want to talk about the other rather stark warning, and a separate report that you published today, which is the many countries could risk a double dip recession. We keep hearing this, but why are you warning of that? How realistic is that?
IWEALA: Well, you know, we see the world economy recovering with the developing countries growing at about 6 percent, according to our forecast. Almost three times the growth forecast for developed countries. So much of the world growth is coming from developing countries, but in Europe, as you know, there are problems.
So far, you know, contagion-there is no contagion that has been contained, but if this continues, you know, and we keep seeing a rise in sovereign debt we could be in a situation where interest rates are high, you know, capital is unaffordable for many countries, especially the developing countries, and this could lead to issues of another recession. We hope this will not happen. We hope the recovery will continue. We think governments are taking responsible measures. The group of finance ministers of the G20 just met. And they discussed how to balance fiscal consolidation with the resumption of growth.
FOSTER: OK, Ngozi Okonjo Iweala, thank you very much for joining us. We have to leave it there, because we are about to loose that signal.
But in news, Germany is telling General Motors it must go it alone, turning down the company's request for financial support. We'll be talking about what the decision could mean for GM employees in Europe, and the company as a whole, in just a moment.
FOSTER: Welcome back.
I'm Max Foster in London.
More QUEST MEANS BUSINESS in just a moment.
But first, let's check the main news headlines.
A hard won victory for opponents of Iran's controversial nuclear program. The U.N. Security Council voted 12-2 to impose new sanctions against Iran. Lebanon abstained, with Brazil and Turkey, who figured in the recent uranium swap deal with Iran, voting against the measure.
US President Barack Obama said the new sanctions send an unmistakable message to Iran. The vote came as he met with Palestinian leader Mahmoud Abbas at the White House. The two also discussed the recent Israeli aid on the Gaza aid flotilla, which left 11 people dead. President Obama said that U.S. will send $400 million in aid to Gaza and work with Israel to loosen the embargo.
Three journalists covering the World Cup in South Africa have been robbed while sleeping in their hotel beds. One of the victims, a Portuguese photographer, woke up late Tuesday to find armed men in his room, but was warned to be quiet. The thieves stole passports, money, cameras and computers.
Germany says it won't provide the loan guarantees General Motors asked for help to reorganize the business. The auto giant have asked for the government to underwrite more than a billion dollars worth of borrowings. But future plans must now be open to question after the sport failed to materialize.
Diana Magnay now -- now joins me from Berlin with the details on this one.
Was this a shock to GM?
Did they thought -- think this was a done deal?
DIANA MAGNAY, CNN CORRESPONDENT: G.M. was certainly hoping that they would get funds from the German government in the form of these loan guarantees, Max. They have from England and from -- from the U.K. and from Spain. And they're in discussions with Poland and Austria. But it was really Germany who they were hoping they would get the bulk of the money from, in terms of loan guarantees for their restructuring plan.
And what the economy minister today said, Rainer Bruederle, was that G.M. was really in a position now financially where it should be able to pay for its daughter operation here. Over in Europe, it's now back in the black after its near bankruptcy 12 months ago. And it's really the time for G.M. to show responsibility over in the U.S. rather than ask the German government to come up with the funds.
This is what he said.
(BEGIN VIDEO CLIP)
RAINER BRUEDERLE, GENTLEMAN ECONOMY MINISTER (through translator): After our immense economic stimulus package, from which Opal, incidentally, profited twice, once from the car scrapping bonus and then also from the bridge financing, now the pendulum needs to swing back in the direction of the free market. We have to revert to the fundamentals of market economics. Competition and the market must again play their parts. State guarantees must be reduced.
(END VIDEO CLIP)
MAGNAY: If you think about it, Max, the German government is having to fork out money right, left and center in the form of loan guarantees, some of it to prevent the euro from going into crisis, to bolster Eurozone economies. So at this point, Opal and the fate of Opal have fallen a long way down its list of priorities -- Max.
FOSTER: You know, and you talk about the fate of Opal, we got any sense of what that will be from GM?
MAGNAY: Well, G.M. said in a teleconference after that announcement that they were very disappointed, that they didn't understand the German government's reasoning. But they did say there was going to be no change to their restructuring plan across Europe. And we know that that involves the loss of some 8,000 jobs. There are four plants here in Germany where Opal has plants. There are 25,000 workers in Germany and some of them were demonstrating in Frankfurt on Monday. And they certainly feel that their jobs are on the line and that the German government has not stepped in to help them.
But one thing that is happening tomorrow, the German chancellor is going to be meeting with the prime ministers of four of the states where those plants are located. And she may talk to them and ask them to provide funds themselves. And that is what G.M. Europe is hoping, that these states will provide some of the funding. But obviously nowhere near as much as the German government could have provided had it been prepared to - - Max.
FOSTER: OK, Diana.
Thank you very much, indeed for joining us from Berlin with that one.
Now, they invest billions in the state of the art facilities, but what else do the World Cup hosts have to show for all that spending?
We'll look at the World Cup fortunes of France, where the 1998 tournament left them with a trophy and much more besides.
FOSTER: Now, all this week on QUEST MEANS BUSINESS, we're taking a look at countries that have hosted the World Cup to see what kind of economic impact it had.
On Tuesday, we heard how the U.S. broke new ground, staging the World Cup in 1994.
In 1998, though, France was the host nation for the second time.
And as Jim Bittermann reports, the benefits to that country, apart from winning the competition, were harder to pin down.
JIM BITTERMANN, CNN CORRESPONDENT (voice-over): It was one of those days when everyone remembers where they were -- for a million French, that would have been the Champs d'Elysees, joyfully, wildly blocking the world champions of football, as the team bus tried to make its way along Paris' most famous avenue.
There's no underestimating the pride and self-confidence that comes from hosting a global event like the World Cup, especially if you also happen to have a team that comes in first.
But was there any tangible impact?
That's more difficult to define than who won and who lost. For one thing, predictions of large economic benefits estimated before the 1998 tournament to run to a billion and a half dollars, did not materialize. To be sure, the matches brought tens of thousands of fans to France, but they were not filling luxury hotels or eating three star meals. And the threat of crowds frightened away other tourists who might have.
On balance, economists think the effect was more indirect.
ALEXANDER LAW, CHIEF ECONOMIST, XERFI: What the World Cup did was increase maybe consumer confidence. It gave that sort of wave of euphoria, which led to strong consumer spending. But it was not the main factor behind the recovery in the French economy.
BITTERMANN: Still, there were specific benefits, the biggest, most lasting of which is the 80,000 seat stadium built in a northern suburb of Paris. To this day, it's an important venue for national events, even if it's not always used much for team sports and even if there's a feeling that France missed the opportunity to improve stadium facilities in other cities.
But France did profit in more abstract ways. With language lessons and smile classes, the World Cup offered a chance for the country to improve the way it welcomes tourists to improve its image.
PASCAL BONIFACE, INTERNATIONAL ANALYST, IRIS: It's important to host even if you don't triumph during the competition because you are different in terms of the world and you -- you could show to the world that your country is working well.
BITTERMANN: For some, though, the biggest impact of World Cup 1998 was not outside France, but inside. Sports sociologist Patrick Mignon believes that although the culturally diverse 1998 team did not heal divisions in French society, as some had hoped, it did raise the importance of sport in the minds of the French and their leaders.
PATRICK MIGNON, SPORTS SOCIOLOGIST: The World Cup gave a more and stronger political interest in -- in sports. It seems that governments know things that have to be closer to sports.
BITTERMANN: And so, while the 1998 tournament did not leave the legacy many people imagined, the matches did have lasting and sometimes unexpected consequences.
(on camera): Twelve years after their World Cup, the French this time around will just be watching from upon giant screens as the championship is played out in South Africa. But if there's one bit of advice the former hosts here would have for the present hosts there, it might be this, that high expectations are not always the ones which are realized.
Jim Bittermann, CNN, Paris.
(END VIDEO TAPE)
FOSTER: I remember it very clearly.
Guillermo Arduino has the weather.
You are primed for the matches?
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes, I am.
FOSTER: Yes, indeed. I am.
ARDUINO: But I'm going to tell you something. He said high expectations. I'm going to add brings about high frustration. So we have to have middle expectations.
And when it comes to...
FOSTER: Very wise.
ARDUINO: Yes, yes, yes, yes, yes. When it comes to the weather, the same thing. So let me tell you what's going on. Britain -- well, I think that the Midlands and Wales are going to see most of the rain. It's already nice if you are watching from England. It's much better in the north right now, in Scotland. But come Saturday, I think it's going to be a nice weekend, Max.
So, you know, we're going to have to deal and put up with these storms that come and go. But Saturday and Sunday are going to be much better. When you compare that with what's going on in France, Germany and in Spain, you're in good shape, because we have a lot of storms here, especially stormy in the area of Nances (ph), Strasbourg, Sanviersiere (ph), Dijon, Besanson (ph).
And then, as we move into Germany, watch out there, because we have some alerts posted in that region. But compared to what was going on here in these areas, where we got 200, 300 percent of the rain and the result is here on the left side of the screen over here, it is good that now the weather is cooperating in this part, because we have the jet stream here controlling the situation for the east.
At the same time, as I always say, this is like a highway for storms, right?
So despite the fact that we have a very intense low here forming the Bay of Biscay, along this jet stream, we are going to see storms and thunder, especially in Portengarten (ph), in Wittenberg (ph), Berlin, Leipzig, Erfurt (ph) and Dresden.
All the -- these sections of -- where it's going to be extremely hot. And the rest of the country is going to see thunderstorms. So these areas here to the east of the jet are going to be extremely hot. And then those areas with thunder.
Elsewhere, it's going to be OK. No rain for the north into Norway, though. No rain, fortunately, for Poland. You see, we are concerned there, because the rivers are extremely high.
Again, a little bit of a summery we can expect. So the central (INAUDIBLE) is what's going on there in France, in Switzerland, in Germany and parts of the Czech Republic, too.
You see how the low here continues to spin within two days. So these areas, and especially Westca (ph) in Spain over here is going to see intense rains.
Elsewhere, things are going to be fine. Summery to the west, bad to the east, OK, though, the floods loom there -- OK, back to Max.
FOSTER: Guillermo, thank you very much for that.
ARDUINO: Thank you.
FOSTER: And that is QUEST MEANS BUSINESS.
I'm Max Foster in London.
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